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Telangana TSBIE TS Inter 2nd Year Economics Study Material 2nd Lesson Demography and Human Resource Development Textbook Questions and Answers.

TS Inter 2nd Year Economics Study Material 2nd Lesson Demography and Human Resource Development

Essay Questions

Question 1.
Explain the theory of demographic transition.
Answer:
Theory of Demographic Transition :
The theory of demographic transition was propunded by W.S. Thomson and F.W Notestein. They explain the theory in three stages. This theory explains the effects of changes in birth rate and death rate on the growth rate of population.

According to the ‘theory of demographic transition’, every country passes through three stages in which birth and death rates are typically associated with economic development. First Stage: Jn the first stage, the country is backward and both birth and death rates are high. High birth rate is matched by ap equally high death rate, and thus, the population remains more or less stable. Death rate are high in the first stage of agrarian economy on account of poor dites, primitive sanitation, absence of effective medicl aid, low level of standard of living, poor housing conditions, absence of opportunities for education and unscientific and irrational outlook.

Birth rates are also high in this stage due to lack of education, superstitions, social beliefs and customs about the size of family and early manages. In this stage, the actual growth rate of population (birth rate – death rate) is not high, because, high birth rate is balanced by high death rate. This stage prevailed in India before 1921.

Second stage :
This stage is characterised by rapid growth of population due to substantial reduction in the mortality rate and no corresponding decline in the birth rate. With the beginning of the process of development, the living standards improve, the education expands, medical and health facilities increase and the state makes special efforts to check the contagious diseases. Rise in income levels enable the people to improve diet. All these factors bring down the death rate.

But due to agrarian society with no mass education, attitude of the people towards the size of family does not change radically. So, the birth rate remains high. Thus, high birth rate and rapidly falling death rate contribute to high growth rate of population. In this stage, population increases at an alarming rate and economists call it as population explosion. India and faced this situation during the period 1951 – 1991.

Third stage :
Economic development rapidly changes the character of the economy from an agrarian to Industrialized one. Industrialisatioln compels people to change their attitudes towards the size of family and they recognise the merits of samll family. Education helps the people in right way of thinking. For working women, upbringing of children is not an easy task. People want to maintain reasonable standard of living. All these reinforce people’s desire to have smaller families. So, birtha rate declines significantly. The characteristics of the third stage ae low birth rate, low death rate, small family and low growth rate of population.

In the above figure the time for different staages is taken on the horizontal axis and annual birth and death rates per 1,000 population on the vertical axis. In the first stage, 0 to T, birth and death rates are high and growth rate of population is very much low. But, in the second stage, T to Tj, though the death rate is falling, birth rate is remaining high and this leads to higher growth rate of population and its result is population explosion. However, in the third stage, after Tp both birth and death rates are falling and again growth rate of population will be low and population increases at a slow pace.

Question 2.
Examine the trends of population growth in India. ,
Answer:
India possesses 2.4% of the total land area of the world, and with its population of 1.3 billions in 2017 it has a share of 17.6% in the world population. India is the second largest country in terms of population size after China. India accounts for only 7.3% of world GDP in 2017. These facts indicate that the pressure of population on the land in India is very high.

According to 1901 Census, India’s population was 236 million and according to 2011 Census, the popoulation was 1210 million and it was 1.3 billions in 2017. In a period of 116 years, the population of the country has increased by 1064 million.and growth trends of India’s populatin during 1891 – 2011.

a) During the first phase of 30 years (1891 to 1921), India’s population grew from 236 million in 1891 to 251 mollion in 1921 i.e., just by 15 million. The compound annual growth rate was 0.19% per annum for the period. Birth and death rates were more or less equal during this period.

b) During the second phase from 1921 to 1951, India’s population grew from 251 million in 1921 to 361 million in 1951 i.e., by 110 million. The compound annual growth rate of population was 1.22% which was considered as moderate. The main reason for this was a decline in death rate from 49 per thousand population to 27 per thousand population and a very small decrease in birth rate from 49 per thousand population to 27 per thousand population and a very small decrease in birth rate from 49 per thousand population to 40 per thousand population. India had entered into the second phase of demographic transition during this period with a steady but low growth rate of population. The year 1921 is regarded as great dividing year of population because of decrease in population and a turning point for the increase in the growth rate of population.

c) During the third phase from 1951 to 1981, the population of India grew from 361 million in 1951 to 683 million in 1981. There was a record growth of population by 322 million in this.30 years. The compound annual growth rate of 2.14% is nearly double the growth rate of the previous phase. Due to the planning, many measures of death control were undertaken. This resulted in a further and sharp decline of death rate to a level of 15, but the birth rate fell very slowly from 40 to 37 during this period. So, there was a population explosion during this pahse.

d) During 1981 to 2011, India’s total populatio increaed from 683 million to 1210 million indicating an increase of 77% during the 30 year period. The annual average rate of growth of population during this period was 1.84%.

1. Birth Death and Infant Mortality Rates :
The growth of populatin was .checked by the high birth and high death rates in India before 1921. Birth rate during 1901-1921 fluctuated vetween 46 and 49 per thousand papulation and the death rate between 44 and 49. So, the growth of population was little or negligible. After 1921, a clear fall in death rate is noticeable. Death rate which was at 48.6 per thousand in 1911- 20 came down to 7.1 per thousand in 2010-11.

But, the birth rate showed a slight decline initially and due to family planning drive birth rate also declined to 21.8 per thosand in 2010 – 11. There is a steady fall in the infant mortality. In the second decade of the 20th century, infant mortality rate was 218 per 1,000 live births and it is 47 per 1,000 live births in 2010. Over the years, maternal mortality has also declined. Itwas 210 per 1 lakh live births in 2007 – 2009.

2. The sex Ratio :
The sex ratio is defined as the number of females per 1.000 males. The sex ratio declined from 972 in 1901 to 946 in 1951 and to 927 in 1991. It is a disturbing feature. Subsequently there is a marginal improvement in the sex ratio. It is increased to 933 in 2001 and to 940 in 2011. Kerala alone shows a higher proportion of females of 1,084 per 1,000 males in 2011. In Punjab and Haryana, females account for 893,and 877 per 1,000 males in 2011 respectively which are at the bottom. Poverty, higher female infant mortality rates, high mortality rates among women in reproductive ages and sociological factors including a bias against female births are responsible for declining sex ratio.

3. Age Composition :
The study of age composition is useful in determining the proportion of labour force in the total population. The working age of the population is considered as 15 – 60 years, the proportion of child population in the 0 – 14 years age group is 35.6% in 2001 and this is lower than the earlier figures. The working age pertains to 15 – J60 yearws is called as productive age group. Both the child population and old population are dependent of the productive age group.

Both the child population and old population are dependent on the productive age group for their maintenance and sustenance, there is a decline in the dependency load of the population and increase in the share of the productive age group. Demographic dividend is likely to manifest in the gradual increase in the working age group of 15 – 60 years. A recent report from the UN population Fund estimages that India’s working age population will reach 65% by 2030. India will also enjoy the longest demographic dividend compared to any other country till 2055.

Question 3.
What are the causes for rapid growth of population in India?
Answer:
In India, the population has increased rapidly due to a steady decline in the death rate while birth rate remained high and this led to population explosion. Examination of causes for decline in the death rate and high birth rate is necessary.

Causes of Population Explosion :
Mainly there are three causes for a rapid growth of populatioon of a country: i) a high birth rate, ii) a relatively lower death rate and iii) immigraion. Immigration does not have much impact on India’s population growth.

I. Causes of Decline in the Death Rate :
1. Elimination of Famines :
Recurrence of famines in India under the British rule was a major cause of high mortality rate. Since independence, the situation has considerably improved as the famines have not occured on a large scale and the problems due to droughts have been met.

2. Control of Epidemics :
Cholera, small pox and malaria were the major causes of epidemics before independence. Now, small pox is eradicated completely and cholera and malaria are very much under control. There has been some decline in the incidence of tuberculosis, but, still it is a major killer in India.

3. Other Factors :
Factors such as supply of drinking water, sanitation and hygiene, spread of education, expanded medical facilities, immunisation, poverty eradication programs and improvement in living standards will reduce mortality rate.

II. Causes of High Birth Rate :
The birth rate is high in India. Except in the states of Kerala, Tamil Nadu and Goa, birth rate has not declined significantly in India due to a number of economic and social factors.

A. Economic Factors : Three economic factors namely :
1. Predominance of Agriculture :
In agrarian societies, children have never been considered as an economic burden. The peaks of productive activity in agriculture require more labour. Hence, in a predominantly agricultural economy of India, bigger families exist.

2. Urbanisation :
Due to staggering industrialisation, the process of urbanisation is slow in India and it failed to generate social forces which reduce, the birth rate.

3. Poverty :
Poverty in under developed countries results in high fertility. At a lower income level of the family, the benefits of having an additional child to the family generally exceed the cost of his upbringing. The poor have no other economic asset than their own labour. Hence, they assume that mote the number of earners in the family, the moe family earnings. The lower survival rate also reinforces the preference for children. Thus, poverty is a major factor which works against the acceptability of family planning programme by the poorer sections.

B. Social Factors :
Universality of marriage, lower age at the time of marriage, religious and social superstitions, joint family system, lack of education and a very limited use of contraceptives are some of the social factors which limit the decline in fertility.

1. Universality of Marriage :
Marriage is both a religious and a social necessity. With the spread of education, attitude of people towards marriage will change and some may decide not to marry. But, in a slow moving society where education is also not spreading fast, the above situation can not be expected.

2. Lower Age at the Time of Marriage :
The relatively lower age at the time of marriage is responsible for high fertility. Mean age at marriage for females is 18.3 years and for males 22.6 years in 2001 in India. Due to this, fertility is bound to remain high.

3. Religious and Social Supersititions :
Due to religious and social superstitions, many people prefer to have children irrespective of their economic position. Children are regarded as God given and preordained.

4. Joint Family System :
The joint family system induces young couples to have children, though they are unable to support them. Because, their economic burden is borne by the earning members. However, the process of disintegration of joint family system has not only started, and it reached to its peak level.

5. Lack of Education :
According to 2011 Census, 74% of the population is literate in India. The percentage of literacy among women is much lower i.e., 65.5% as compared to 82.1% among men. Education alone can change the attitude of the people towards family, marriage and birth of a child. Illiterate people cannot be exposed to rational ideas. There is an inverse relationship between education and fertility.

6. Use of Contraceptives :
Though the government is carrying the idea of family planning and contraceptives are made available, the response is not encouraging from certain sections due to lack of education and religious dogmas. With the expansion of education, people will certainly develop a preference for a smaller family.

Question 4.
What are the measures required to control population explosion?
Answer:
Remedies for population Explosion :
Three fold measures are required to deal with the population explosion. These are as followed. .
I. Economic Measures
1. Expansion of the Industrial Sector :
Industrial workers are aware of the difficulties in getting employment and are interested in restricting the size of their family. They realise that in order to raise their standard of living they must restrict the size of their family. Hence, rapid industrialization is required.

2. Creation of Employment :
Urbanisation and industrialisation are mutually interdependent. We have to create more job opportunities in cities and villages and this may be a powerful check on the growth of population. The housing problem and the cost of upbringing of children in urban areas usually prohibit people from having big families.

3. Equitable Distribution of Income and Removal of Poverty :
Once the poor people start getting basic amenities of life, they have no economic compulsion to have more children and their attitude towards the size of family will undergo a change. For this, equitale distribution of income and right to work with living wage are necessary.

II. Social Measures :
Population explosion is not only an economic problem but also a social problem. Many causes of population explosion are deep rooted in the social life. Social evils must be curtailed to bring down the birth rate.

1. Education :
Most educated people delay their marriage and prefer samll family. Education, by making a frontal attack on orthodoxy and superstitions, induces people to practise family planning. When boys and girls go to schools and colleges, marriages will be delayed and this reduces the reproductive span of women. The link between female literacy and fertility is clear. But the 2011 Census has shown that the female literacy rate is 65.5% as against the male leteracy rate of 82.1%.

2. Status of Women :
The position of women is inferior to that of men both socially and economically. That is why, educatilon is less among women and hence, they are quite indifferent to family planning. People will not shed wrong notions such as preference for male child, unless the status of women improves. In a backward society, women have no choice regarding her children.

3. Age of Marriage :
Fertility depends on the age of women at marriage. In India, average age at marriage is low. Under the Child Marriage Restraint Act, 1903, the minimum age of marriage was 18 years for men and 15 years for women. In 1978, this act was amended to raise the minimum age to 21 years for men and 18 years for women. But, an effecive implementation of legal enactments is impossible due to fears in rural areas about the safety of unmarried girls, illiteracy, lack of knowledge about laws and inadequate registration system.

III. Family Planning Programme
Importance of the family planning programme as a device to control population explosion is now universally recognised. Widespread use of contraceptives has contributed most to China’s success. About 85% of married women of child-bearing age use contraceptives in China a against 41% in India. The following aspects have to be discussed in this respect.

1. Public Information Programme :
For raising the level of consciousness, couples in the reproductive age are to be informed about the usefulness of family planning. The government is using all media to publicise the importance of family planning. Once they catch the idea of family planning, they themselves starty practising it.

2. Incentives and Disincentives :
The government has introduced different schemes in which incentives are given to those who accept family planning. Cash prizes have given some inducement to the people to go for sterilisation. In India family planning is voluntary. During the emergency, some excesses were committed and forcible sterilisations were done. In fact, atleast for some time, compulsory family planning is required.

3. Family Planning Centres :
Establishment of family planning centres is an integral part of family planning programme. These centers provide various clinical facilities needed for family planning. Contraceptive distribution centres are also playing very important role.

4. Research :
Research in the field of demography, communication action, reproductive biology and fertility control must be given priority. The government of India has realised this to obtain maximum results.

Question 5.
Describe the occupational distribution of populatin in India.
Answer:
Occupational and Sectoral Distribution of Population in India:
The occupational structure of a country refers to the distribution of its population according to different occupations. Occupations are divided into three types :
i) Agriculture, animal husbandry, forestry, fishery, etc. are collectively known as primary activities. They are primary as their products are essential for human existence and these are carried on with the help of nature,
ii) Manufacturing industries, both small and large scale,- are known as secondary activities,
iii) Transport, communications, banking and finance services are tertiary activities and these help the primary and secondary activities.

Economic Development and Occupational Distribution :
Transfer of population from agriculture to industry and eventually to services is considered as an index of economic development. Colin Clark argues that “a high average level of real income per head is always associated with a high proportion of the working population engaged in tertiary industries, low real income per head is always associated with a low proportion of the working population engaged in tertiary production and a high percentage in primary production”. According to Hans Singer, economic development will be achieved by transforming a 85% agricultural dependent country in to just 15% agriculturally dependent country.

Occupational Distribution of Working Population in India :
Over the period 1951 to 2010, agriculture remained the main occupation of the people, Over the period 1951 to 1971, the percentage of labour force engaged in primary sector remained unchanged at around 72%. There is a major change in the period 1991 – 2010 with the percentaghe of labour force in the primary sector falling to 51% in 2010 from 67% in 1991.

After independence, the process of industrialisation was accelerated and the absolute number of persons getting employment in the secondary sector substantially increased. Since the population growth is rapid, and the rate of industrial growth fell short of expectations, transfer of labour force from primary sector to secondary sector and to services sector did not take place. In 2010. 22% of the working population is employed in the secondary as against 11% in 1951. During the period 1991 – 2010 the proportion of labour force in the secondary sector increased significantly from 13% to 22%.

The proportion of workers employed in the tertiary sector increased over the 60 years from 1951 to 2010.27% of the working population is employed in teh tertiary sector aas against 17% im 1951.

It is clear that over the first four decades of planning (1951 – 1991), the occupational structure of Indiain population almost remained unchanged. Only in the later two decades (1991 – 2010) some important changes are visible. In India, due to rapid growth of population, traditional agriculture with low labour productivity and slow pace of industrialisation, occupational structure has not undergone significant changes.

Question 6.
Explain the new population policy, 2000.
Answer:
National Population Policy, 2000 :
The National Population Policy, 2000 outlined immediate medium and along term objectives. The immediate objective is to meet needs of contraception health infrastructure, health personnel and to provide integraged services for basic reproductive and child health care. The medium term objective is to reduce the total fertility rates to the replacement level by 2010. The long term objectives is to stabilise the population by 2046. A.D.

1. Reduction of infant mortality rate below 30 per 1,000 liver births.
2. Reduction of maternal mortality rate below 100 per 1,00,000 live births.
3. Universal immunisation.
4. Achieve 80% deliveries in regular dispensaries, hospitals and medical institutions with trained staff.
5. Access to information, contgain AIDS, prevention and control of communicable diseases.
6. Incentive to adopt two child small family norm.
7. Facilities for safe abortions to be increased.
8. Strict enforcement of Child Marriage Restraint Act and! Pre – Natal Diagnostic Tech-niques Act.
9. Raising the age of marriage of girls not earlier than 18, and preferably raising it to 20 years (or) more.
10. A special regard for women who marry after 21 and opt for a terminal method of contraception after the 3 second child.
11. Health insurance cover for those below the poverty line who undergo sterilization after having t®w children.
12. Achieve universal access to inforamtion, counselling and services for fertility regularisation and contraception.
13. Bring about convergence in implementation of relat3d social sector programmes to make family welfare a people centred programme.

The National Commission on population has been set up to review the implementation of the National Population Policy from time – to – time. State level commission on population also have been setup with the objective of ensuring the implementation of national population policy.

Question 7.
Examine the role of education in eonomic development.
Answer:
Role of Education in Economic Development: Education and skill training are important for human resource development.

1) Education and economic development :
Investment in education promotes economic development. According to Todaro and Smith, education helps to increase knowledge and skill and so that more productive labour force can be created. Employment and income earning opportunities will increase due to education. Educated leaders can be created. Education provides skill and encourages modern attitudes.

2) Reduction of income inequalities :
Universal education will improve the human ca-pabilities of the people and helps them in increasing their earnings.

3) Rural development :
Education provides knowledge to the rural people and they can overcome ingnorance and superstitions. If the farmers are educated they will adopt new agricultural techniques. Education provides skill to the people to set up cottage industries and this reduces disguised enemployment.

4) Family planning :
Education enlightens people of the need to improve their standards of living and so to restrict the size of their families. Education serves as the best method of family planning in the long run aned it is also proved. If more women are educated and seek employment, fertility ratges will decline as upbringing to children becomes difficult for women employees.

5) On – the Job Training :
Many firms provide on-the-job training to their workers, because improvement in human capital increases the roductivity of physical capital. On – the – job training increases the skill and efficiency of workers and so increases in productivity and production.

Spill over income gains to the present and future generation, the meeting of skilled man-power requirements, research in science, promotion of responsible behivious, political stability, transmission of cultural heritage etc., are also possible in the society due to increased education.

If people don’t get suitable education, they not only forego much mofe at present but also in the future.

Question 8.
Describe the health policies and programmes adopted in India.
Answer:
Health Policies in India :
On the basis of recommendations by the Health Survey and Development Committee (More Committee, 1946) and the Health Survey and Planning Committee (Mudaliar Committee, 1961), the government of India prepared ing the health standard.

Objectives of this programme :

1. Provision for the control of epidemics
2. Providing health services; and
3. Training of employees in the health department and the development of primary health centres in rural sector.

During the 9^th and 10^th Five yedr plans, efforts were intensified to improve the health status of population by optimising coverage and quality of care. Eleventh Five year plan proposed a comprehensive approach that covers individual health care, public health, sanitation, clean drinking water, access to food and knowledge of hygienes and feeding practices. The plan set the following targets to be achieved by the end of plan period (2011 -12).

1. Reducing maternal mortality rate to 100 per 1 lakh live births.
2. Reducing infant mortality rate to 28 per 1,000 live births.
3. Reducing total fertility rate to 2.1.
4. Providing clean drinking water to all by 2009.
5. Reducing malnutrition among children of age group of 0 – 3 years by 50 percent.
6. Reducing anemia among women and girls by 50%.
7. Raising sex ratio for age group of 0 – 6 years to 935 per 1,000 by 201 -12 and 950 by 2016-17.

In India, life expectancy at birth was 41.2 years for the dedcade 1951-61 and improved to 68.5 years as per census 2011. Infant mortality rate is 47 per 1,000 live births in 2010 as against 146 per 1,000 in 1951. During 2001 – 03 maternal mortality rate was 301 per 1 lakh live births and it was reduced to 200 by 2010. Improving birth attendance and midwifery facilities at a rapid rate are required to reduce maternal mortality rate in India. Total fertility rate (total number of live births by a woman during her entire reproductive period) in the early 1950s was 6.0 and it has come down to 2.4 in 2011.

Health Programmes in India :
The 11^th Five year plan aimed for inclusive growth by introducing National Rural Health Mission and National Urban Health Mission.

i) National Rural Health Mission (NR HM) :
This intends to increase access and utilizztion of quality health by strengthening healht infrastructure. It was planned to have (i) 5 lakh Accredited Social Health Activists (ASHAs) by 2008, (ii) All sub – centres functional with 2 Auxiliary Nurse Midwives (ANMs) by 2010. (iii) All Primary Health Centres (PHCs) to be provided 3 staff nurses for 24 hours on all days by 2010. (iv) 6,500 Community Health Centres to be establisghed, strengthened with 7 specialists and 9 staff nurses by 20121 (v) 1,800 Taluka Hospitals and 600 District Hospitals to be strengthened by 2012. (vi) Mobile Medical Units for each district by 2009.

ii) Janani Suraksha Yojana (JSY) :
This scheme has the dual objectives of reducing maternal and infant mortality by promoting institutional deliveries. It is 100% centrally sponsored, and integrates cash assistance with medical care. A gradual approach of increasing istitutional capacity and encouraging institutional deliveries will ensure success of the scheme. Under NRHM, out of 184.25 lakh institutional deliveries in the country (as on 1st April, 2007), JSY beneficiaries Were 28.74 lakhs.

iii) National Urban Health Mission (NUHM) :
This programme covers all cities with a population of 1 lakh and above.

In relation to health, the 2018-19 Union Budget announced a flagship National Health Protection Scheme to cover over 10 crore poor and vulnerable families, approximately 50 crore beneficiaries, providing coverae upto Rs. 5 lakh per family per year for secondary and tertiary care hospitalization. This will be the World’s largest government funded health care programme. The revised estimate for the National Health Insurance Programme Rashtriya Swasthya Bima Yojna (RSBY) for Financial year 2018 -19 was Rs. 2,700 crore, and the allocation in the Union Budget for Financial year 2019 – 20 is Rs. 6,556 crore.

iv) Clean Drinking Water and Sanitation :
Unsafe drinking water increases the risk of diseases and malnutrition and water – borne diseases which effect health adversely. That is why, clean drinking water is a vital necessity. Lack of sanitation is directly responsible for several water borhne diseases.

According to World Development Indicators (2008), access to improved water source was available to 86% of the population in 2004. According to World Bank, 33% of the population in India had access to improved sanitation facilities in 2004.

A big initiative of the NDA government has been the Swachh Bharat Mission (SBM) launched on October 2, 2014 with the goal of making India Open Defecation Free (ODF) by October 2019. The main aim of SBM has been the construction of toilets. Official statistics by the Ministry of Drinking Water and Sanitation claim that as of January 2019, 92.2 million toilets had been built since the inception of SBM, leading to a 98 percent rural sanitation coverage with 604 districts and 5,52,000 villages declared ODF.

Question 9.
What are the different indices to measure human development? Explain them.
Answer:
The United Nations Development Programme (UNDP) introdeuced the HDI in its first Human Development Report, 1990, under the guidance of Mahbub – UI – Haq, an economist from Pakistan.

UNDP Human Development Report, 1997 descruves human development as “the process of widening people’s choices and the level of well – being they achieve. Regardless of the level of development, the three essential choices are to lead a long and healthy life, to acquire knowledge and to have access to the resources needed for a decent standard of living.

According to Mahbub – U1 – Haq, “the difference between the economic growth and the human development schools is that the first exclusively focuses on the expansion of only one choice income – while the second embraces the enlargement of all human choicex – whether economic, social, cultural of political”.

HDI measures the average achievement in three basic dimensions of human development and these are : (i) a long and healthy life as measured by life expectancy at birth, (ii) knowledge as measured by the adult literacy rate and the gross enrolment ratio and (iii) a decent standard of living as measured by GDP per capita (PPP US$).

Before calculating HDI, an index for each of the three dimensions is creatd. For this, maximum and minimum values are chosen for each indicator as given below.

Performance in each dimension is expressed as a value between 0 and 1 by applying the formula given below :

The HDI is calculated as a simple average of the dimension indices.

According to HDR 2011, countries are grouped under four categories :
(1) countries in the HDI range 0.8 and above are in the very high human development group, (2) countries in HDI range 0.7 to 0.8 are in the high human development group, (3) countries in the HDI range 0. 5 to 0.7 are in the range of medium human development group, and (4) countries in the HDI range less than 0.5 are in the low human development group.

India which was ranked at the 134^th position in HDI in 1975 had improved its rank to 128 in 2005, but in 2011 its position slipped again to 134^th rank. Norway ranked first and Australia ranked second in 2011.

India was at 135^th position in HDI out of 187 countries in 2013. As per annual HDI – 2019. report, India ranked at the 129^th position in 2018 out of 189 countries.

Human Development Report, 1995 introduced two global gender indices. These are : (1) Gender related Development Index (GDI) and (2) Gender Empowerment Measure (GEM).

The GDI attempted to capture achievements through the same set of basic capabilities as included in the HDI – life expectancy, educational attainment and income. HDI will be adjusted for gender inequality.

The Gender Empowerment Measure (GEM) indicates whether women are able to participate actively in economic and political life. It focuses on political participation (women’s share in parliament seats), economic participation (share in higher level and professional positions) and power over economic resources (income gaps).

2) Human Poverty Index (HPI) :
Human Development Report, 1997 introduced the concept of Human Poverty Index. This index concentrates on deprivation in three essential elements of human life already reflected in HDI – longevity, knowledge and a decent living standard. HDR, 2009 used the following variables for calculating HPI : (i) percentage of people expected to die before age of 40 years, (ii) percentage of adult illiterates, (iii) percentage of people with access to health services and to safe drinking water and (iv) percentage of malnourished children under five years.

3) Gross National Happiness Index :
Countries like Bhutan are measuring their development with gross national happiness index. There is a need to bring a change in the existing method of measuring the development.

Gross National Happiness has been devised by Bhutan as an alternative indicator for GDP to measure progress or development. The term Gross National Happiness (GNH) was coined by the Fourth king of Bhuta, Jigme Singye Wangchuck in the 1970’s, The concept implies that sustainable development should take a hollistic approach towards notions of progress and give equal importance to non – economic aspects of wellbeing. The GNH index is constructed based upon a multidimensional methodology known as the Alkire – Foster method.

The concept of GNH is explained by four pillars :
good governance, sustainable socio-economic development, cultural preservation and environmental conservation. These four pillars are further classified into nine domains : Psychological wellbeing, health, educatin, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards. All domains are weighted equally.

Question 10.
Explain the views of Amartya Sen on Human Development.
Answer:
Views of Amartya Sen on Human Development :
Amartya Sen is the first Indian who won the Nobel Prize of Economics. Amartya Sen’s book “Development as Freedom” was published in 1999. He argues that the development is the process of expanding human freedoms that people enjoy.

Sen says that freedom is both the primary end and the principal mean of development. For this, he gives two reasons :
(i) the only acceptable evaluation of human progress is enhancement of freedom and (2) the achievement of development is dependent on the free agency of people. Growth of GNP or of Individual incomes can be very important as means to expanding the freedom enjouyed by the people, Freedom depends on other determinants also, such as social and economic arrangements (facilities for education and health care) and political and civil ritghts (the liberty to participate in public discussion and scrutiny). Industrialization or technololgical progress or social modernization can substantially contribute to expanding human freedom, but freedom depends or other influences also.

Freedom creates growth. Freedom is a principal determinant of individual initiative and social effectiveness. It enhances the ability of individuals to help themselves. Raising human capability improves the choices, well – being and freedom of people and also their role in influencing social change and economic production, /economic security derives from freedom. The institutional arrangements are also influenced by the freedoms, though the liberty to participate in social choice and in the making of public decisions.

He mentions five freedoms :
political freedom, economic facilities, social opportunities, transparency guarantees and protective security. Political freedoms (free speech and elections) help to promote economic security. Political freedom and civil rights have to be achieved as a direct good in their own right, but not thorugh the achieving GDP growth. Economic facilities (opportunities for participation in trade and production) will help to generate personal abundance and public resources for social facilities. Social opportunities (education and health) facilitate economic participation. Freedom of different kinds can strengthen one another.

Sen advocates government measures to support these freedoms by providing public education, health care, social safety nets, good macro economic policies, productivity and environment protection.

Development requires the removal of sources of unfreedoms : poverty, tyranny, poor eco-nomic opportunities, soeial deprivation, neglect of public facilities and repression by States.

According to Sen, the basic concern of human development is our capability to lead the kind of lives we have reason to value rather than the usual emphasis on increasing GDP per capita incomes.

Short Answer Questions

Question 1.
Explain the trends of Birth and death rates in India.
Answer:
The growth of population was checked by the high birth and high death rates in India before 1921. Birth rate during 1901 – 1921 fluctuated between 46 and 49 per thousand and the death rate between 44 and 49. So, ;the growth of population was little or negligible. After 1921. a clear fall ini death rae is noticeable. Death rate which was at 48.6 per thousand in 1911 – 20 came down to 7.2 per thousand in 2010 -11. But, the birth rate showed a slight decline initially and due to family planning drive birth rae also declined to 22.1 per thousand in 2010 = 11.

For the last sixty years, there is a steady fall in the infant mortality. In the second decade of the 20^th century, infant mortality rate was 218 per 1,000 live births and it is 47 per 1,000 live births in 2010, Over the years, maternal mortality has also declined. It is 210 per 1 lakh births in 2007 – 2009.

Thus, the high growth rate of population can be explained in terms of high birth rate but a relatively fast declining death rate. Kerala, Tamil Nadu, Andhra Pradesh, West Bengal, Karnataka, Maharashtra and Punjab have achieved a birth rate below 20 per 1,000. These state are in the 3^rd staghe of demographic transition. But, Haryana and Gujarat which occupied a high place in India in terms of per capita income far behind in reduction of birth rate. Uttar Pradesh, Rajasthan, Bihar and Madhya Pracjesh have a very high birht rate in the range of 25 – 31 per thousand.

These states are in the 2nd stage of demographic transition. It is not easy to bring down the birth rate, when the socio-economic conditions favour a larger family. Still, family planning has not become a way of life for many people. People’s attitudes towards marriage, family, family planning must change to achieve a substantial decline in the birth rate.

Question 2.
Explain the sex ratio in India.
Answer:
The sex ratio is defined as the number of females per 1,000 maks. Explains the sex ratio in IUndia. The sex ratio declined from 972 in 1901. to 946 in 1951 and to 927 in 1991, It is a disturbing featue. Subsequently there is a marginal improvement in the sex ratio. It is increased to 933 in 2001 and to 940 in 2011. Kerala alone shows a higher proportion of females of 1,084 per 1,000 males in 2011. in Punjab and Haryana, females account for 893 and 877 per 1,000 males in 2011 respectively which are at the bottom. Poverty, highte female infant mortality rates, hnigh mortality rates among women in reproductive ages and sociological factors are responsible for declining sex ratio.

Question 3.
Describe the family planning programme in India.
Answer:
Family Planning Programme

Importance of the family planning programme as a device to control population explosion is now universally recognised. Widespread use of contraceptives has contributed most to China’s success. About 85% of married women of child-bearing age use contraceptives in China a against 41% in India. The following aspects have to be discussed in this respect.

1. Public Information Programme :
For raising the level of consciousness, couples in the reproductive age are to be informed about the usefulness of family planning. The government is using all media to publicise the importance of family planning. Once they catch the idea of family planning, they themselves starty practising it.

2. Incentives and Disincentives :
The government has introduced different schemes in which incentives are given to those who accept family planning. Cash prizes have given some inducement to the people to go for sterilisation. In India family planning is voluntary. During the emergency, some excesses were committed and forcible sterilisations were done. In fact, atleast for some time, compulsory family planning is required.

3. Family Planning Centres :
Establishment of family planning centres is an integral part of family planning programme. These centers provide various clinical facilities needed for family planning. Contraceptive distribution centres are also playing very important role.

4. Research :
Research in the field of demography, communication action, reproductive biology and fertility control must be given priority. The government of India has realised this to obtain maximum results.

Question 4.
What is the relation between economic development and occupational distribution .
Answer:
Transfer of population from agriculture to industry and eventually to services is considered as an index of economic development. Colin Clark argues that “a high average level of real income per head is always associated with a high proportion of the working population engaged in tertiary industries, low real income per head is always associated with a low proportion of the working population engaged tertiary production and a high percentage in primary production”.

A.G.B. Fisher also said the same :
‘We may say that in every progressive economy there has been a steady shift of employment and investment from the essential primary activities to secondary activities of all kinds and to a still geater extent into tertiary production”. Simon Kuznets also observed the sae and says that when the development of a country takes place, the percentage of population engaged in primary sector shifts to industry and later to service sector. According to Hans Singer, economic development will be achieved by transforming a 85% agricultural dependent country in to just 15% agriculturally dependent country.

Occupational Distribution of Working Population in India :
Data provided in reveals that, over the period 1951 to 2010. agriculture remained the main occupation of the people. Over the period 1951 to 1971, the percentage of labour force engaged in primary sector remained unchanged at around 72%. There is a major change in the period 1991 – 2010 with the percentaghe of labour force in the primary sector falling to 51% in 2010 from 67% in 1991.

Question 5.
Explain the concept of Human resource development and its importance.
Answer:
Theodore W. Schutlz has argued that investment in education enhances human capital formation. It production is carried out without it and only with the help of unskilled and unedu- • cated labour, the production will fall catastrophically from its existing level.

Any activity which augments man’s productive capacity contributes to the human resource develoopment. Schultz listed the following five such activities :

1. Health facilities and services, all expenditures which affect the life expectancy, strength and stamina, and the vigour and vitality of the people;
2. On-job training including old style apprenticeships organised by firms;
3. Formaly organised education at the elementary, secondary and higher levels;
4. Study programmes for adults which are not organised by firms including extension programmes notably in agriculture; and
5. Migration of individuals and families to adjust to changing job opportunities.

Amartya Sen also emphasizes the importance to be given to human resource development, where in he utilises entitlement and capability approach. Entitlements of individuals, especially women, can increase through education as it is considered as an asset and capability refers to one’s own wellbeings as healthy people can contribute a lot for the development of an economy. Here also health care systems where women’s health should be properly taken care, as they usually suffer from certain disabilities from childhood due to lack of proper nutrition and more usually suffer from certain disabilities from chilhood due to lack of proper nutrition and more attention should be bestowed on improving their capabilities for their active work participation.

Importance of Human Resource Development :
Education is moe important as it contributes most to the development of human resources.

Human resources development plays an important role in economic development. Effective use of physical capital itself is dependent upon human resources. Technical, professional and administrative people are required to make effective use of material resources. That is why, more investment in human resources is required, Countries are not developed due to underdevelopment of human resources. The general masses in these countries are either illiterate or with very low level of education, many are unskilled and untrained, and their general health is very poor. The development of human resources and the process of economic development both proceed together and reinforce one another.

Question 6.
Explain the National Health Policy, 2017.
Answer:
The National Health Policy, 2017 envisages providing larger package of assured compre-hensive primary health care through the health and wellness centres. The policy aims to attain the highest possible level of health and well – being for all through a preventive and promotive health care and universal access to quality health services without anyone having to face financial hardship, This would be achieved through increasing acess, improving quality and lowering the cost of health care delivery.

The highlights of the policy are (i) assurance based approach, (ii) micronutrient deficiency, (iii) Make-in-India initiative, and (iv) application of digital health. One of the mandates of the NHP, 2017 is the use of information technology towards health, care.

Key Targets of the National Health Policy, 2017, are as follows :

1. Increase health expenditure of government from the existing 1.15 per cent to 2.5 per cent of the GDP by 2025.
2. Increase life expectancy at birth from 67.5 years to 70 years by 2025.
3. Reduction of total fertility rate (TFR) to 2.1 national and sub – national level by 2025.
4. Reduce infant mortality rate (IMR) to 28 by 2019. In 2016 the IMR was 34 per 1000 live births.
5. To redice the prevalence of blindness to 0.25% 1000 by 2025 and disease burden by one third from current levels.
6. Incease utilization of public health facilities by 50% from current levels by 2025.
7. More than 90% of the newborn are fully immunized by one year of age by 2025.
8. Ensure skilled attendance at birth above 90% by 2025.
9. Relative reduction in prevalence of current tobacco use by 15% 2020 and 30% by 2025.
10. Access to safe water and sanitation to all by 2020 (Swachh Bharat Mission).
11. Increase the share of stat on health to more than 80% of their budget by 2020.

Question 7.
Explain the method to construct Human Development Index.
Answer:
UNDP Human Development Report, 1997 describes human development as “the process of widening people’s choices and the leel of well-being they achieve. Regardless of the level of development, the three essential choices are to lead a long and healthy life, to acquire knowledge and to have access to the resources needed for a decent standard of living. Ohter choices highly valued by many people, range from political, economic and social freedom to opportunities for being creativbe and productive and enjoying self respect and guaranteed human rights”.

According to Mahbub-UI-Haw, “the difference between the economic growth and the human development schools is that the first exclusively focuses on the expansion of only one choice income – while the second embraces the enlargement of all human choices – whether economic, social, cultural of political”.

Construction of Human Development Indes (HDI) :
HDI measures the average achievement in three basic dimensions of human development and these are : (i) a long and healthy life as measured by life expectyancy at birth, (ii) knowledge as measured by the adult literacy rate and the gross enrolment ratio and (iii) a decent standard of living as measured by GDP per capita (PPP US$).

Before calculating HDI, an index for each of the three dimensions is created. For this, maximum and minimum values are chosen for each indicator as given below :

Performance in each dimension is expressed as a value between 0 and 1 by applying the formula given below :

The HDI is calculated as a simple average of the dimension indices.

According to HDR 2011, countries are grouped under four categories :
(1) countries in the HDI range 0.8 and above are in the very high human development group, (2) countries in HDI range 0.7 to 0.8 are in the high human development group, (3) countries in the HDI range 0.5 to 0.7 are in the range of medium human development group, and (4) countries in the HDI range less than 0.5 are in the low human development group.

India which was ranked at the 134^th position in HDI in 1975 had improved its rank to 128 in 2005, but in 2011 its position slipped again to 134^th rank. Norway ranked first and Australia ranked second in 2011.

India was at 135^th position in HDI out of 187 countries in 2013. As per annual HDI – 2019. report, India ranked at the 129^th position in 2018 out of 189 countries.

Question 8.
What do you mean by Gender Related Development Index (GRDI) and Human Poverty Index (HPI)?
Answer:
Gender Related Indices : Human Development Report, 1995 introduced two global gender indices. These are : (l) Gender related Development Index (GDI) and (2) Gender Empowerment Measure (GEM).

The GDI attempted to capture achievements throught the same set of basic capabilities as included in the HDI – life expectancy, educational attainment and income. HDI will be adjusted for gender inequality. The greater the gender inequality in basic human development, the lower GDI compared to HDI. The greater the difference between HDI and GDI, the more is the inequality. Near gender equality exists in Norway, Canada, United States, United Kingdom, Japan, Sri Lanka, China and Indonesia and gender inequality exists i Saudi Arabia, Pakistan, Iran, India and Nigeria. There is a greaer awareness in the world about gender inequality and efforts are being made to reduce gender inequality. Women movements are promoting and working for gender equality.

The Gender Empowerment Measure (GEM) indicates whether women are able to participate actively in economic and political life. It focuses on political participation (women’s share in parliament seats), economic participation (share in higher level and professional opositions) and power over economic resources (income gaps).

Human Poverty Index (HPI) :
Human Development Report, 1997 introduced the concept of Human Poverty Index. This index concentrates on deprivation in three essential elements of human life already reflected in HDI – longevity, knowledge and a decent living standard. HDR, 2009 used the following variables for calculating HPI : (i) percentage of people expected to die before age of 40 years, (ii) percentage of adult illiterates, (iii) percentage of people with access to health services and to safe drinking water and (iv) percentage of malnourished children under five years. Human Poverty Index for developingh countries reveals the existence of high value of HPI in Niger, Bangladesh, Pakistan and India.

Question 9.
Explain the concept of gross national happiness Index.
Answer:
Gross National Happiness Index : Countries like Bhutan are measuring their development with gross national happiness index. There is a need to bring a change in the existing method of measuring the development.

Gross National Happiness has been devised by Bhutan as an alternative indicatror for GDP to measure progress or development. The term Gross National Happiness (GNH) was coined by the Fourth king of Bhutan, Jighme Singye Wangchuck in the 1970’s. The concept implies that sustainable development should take a holistic approach towards notions of progress and give equal importance to non – economic aspects of wellbeing. The GNH index is constructed based upon a multidimensional methodology known as the Alkire – Foster method.

The concept of GNH is explained by four pillars :
Good governance, sustainable socio – economic development, cultural preservation and enviromental conservation. These four pillars are further classified into nine domains : Psychological wellbeing, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards. All domains are weithted equally. The domains represent 33 indicators (variables) of Wellbeing. The weights of the various variables in a domain are unequal. In general, subjective indicartors have been given lower weights than objective indi-cators.

In happiness, averages do not count and that is why, within each indicastor, a ‘sufficiency target’ is set. A person is considered ‘happy’ under this indicator when the ‘sufficiency’ level is achieved. Based on answers for the 33 indicators, judgement is given how a person is happy in the following way.
Sufficiency in 77% – 100% of the indicators : deeply happy.
Sufficiency in 66% – 76% of the indicators : extensively happy.
Sufficiency in 50% – 65% of the indicators : narrowly happy.
Sufficiency in 0% – 49% of the indicators : unhappy or not – yet – happy.

Very Short Answer Questions

Question 1.
Birth rate.
Answer:
It is the Ratio of number of births per 1,000 population in a year. Birth rate during 1901 – 1921 fluctuated between 46 to 49 per 1,000 population. Birth rate declined to 21.8 per 1,000 in the year 2010 – 11.

Question 2.
Death rate.
Answer:
It is the Ratio of deaths per 1,000 population in a year. The death rate during 1901 -1921 fluctuated between 44 and 49 per 1,000 population. It was 48.6 per 1,000 population in 1911 – 20. It was reduced to 7.1 per 1,000 in 2010 – 11.

Question 3.
Infant mortality rate.
Answer:
It is the ratio of number of deaths per 1,000 bom children in a year. In the second decade of the 20^th century, this rate was 218 per 1,000 live birth and it is 47 per 1,000 live births in 2010.

Question 4.
Maternal Mortality Rate.
Answer:
‘It is the ratio of numer of delivery deaths for, lakh women in a year, over the years maternal mortality rate has also declined. It was 210 per 1 lakh live births in 2007 – 09.

Question 5.
Sex ratio.
Answer:
It is the number of females per 1,000 males. This ratio was declined from 972 in 1901 to 946 in 1951 and 927 in 1991. It is increaed to 933 in 2001 and 940 in 201. Poverty, higher female infant mortality rates, high mortality rates among Women in reproductive ages are responsible for declining sex ratio.

Question 6.
Population explosion.
Answer:
Population increases faster than food supply and this imbalance leads to over population and this is called “population explosion”.

In the second stage’ of the theory of demographic transition, due to substantial reduction in the mortality rate and no corresponding decline in the birth rate, rapid growth of population exists. In this stage population increases at an alarming rae and economists called it “population explosion”. India had faced this problem during the period 1951 – 1991.

Question 7.
Contraceptives.
Answer:
Contraceptives are one of the family planning method to control population. The family planning centres provide contraceptive distribution centres.

Question 8.
Literacy rate.
Answer:
The reading and writing skills of a person is known as literacy. The literacy rate Can be studied with the help of following formula.

The literacy rate is improved form 18 percent in 1951 to 74 percent in 2011. similarly male leteracy improved from 27 percent to 82 percent and female literacy from a percent to 66 percent in the same period.

Question 9.
National Rural Health Mission.
Answer:
This scheme was introducedd during 11th plan. It intends to increases access and utilisation of quality health by stregthening health infrastructure. It was planned to have accredited social Health activistis (ASHA’s) by 2008. All sub centres functional with 2 auxilliary nurse midwines (ANMs) by 2010. mobile medical unit for each district by 2009.

Question 10.
Janani Suraksha Yojana.
Answer:
Janani Suraksha Yojana :
This programme was started in the year 2005. This scheme is meant for promoting health and nutrition to women and child. It has 2 objectives.

1. Reducing Infant Mortality Rate
2. Reducing Maternal Mortality Rate.

It is a gradual approach of increasing istitutional capacity encouraging institutional deliveries will ensure success of the scheme.

Question 11.
National Urban Health Mission.
Answer:
It is intended to meet health needs of uraban poor, particularly the slum dwellers and other marginalized dwellers who may be in slums or citites. This programme covers all cities with a population of 1 lakh and above.

Question 12.
Gender empowerment measure.
Answer:
This focuses on women’s participation in economc and political life and their power over econonmic resources. This concept also indicates whatever the women’s share in parliament seats, share in higher level and professional positions, and income gaps.

Question 13.
HumcCn poverty Index (HPl)
Answer:
The concept was introduced by the human development report 1997. This index concentrates on deprivation in three essential elements of human life already reflected in HDI that is longivity, knowledge, and a decent living standard. HDR 2009, used the following variables for calculating HPI, percentage of people expected to die before age of 40 years, percentage of adult illeterates, percentage of people with access to health services and to safe drinking water.

Telangana TSBIE TS Inter 2nd Year Economics Study Material 1st Lesson Economic Growth and Economic Development Textbook Questions and Answers.

TS Inter 2nd Year Economics Study Material 1st Lesson Economic Growth and Economic Development

Essay Questions

Question 1.
Explain the concepts of economic growth and economic development. What are their differences?
Answer:
In common parlance the two terms – economic growth and economic development connote the same meaning and there appears to be no difference between them. Generally, economic growth refers to the problems of developed countries and economic development to those of under developed countries. But some economists have drawn a line of demarcation between economic growth and economic development.

Economic growth :
According to C.R Kindleberger, “Economic growth means more out-put, while economic development implies both more output and changes in the technical and institutional arrangement by which it is produced and distributed”. The word growth is primanly of quantitative significance, while the word development is of both quantitative and qualitative significance.

Economic Development :
‘Economic development’ is a wider concept than the concept of ‘economic growth’. Development includes not only economic growth but also certain other positive changes in other spheres of life. In fact, it includes development in all spheres. Economic development is closely associated with the concept of economic growth. It implies progressive changes in the socioeconomic structure of a country, where a sustained rise in livihg standards as well as an equitable growth to be achieved.

Economic growth is a necessary but not sufficient condition of economic development. Economic development is a normative concept. The definition of economic development given by Michael R Todaro is an increase in living standards, improvement in self-esteem needs and freedom from oppression as well as a greater choice.

According to United Nations Expert Committee, “Development concerns with not only man’s material needs but also the improvement of the social conditions of his life. Development is, therefore not only economic growth, but also growth plus change – social, cultural, institutional and economic.

According to Michael P. Todaro “Development must be conceived as a multidimensional process involving major changes in social structures, popular attitudes and national institutions as well as the acceleration of economic growth, the reduction of inequality and the eradication of poverty”. John Friedmann defines development as “an innovative process leading to the structural transformation of social system”.

Question 2.
Explain the objectives of economic development.
Answer:
The major objectives of economic development countries like India can be mentioned as here under :

1. High Rate of Growth :
All the developing economies including countries such as China and India are striving hard to achieve high rates of economic growth. For instance all the Indian Five Year plans have given primary importance to higher growth of real national income. During the first three decades of planning, the rate of economic growth was not so encouraging in our economy. Till 1980, the average annual growth arate of Gross Domestic Product was 3.75 per cent jagainst the average annual growth rate of pooplation at 2.5 percent. Hence the per capita income grew only around 1 per cent. But from the 6th plan onwards, there has been considerable change in the Indian economy.

In the Sixth, Seventh and Eighth plans the growth ratge was 5.4 per cent, 5.8 per cent and 6.8 per cent respectively. The Ninth Plan, started in 1997 targeted a growth rate of 7 per cent per annum and realized only 5.35 per cent average GDP growth. In the later years, the economy achieved even a high rate of growth of 9 per cent. Though this is considered to be a relatively high rate of growth, China achieved even 10 per cent rate of economic growth in first decade of 21st century. For the Twelfth plan (2012-17) target Us 7.9 per cent average growth. From 2014-15 to 2018-19, GDP has grown at 7.5 per cent.

2. Economic Self-Reliance:
Self reliance means to stand on one’s own. legs. In the Indian economic context, it implies that dependence on foreign aid should be as minimum as possible. At the beginning of planning, we had to import food grains from USA to meet our domestic demand. Similarly, for accelerating the process of industrialization we had to import capital goods in the form of heavy machinery and technical know – how. For improving infrastructural facilities like roads, railways, power, the country had to depend on foreign aid to raise the rate of investment.

As excessive dependence on foreign sector may lead to economic colonialism and in this regard the planners rightly mentioned the objective of self – reliance from the Third Plan onwards. In the Fourth Plan much emphasis was given to self-reliance, particularly in the production of food grains. In the Fifth Plan, our objective was to earn sufficient foreign ex-change through export promotion and import substitution. India has made remarkable progress in achieving self-reliance. In later years, most of the developing economies such as China, Brazil, South Africa, South Korea, Vietnam and some of the other African, Asian and Latin American countries are aiming to achieve self-reliance.

3. Social Justice :
Social justice means equitable distribution of the wealth and income of the country among different sections of the society. In India, we find that a large number of people are poor, while a few lead a luxurious life. Therefore, another objective of development is to ensure economic and social justice and to take care of the poor and weaker sections of the society. The five year plans in India have highlighted four aspects of social justice. They are :

i) Adherence to democratic principles in the political structure of the country.
ii) Establishment of social and economic equity and removal of regional disparities;
iii) Putting an end to the process of centralization of economic power and simultaneously attaining decentralization of power; and
iv) Efforts to raise the conditions of backward and depressejd classes.

4. Modernization :
Modernization aims at improving the standard of living of thepeople by adopting a better scientific technique of production, by replacing the traditional backward methods and by bringing changes in the rural structure and institutions. These changes aim at increasing the share of industrial output in the national income, upgrading the quality of products and diversifying the Indian industries. Further, it also includes expansion of banking and non-banking financial institutions to agriculture and industry. It envisages modernization of agriculture including implementation of land reforms. Currently modernization is taking place due to phenomenal growth of information technology sector. Land reforms either of radical nature or modest nature have been implemented in most of the developing countries, especially in countries like China, Vietnam and India.

5. Economic Stability :
Economic stability is ensured wh£n a non-inflationary full employment growth occurs in a country. After the Second Plan, the price level started increasing in India for a long period of time. Therefore, the planners have tried to stabilize the economy by properly controlling the rising trend of the price level. The progress in this direction has been satisfactory. Broad objective of economic development has been a non-inflationary self- reliant growth with social justice.

6. Sustainable Development :
The Brundtland Report defined sustainable development as “meeting the needs of the present generation without compromising the needs of future generations”. Sustainable development means that development should ‘keep going’.

Sustainable development aims at accelerating economic development in order to conserve and enhance the stock of environmental, human and physical capital without making future generations worse off. The damaging effects of economic development on environmental degradation can be reduced by a judicious choice of economic and environmental policies and environmental investments. Choice between policies and investments should aim at harmonising economic development with sustainable development.

7. Inclusive Growth :
The inclusive growth as a strategy of economic development received attention owing to a rising concern that the benefits of economic growth have not been equitably shared. The inclusive growth stresses the inclusiveness of the hitherto excluded population in the growth process, which is expected to bring in several other benefits as well to the economy. The concept of inclusion should be seen as a process of including the excluded marginalized sections of the population whose share in the total income remained relatively at a low level, for instance bottom 20% of the population getting a share of 2 to 3% of the national income. Hence, by adopting inclusive growth strategy, if the bottom 20% share can increase to 5-10% at least, then it can be termed as inclusive growth.

Question 3.
Explain the Indicators of economic development.
Answer:
The Economic Development Indecators are ae follows .

1. Real National Income :
One of the methods to measure economic development is in terms of an increase in the economy’s real national income over a long period of time. Higher real national income is the index of higher level of economic development and vice-versa. The division of global economy into developed and developing countries is based on the real national income. This is not a satisfactory indicator due to the following reasons : (a) The price changes have to be ruled out while calculating real national income.

But variations in prices are inevitable. A short period rise in national income does not constitute economic developnjent. (b) It fails to take into consideration changes in the growth of population. If a rise in real national income is accompanied by a faster growth in population, there will be no economic development but retardation, (c) It does not reveal the social costs to society, (d) It explains nothing about the distribution of income in the economy, (e) There are certain conceptual difficulties in the measurement of GNP.

2. GNP Per Capita :
Some economists have taken per capita real income as an economic development indicator on the basis of the increase in per capita real income of the economy over a long period. The increase in per capita real income of any’country shows an increase in economic growth rate of the country rather than economic development. Economic development includes changes in many spheres besides a rise in per capita real income. This indicator emphasizes that for economic development, the rate of increase in real per capita income should be higher than the growth rate of population.

3. Welfare :
Other indicator of economic development is econqmic welfare. Economic development is regarded as a process whereby there is an increase in the consumption of goods and services of individuals. According to Okun and Richardson, economic development is “a sustained, secular improvement in material well-being, which we may consider to be reflected in an increasing flow of goods and services”.

4. Social Indicators or Basic Needs :
Certain economists have tried to measure economic development in terms of social indicators. Social indicators are referred to as the basic needs for development. Basic needs focus on alleviation of poverty by providing basic human needs to the poor. The direct provision of basic needs such as health, education, food, water, sanitation and housing affects poverty in a shorter period and with fewer monetary resources than GNP/GNP per capita strategy. Basic needs lead to a higher level of productivity and income through human development in the form of educated and healthy people.

Norman L.Hicks and Paul P.Streeten consider six social indicators for basic needs.

5. Physical Quality of Life Index (PQLI) :
It was invented by M.D. Morris in 1979. He constructed a composite Physical Quality of Life Index relating to 23 countries for a comparative study. This is a non-income indicator of economic development because this uses physical quality of life as ah indicator. This method of measuring economic development is based on the following three things. They are: (i) life expectancy, (ii) infant mortality rate, and (iii) basic literacy. This index mesures performance in meeting the most basic needs of people. This index represents basic needs such as health, education, drinking water, nutrition and sanitation.

6. Human Development Index (HDI) :
Mahbub-Ul-Haq developed the Human Devel-opment Index and UNDP incorporated it in its first Human Development Report in 1990. Since then, the UNDP is presenting the measurement of human development in its annual report.

Human Development Index (HDI) is a modem indicator of economic development. It is a statistical tool used to measure a country’s overall achievement in its social and economic dimensions. The following indicators are required to construct HDI:

1. Life expectancy at birth.
2. Education – adult literacy, combined gross enrolment ratio.
3. Real GDP per capita based on purchasing power parity in terms of dollar.

For the construction of HDI, an index is created for each of these indicators with fixed minimum and maximum values for each of these indicators as shown below :

• Life expectancy at birth, 25 years and 85 years.
• Adult literacy rate, 0% and 100%.
• Combined gross enrolment ratio, 0% and 100%
• Real GDP per capita (PPP) $100 and $40,000.

India’s HDI value is shown in the following table :

7. Gender related Development Index (GDI) :
The HDR, 1995 introduced two global gender indices. These are Gender related Development Index (GDI) and Gender Empowerment Measure (GEM). The GDI is a composite, index which measures the average achievement of population in the same dimensions as the HDI while adjusting for gender inequalities in the level of achievement in the three basic aspects of human development. It uses same variables as the HDI, disaggregated by gender.

The greater the gender inequality in human development, the lower the GDI compared to HDI. The greater the difference between HDI and GDI, the more is the inequality. There is a greater awareness in the world about gender inequality and efforts are being made to reduce gender inequality. Women movements are promoting and working for gender equality.

8. The Social Progress Index (SPI) :
The SPI measures the extent to which a country provides for the social and environmental needs of their citizens. Fifty four indicators in the areas of basic human needs, foundations of well-being, and opportunity to progress show the relative performance of nations. The index is published by the non-profit Social Progress Imperative, and is based on the writings of Amartya Sen, Douglass North, and Joseph Stiglit2. The SPI measures the well-being of a society by observing social and environmental outcomes directly rather than the economic factors. The social and environmental factors include wellness, equality, inclusion, sustainability and personal freedom and safety.

9. Multi – dimensional Poverty Index (MPI) :
First introduced in 2010, it is an attempt designed to illustrate the many deprivations faced by the mpst severely disadvantaged. The MPI requires a household to be deprived in multiple indicators at the same time. A person is multi-dimensionally poor if the weighed indicators in which he or she is deprived add up to at least 33 per cent. The MPI is closely linked to the Millennium Development Goals and includes ten components.

1. Possession of some assets,
2. Nutrition
3. Child morality
4. Access to drinking water,
5. Access to sanitation
6. Access to a safe room,
7. Access to electricity
8. Access to an improved cooking oil,
9. Years of schooling
10. Children enrolled in school

10. Economic Growth :
It measures the annual increase in GDP, GNP and GDP per Capita or GNP per capita.

11. Gross National Happiness Index :
Countries like Bhutan are measuring their development with gross national happiness index. Hence, there is a need to bring a change in the existing method of measuring the development.

Question 4.
Explain the factors hindering economic development.
Answer:
1. Inadequate Natural Resources :
Developing countries are too populous. As such, serious shortage of land is a common phenomenon, which leads to many damaging effects. With lesser lands, there will be significant fall in cultivation activities, which are the main source of income in poor countries. This is being made worse with low level of technology, which could have helped them to produce on a mass scale.

a) Untapped Resources :
Many poor countries (Sub Saharan African) are blessed with natural resources. However, most of them are untapped. The reason is lack of research and development which may lead to low discovery of mineral deposits.

b) Inefficiently Managed Resources :
Many poor countries do not achieve both productive and allocative efficiency. Productive inefficiency exists due to absence of competition, contracts and projects are awarded to family members or to the persons having political patronage and government adopting a closed economy policy. Someone else can still be made better off without making someone else worse off. But globalization had changed the pattern of utilization of economic resources, where competition is encouraged and resources are flowing into the fields which are being efficiently managed.

2. Lower Rate of Growth of Human Capital :
Developing countries have low allocation of budget on education and health sector. Low spending on education means many will be unskilled. Lesser availability of healthcare means lower life expectancy, more days taken off as leave resulting in lower output and loss of workforce at productive age. In this regard Amartya Sen’s entitlements approach is noteworthy where education acquires a considerable amount of importance as a causative factor for capabilities of individuals where they can qualitatively contribute to development of the nation. Since LDCs have a dearth of critical skills and knowledge, physical capital cannot be utilised productively.

3. Lack of Infrastructure :
Due to many reasons, infrastructure development is far left behind. Nothing much has been done to improve the facilities like power, credit, telecommunications and transportation, which are key Services that will attract investment. Roads, bridges, harbours and railways are in less desirable condition and may adversely affect the timely delivery of goods.

1.4.4 Vicious Circles of Poverty :
Since an underdeveloped economy lacks the proper and modem means of economic development, its economic development becomes an uphill task. This situation can be summed up as “a country is poor because it is poor”.

The basic vicious circle stems from the fact that in developing countries total productivity is low due to deficiency of capital, market imperfections, economic backwardness and underdevelopment. The vicious circles operate both on the demand side and the supply side. The demand side of the vicious circle is that the low level of real income leads to a low level of demand which leads to a low rate of investment and hence back to deficiency of capital, low productivity and low income.

The following figure shows the supply side of the vicious circle is that the low pro-ductivity is reflected in low real income. This means low savings which lead to low invstment and to deficiency of capital. This leads to low level of productivity arid back to low income.

With structural changes, the vicious circles in many developing countries can be avoided and even some of the newly liberated African Countries are slowly heading in the growth path.

5. Low Rate of Capital Formation :
In LDCs the masses are poor, mostly illiterate and unskilled, use outdated equipment and production methods. Their marginal productivity is low which leads to low real income, low saving, low investment and to a low rate of capital formation. Small sums which they may be able to save are often hoarded or used in purchasing gold etc. Most of the savings are only from the high income group and these do not flow into productive channels due to their conspicuous consumption.

6. Socio – Cultural Constraints :
Social institutions and attitudes, traditional beliefs and values, rigid stratification of occupations, motives to save and invest, money spent to meet social obligations, nepotism, inefficient and bad administration, bribery, social attitude towards education, prejudice against manual work, oriental religions, high value for leisure and blind force of fate etc. are not conductive to economic development. These inhibit the progress in underdeveloped countries.

7. Agricultural Constraint :
The environment in which farmers operate the technology available to them, the incentives for production and investment, the availability and prices of input?, the provision of irrigation, the climate and the prices of agricultural products are the areas in which the constraints are to be foun.

8. Foreign Exchange Constraint :
Due to certain disequalising forces in the world economy, the gains from trade have gone to the developed countries and as a result foreign exchange constraint has taken place. There has been phenomenal rise in the exports of urn derdeveloped countries. But this has not contributed much to the development, as the export sector has developed by neglecting other sectors of the economy. Too much dependence on exports has exposed these developing countries to international fluctuations in the demand for and prices of their products. An improvement in their terms of trade is not accompanied by an increase in output and employment due to market imperfections, inadequate overhead capital and structural maladjustments.

Question 5.
Explain the factors promoting economic development.
Answer:
Factors Promoting Economic Development :
There are mainly two types of factors which influence the economic development of a country. They are

I. Economic Factors :
Economists regard factors of production as the main economic factors that determine growth or development. The growth rate of the economy rises or falls as a consequence of changes in them. These economic factors are discussed below.

1. Capital Formation :
When the capital stock increases with the passage of time, this is called capital formation. The strategic role of capital in raising the level of production has been acknowledged. The country which wants to accelerate the pace of growth has no choice but to save a high ratio of its income, with the objective of raising the level of investment unless otherwise it can attract foreign investment on a large scale.

Whatever be the economic system, a country cannot hope to achieve economic progress unless a certain minimum rate of capital accumulation is realized. The incremental capital- output ratio (ICOR), which refers to the additional amount of capital required to produce an additional unit of output, assumes greater importance in economic growth.

2. Natural Resources :
The principal factor affecting the development of an economy is the natural resources or land. In economics land includes the land area and the quality of the soil, forest wealth, minerals and oil resources, good climate and eco system, water and seta resources etc. For economic growth, the existence of natural resources in abundance is essential. A country which is deficient in natural resources may not be in a position to develop rapidly. In fact, natural resources are a necessary condition for economic growth but not a sufficient one. Japan and India are the two contradictory examples.

3. Agrarian Structure :
The agrarian system, where ownership of land becomes important besides the method of cultivation as they play an important role in bringing about economic development. Land reforms and modernization of agriculture through technological changes, improved inputs, marketing and credit are important for a faster agricultural growth of the economy.

4. Markatable Surplus of Agriculture :
The term ‘marketable surplus’ refers to the excess of output in the agricultural sector over and above what is required to allow the rural population to subsist. However, the marketed surplus is an indicator of progress in agriculture sector.

The importance of the marketable surplus in a developing economy emanates from the fact that the urban industrial population subsists on it. With the development of an economy, the ratio Of the urban population increases. As a result demand increases for food grains. This demand must be met adequately; otherwise, the consequent scarcity of food in urban areas will arrest the economic growth.

5. Industrial Structure :
The industrial structure demands the relative importance of large scale, small scale and cottage industries and the level of technology being used in these industries. A change in the structure where modernization takes place due to adoption of recent technological advances will lead to a higher tempo of economic development in the developing economies.

6. Structural Changes :
Structural changes imply the transition from a traditional agricultural society to a modem industrial society involving a radical transformation of existing institutions, social attitudes and motivations. These changes lead to increasing employment opportunities, higher labour productivity, the stock.of capital, exploitation of new resources and improvement in technology.

7. Organisation :
It is an important aspect of the growth process. It relates to the optimum use of factors of production in the economic activities. The entrepreneur is performing the task of an organiser and undertaking risks and uncertainties in the business. But less developed countries lack in entrepreneurial activity and less developed countries should create a climate for encouraging entrepreneurship. For this, the provision of all the required social, economic and technological institutions is necessary.

8. Technological Progress: Technological changes are related to changes in the production methods which are the result of new innovations. Changes in technology lead to increase in the productivity of labour, capital and other production factors. Schumpeter and Kuznets regarded innovation as the most important technological factor in economic growth. The spending of high percentage of national income on Research and Development is required.

9. Division of Labour :
Adam Smith gave much importance to the division of labour in economic development. But division of labour depends upon the size of the market. When the scale of production is large there is greater specialisation and division of labour. The growth prodess in less developed countries can be accelerated by widening of the market through adoption of modem means of transport and communications.

10. Foreign Trade :
Foreign trade has proved to be beneficial to countries, which have been able to set-up industries in a relatively short period. These countries like Japan and South Korea eventually captured international markets for their industrial products. Therefore, a developing country should not only tiy to become self-reliant in capital equipment and other industrial products as early as possible, but it should also push the development of its industries to such economy and yet face no difficulty in making economic progress. In today’s entirely different world situation, a country would find it difficult to grow along this path of development.

II. Non – Economic Factors :
It is obvious that non-economic factors are also equally important in development as economic factors. Let us tiy to understand how they influence the process of economic development:

1. Human Resources :
Human resources are considered as very important factor in economic development. Human being provides labour power for production and if in a country’s labour is efficient and skilled, its capacity to contribute to growth will be high. The productivity of illiterate, irrational, unskilled, disease ridden, superstitious people is generally low and they do not provide much to development in a country. In case either human resources remain unutilized or the labour management remains defective, it will be a burden on the economy.

Efficiency or Productivity of labour force depends upon health, education and social services. The level of technical expertise has a direct bearing on the development. As the scientific and technological knowledge advances, man discovers more sophisticated techniques of production which steadily raise the productivity levels.

2. Political and Administrative Factors :
Dadabhai Naoroji has also explained in his classic work ‘Poverty and Un British Rule in India’ that the drain of wealth and capital from India under the British rule -/as the major cause for absence of development in India during that period.

‘Political and administrative factors also helped in modem economic growth. The eco- npmic growth of Britain, Germany, the United States, Japan and France is due to their.politi- cal stability and strong administration. But, Italy has not been able to grow upto their level due to political instability and corrupt and weak administration. Peace, protection and stability have encouraged the development of entrepreneurship in developed countries, along with the adoption of appropriate monetary and fiscal policies.

3. Social Factors :
Social attitudes, values and institutions also influence economic growth. Attitudes are beliefs and values that cause human behaviour to be “What it is”. Values refer to motivations of human behaviour towards particular ends. Myrdal advocates the adoption of modernization values for the rapid economic development of less developed countries.

Changes in attitudes due to modernization of values lead to development of the agricultural, industrial and tertiary sectors of the economy. , But the development of these sectors is hot possible without, entrepreneurship. According to Myrdal, less developed countries lack entrepreneurship because they are deficient in persons with right attitude for entrepreneurship.

Mass participation in development programmes is a pre-condition for accelerating the growth process. However, people show interest in the development activity only when they feel that the fruits of growth will be fairly distributed. Experiences from a number of countries suggest that whenever the defective social system allows some elite groups to appropriate the benefits of growth, the general mass of people develop apathy towards State’s development programs. Under those circumstances, it is futile to hope that masses will participate in the development projects undertaken by the State. India’s experience during the whole period of development planning is an example.

Question 6.
Discuss the characteristics of Developed Countries.
Answer:
Characteristics of Developed Economies
Based on their GNI per capita, countries are classified as low income, middle income and high income countries. Income classifications are set each year on July 1. These official analytical classifications are fixed during the World Bank’s fiscal year (ending on June 30). According to World Bank Report (2014) entitled “Risk and Opportunity Managing Risk for Development”, the world economies have been divided into four types based on per capita GNI $ (dollar) value i.e.,

• Low Income Economy – US$ 1035 or less than it
• Low Middle Income Economy – US$1036 – US$4085
• Upper Middle Income Economy – US$4086 – US$12615
• High Income Economy – US$12616 and more

A developed economy is characterized by an increase in capital resources, improvement in efficiency of labour, better organization of production in all spheres, development of means of transport and communication, growth of banks and other financial institutions, urbanization and a rise in the level of living, improvement in the standards of education and expectation of life, greater leisure and more recreation facilities and the widening of the mental horizon of the people and so on. In short, economic development must break the poverty barrier or the vicious circle and bring into being a self-generating economy so that economic growth becomes self-sustained.

The main characteristics of developed countries are as follows :

1. Significance of Services and Industrial Sector :
Most of the developed countries have given much .importance to the development of industrial sector. They have large capacities to utilize all resources of production, to maximize national income and to provide employment for the jobless people. As per the sectoral contribution to GDP these countries receive the major portion of their GDP from the non-agriculture sectors which include industry and services. For instance, in 2014 the U.K. received 79.6 per cent of her GDP from the services, 19.8 per cent from the industry and 0.6 per cent from agriculture. The same is the case with the U.S.A., Japan and other west European countries.:

Similarly, coming to employment, in 2011 just 1 per cent of employment was in agriculture in the U.K. and this was 47 per cent in Indian agriculture.

2. High Rate of Capital Formation :
Developed countries are generally very rich as they maintain a high level of savings and investment, with the result that they have huge amount of capital stocks. Gross capital formation will be more in these developed countries. Well-developed capital markets, high level of savings, broader business prospects as well as innovative entrepreneurship have led to a high growth of capital formation in these economies. Such a situation can be observed with the help of following table :

A higher rate of gross capital formation alone can pave the way for economic development.

3. Use of Modern Production Techniques and Skills :
The new and advanced techniques have been used for the exploitation of the physical human resources. These countries have, therefore, been giving priority to the scientific research so as to improve and evolve the new techniques of production. Consequently, these countries find themselves able to produce goods and services of a better quality at a comparatively lesser cost. It is because of the use of modem and mass production techniques and latest skills, that the countries like Japan, Germany and Israel could have developed their economies very rapidly, though they have limited natural resources. This was shown in the following table

Expenditure on R & D

It is clear that the Switzerland spent 3.37 per cent of its GDP on Research & Development (R & D) during 2015, whereas India spent only 0.62 per cent of its GDP on R & D in 2015.

4. Low Growth of Population :
The developed countries, like the U.S.A., the U.K. and other western European countries have low growth of population because they have low level of birth rate followed by low level of death rate. Good health conditions, high degree of education and higher level of consumption of the people have led to maintain low growth of population. The life expectancy in these countries is also very high. The average annual growth rate of population in developed countries is 0.7 percent as compared with 2 percent in developing countries.

Average life expectancy at birth is 75 years in the developed countries whereas in the developing countries it is 51 years. Besides this, the entire society, its structure and values are found to be more conductive to the goal of rapid industrial and economic development. Further, dignity of labour is maintained. The economic motive and strong desire to lead a better social life always inspire people to contribute greatly to the process of development.

5. Higher Per Capita Gross National Income in $ (Purchasing Power Parity) :
One of the important features of the developed economies is the higher per capita national income, which can be seen from the table given below.

Per Capita Gross National Income at Market Prices (In US Dollars), 2018

It is evident from the above table that the per capita GNI of USA in the year 2018 was US $ 63,690, UK was $ 45,350 and Switzerland $68,820, whereas India’s GNI was $7,680. It indi-cates that the developed countries are endowed with higher per capita GNI. It may be noted that in 2018 the average per capita GNI of USA at the purchasing power parity rates was 8.3 times that of India.

Question 7.
Analyse critically the characteristics of developing economics with special reference to India.
Answer:
Characteristics of Developing Economies with Special Reference to India :

The major characteristics of developing economies in general and the Indian economy in particular are as follows :
1. Low Per Capita Income :
According to Caimcross, “the underdeveloped countries are the slums of the world economy”.

The per capita NNP in India in 1995-96 was about Rs. 9,300 and in 2012-13 it was Rs. 22,000. It is one of the lowest in the world. Among the 133 countries of the world, India’s rank is 110. The per.capita GNI of an Indian in 2018 was $ 7680 at the purchasing power parity v rates. In the same year the average per capita GNI of USA is 8.3 times that of India. Whatever progress has been made in terms of the increase in production since independence, the same is not reflected in increase in per capita income because of rapid growth of population along with the growth of production.

This means that a large proportion of population have income level much below the average. For instance, according to the Rangarajan Committee’s estimates, 29.5 percent of total population in 2011-12 were living below the poverty line i.e. they are not able to afford even the minimum nutrition required. Due to the low level of living, the efficiency of labour is also low.

2. Predominance of Agriculture :
In developing countries two-thirds or more of the people live in rural areas and their main occupation is agriculture. Agriculture is mostly unproductive.

In India, 42.7 per cent of the working population was engaged in agriculture in 2017 and its contribution to the gross value added (GVA) is 16.5 percent in 2019-20 (Economic Survey, 2019-20). Rainfall is the main source of irrigation. The technology used in agriculture is traditional in nature and modernization is slowly taking place. Although in some areas modem techniques of cultivation are in application, still the vast agricultural area uses primitive techniques of cultivation. A’ vast area of agricultural land is still not covered by irrigational facilities. Agriculture continues to be a depressed industry as the productivity per person engaged in it is very low.

3. Capital Deficiency :
Developing countries are characterized as “capital-poor or low- saving and low investing” economies.

The low level of income results in low level of savings, which results in low level of capital formation. For want of capital, other resources like labour and natural resources remain unutilized. India has a large potential for renewable as well as non-renewable resources. The country is not able to utilize them fully for want of capital. As per Annual Report of RBI 2019, in 2017-18, gross domestic saving (GDS) rate is 30.1 percent and gross domestic investment (GDI) rate is 32.3 per cent at current prices.

4. Technological Backwardness :
Deficiency of capital hinders the process of scrapping off the old techniques and the installation of modem techniques. Illiteracy and absence of a skilled labour force are the other major hurdles in the spread of techniques in the backward economy. The technological backwardness is not only the cause of economic backwardness, but also the result of it.

In large parts of almost all sectors of the Indian economy, technology used in production is backward.. The expenditure incurred on research and development is low. Advanced technology is in use in a few industries only. With the liberalisation of the economy, new technology is being adopted by a large number of enterprises for their survival.

5. Inadequate Infrastructure Facilities :
Infrastructural facilities include banking, education, public health, drinking water, drainage, irrigation, power, transport and communications. These facilities are essential for the development of agriculture, industrial and services sectors. All these facilities are inadequate.

6. Demographic Features :
The average annual growth rate of population in developing countries is 2 percent as compared with about 0.7 percent in developed countries. The percentage of population under 15 years of age is about 40 in developing countries, compared with only 20 to 25 percent iii developed countries. Average life expectancy at birth is roughly 51 years in developing countries whereas in the developed countries it is 75 years. It is 68.5 years in India as per 2011 census. As per HD report 2019, it is 69.4 years in 2018.

The density of population in India in 2006 was 373 per sq.km as compared with 33 in USA and 141 in China. The number of deaths of infants of less than one year of age per thousand live births in India was 44 in 2010. This shows the inadequate medical facilities, low level of nutrition and poor sanitary conditions.

India’s population is very large, it is 129.5 crores in 2014, and it is rising at a rate of 1.64 per cent (2011) per annum.

7. High Rate of Illiteracy :
Most of the underdeveloped countries suffer from mass illiteracy. Illiteracy retards development. A minimum level of education is necessary to acT quire skills. India ranked at the 129th positon in 2018 on the basis of the Human Development Index which is based on life expectancy, adult literacy, combined enrolment ratio, an?l real GDP per capita in US Dollars.

Illiteracy rate in females is much higher than in males. In India as per 2011 census literacy rate, male literacy rate and female literacy rate (percent) are 74.0, 82.14 and 65.5 respectively.

8. A Dualistic Economy :
Almost all developing containing have a dualist economy.

Dualism is also characterised by the existence of an advanced industrial system and an indigenous backward agricultural system. The industrial sector uses capital intensive techniques and produces a variety of capital goods and durable consumer goods. The rural sector with traditional techniques is producing agricultural commodities. There is also financial dualism consisting of the unorganised money market with very high interest rates on loans and the organised money market with low interest rates and abundant credit facilities.

9. Underdeveloped Natural Resources :
Underdeveloped countries have not been suc-cessful in over coming the scarcity of natural resources by appropriate changes in technology and social and economic organization. The natural resources are underdeveloped due to various inhibitions such as their inaccessibility, lack of technical knowledge, non availability of capital and the small extent of the market.

10. Lack of Entrepreneurship :
Another feature of underdeveloped countries is the lack of entrepreneurial ability. Entrepreneurship is inhibited by the social system which denies opportunities of creative faculties. The small size of the market, lack of capital* lack of infrastructural facilities, technological backwardness, absence of private property, absence of freedom of contract and law and order hamper enterprise and initiative.

11. Unemployment and Disguised Unemployment :
In underdeveloped countries there is vast open unemployment and disguised unemployment. The unemployment is spreading with urbanisation and the spread of education. But the industrial sector has failed to expand along with the growth of labour force. In India unemployment is structural and is the result of a deficiency of capital. In under developed countries under employment or disguised or concealed unemployment is a notable feature. In Indian agricultural sector, a much larger number of labourers are engaged than are really needed. The marginal product of labour in agriculture is negligible or it may be zero or may be negative.

The Eleventh Plan (2007-12) has a backlog of 37 million unemployed and estimated that 45 million are likely to be the new entrants to the labour force during this plan. Unemployment reached to 6.1 percent in 2017-18. Thus, the provision of employment becomes a major task of the planning process in India.

12. Social Institutions s In developing countries social institutions are not conducive to economic development. The Indian society is divided into many castes and sub-castes resulting in frictions in the society. The religious and social beliefs and customs to certain extent inhibit the development of scientific attitudes. People are conservative and superstitious and governed by customs and traditions. Joint family system and the caste system obstruct mobility Of labour.

13. Foreign Trade Orientation :
Underdeveloped economies are generally foreign trade oriented. These countries export primary products and import consumer goods and machinery. This too much dependence on exports of primary products leads to serious repercussions in their economies in the forms of neglecting other sectors, susceptible to international fluctuations. Developing countries are facing with the balance of payments difficulties. In India the recent rapid increase in the import bill together with stagnating exports has led to a significant worsening of the trade balance (US $ – 180.3 billions in 2018-19).

Short Answer Questions

Question 1.
Define economic growth and write its essential aspects.
Answer:
Economic growth is a narrower concept than economic development. It is an increase in a country’s real national output which can be caused by an increase in the quality of resources. Economic growth can be measured by an increase in a country’s gross domestic product (GDP).

According to Michael P. Todaro, “Economic growth is a steady process by which the productive capacity of the economy is increased over a time to bring about rising levels of national output and income”.

According to Simon Kuznets, “Economic growth may be defined as a long term process where in the substantial and sustained rise in real national income, total population and real per capita income takes place”.

According to Maddison, “The raising of income levels is generally called economic growth in rich countries and in poor ones it is called economic development”.

John Friedmann defines growth as an expansion of the system in one or more dimensions without a change in its structure.

Essentials of Economic Growth
From the above stated definitions, the essential features of economic growth can be explained as given here under:

1. Economic growth shows a higher rate of increase in real per capita income than the rate of growth of population.
2. Economic growth is always linked with a large increase in productive ability of the economy.

In short-run, economic growth is measured with the help of rate of saving and capital- output ratio, while in the long run it is measured with the help of increase in labour force and technological growth. Thus the four determinants of economic growth can be understood as (a) rate of saving of the economy; (b) capital-output ratio, where the stock of capital is divided by output; (c) rate of growth of labour force and (d) rate of growth of technological progress.

Question 2.
Explain the structural changes in economic development.
Answer:
Economic development represents structural changes in various sectors of the country: There will be a change in the occupational structure. In economic development there will be a decrease in the share of labour force in primary sector and an increase in the shares of labour force in secondary sector and tertiary sector. The structural changes can be seen as follows :

1. There will be a change in the structure of national output. The contribution of primary sector in the national output falls and the shares of secondary and tertiary sectors slowly go up.

2. There will be a change in the structure of industrial production. There will be an increase in the production of capital goods vis-a-vis the production of consumer goods.

3. There will be a change in the structure of foreign trade. The share of primary goods in exports decreases and the share of capital goods in imports increases. Accordingly, in economic development there will be an increase in exports of manufactured and final goods as well as services. Similarly, there will be a decrease in the imports of consumer items. In present context of globalization, the developing countries are also actively participating in world agricultural trade, where agricultural exports are being given importance, besides limiting the importation of consumer items. But this cannot be considered as a reversal of the earlier trend in all the developing countries.

4. There will be a change in the structure of technology. In economic development, modem and advanced techniques of production’are used in all the sectors of economy.

5. There will be a change in the social and institutional sectors. Due to economic devel-opment there will be an increase in the self-esteem and living standards of the population.

In brief economic development is economic growth coupled with ‘change’. The term change’ here refers to the qualitative changes in the economy. These are in the form of im-provement in the level of living, reduction in inequalities in income and wealth, rise in efficiency, improvement in technique, faster growth of industrial sector, positive changes in attitudes and other concomitant changes in all the economic spheres.

Question 3.
Distinguish between economic development and economic growth.
Answer:
The distinction between economic growth and development is presented below :

Question 4.
Explain the economic factors promoting development.
Answer:
Factors Promoting Economic Development :

There rre mainly two types of factors which influence the economic development of a country. They are

I. Economic Factors :
Economists regard factors of production as the main economic factors that determine growth or development. The growth rate of the economy rises or falls as a consequence of changes in them. These economic factors are discussed below.

1. Capital Formation :
When the capital stock increases with the passage of time, this is called capital formation. The strategic role of capital in raising the level of production has been acknowledged. The country which wants to accelerate the pace of growth has no choice but to save a high ratio of its ificome, with the objective of raising the level of investment unless otherwise it can attract foreign investment on a large scale.

Whatever be the economic system, a country cannot hope to achieve economic progress unless a certain minimum rate of capital accumulation is realized. The incremental capital- output ratio (ICOR), which refers to the additional amount of capital required to produce an additional unit of output, assumes greater importance in economic growth.

2. Natural Resources :
The principal factor affecting the development of an economy is the natural resources or land. In economics land includes the land area and the quality of the soil, forest wealth, minerals and oil resources, good climate and eco system, water and sea resources etc. For economic growth, the existence of natural resources in abundance is essential. A country which is deficient in natural resources may not be in a position to develop rapidly. In fact, natural resources are a necessary condition fpr economic growth but not a sufficient one. Japan and India are the two contradictory examples.

3. Agrarian Structure :
The agrarian system, where ownership of land becomes important besides the method of cultivation as they play an important role in bringing about economic development. Land reforms and modernization of agriculture through technological, changes, improved inputs, marketing and credit are important for a faster agricultural growth of the economy.

4. Markatable Surplus of Agriculture :
The term ‘marketable surplus’ refers to the excess of output in the agricultural sector over and above what is required to allow the rural population to subsist. However, the marketed surplus is an indicator of progress in agriculture sector. .

The importance of the marketable surplus in a developing economy emanates from the fact that the urban industrial population subsists on it. With the development of an economy, the ratio of the urban population increases. As a result demand increases for food grains. This demand must be met adequately; otherwise, the consequent scarcity of food in urban areas will arrest the economic growth. .

5. Industrial Structure :
The industrial structure demands the relative importance of large scale, Small scale and cottage industries and the level of technology being used in these industries. A change in the structure where modernization takes place due to adoption of recent technological advances will lead to a higher tempo of economic development in the developing economies.

6. Structural Changes :
Structural changes imply the transition from a traditional agricultural society to a modem industrial society involving a radical transformation of existing institutions, social attitudes and motivations. These changes lead to increasing employment opportunities, higher labour productivity, the stock of capital, exploitation of new resources and improvement in technology.

7. Organisation :
It is an important aspect of the growth process. It relates to the optimum use of factors of production in the economic activities. The entrepreneur is performing the task of an organiser and undertaking risks and uncertainties in the business. But less developed countries lack in entrepreneurial activity and less developed countries should create a climate for encouraging entrepreneurship: For this, the provision of all the required social, economic and technological institutions is necessary.

8. Technological Progress :
Technological changes are related to changes in the production methods which are the result of new innovations. Changes in technology lead’to increase in the productivity of labour, capital and other production factors. Schumpeter and Kuznets regarded innovation as the most important technological factor in economic growth. The spending of high percentage of national income on Research and Development is required.

9. Division of Labour :
Adam Smith gave much importance to the division of labour in economic development. But division of labour depends upon the size of the market. Whe,n the scale of production is large there is greater specialisation and division of labour. The growth process in less developed countries can be accelerated by widening of the market through adoption of modem means of transport and communications.

10. Foreign Trade :
Foreign trade has proved to be beneficial to countries, which have been able to set-up industries in a relatively short period. These countries like Japan and South Korea eventually captured international markets for their industrial products. Therefore, a developing country should not only try to become self-reliant in capital equipment and other industrial products as early as possible, but it should also push the development of its industries to such economy and yet face no difficulty in making economic progress: In todays entirely different world situation, a country would find it difficult to grow along this path of development.

Question 5.
Explain the Non-Economic Factors promoting development.
Answer:
Non- Economic Factors
It is obvious that non-economic factors are also equally important in development as economic factors. Let us try to understand how they influence the process of economic development:

1. Human Resources :
Human resources are considered as very important factor in economic development. Human being provides labour power for production and if in a country’s labour is efficient and skilled, its capacity to contribute to growth will be high. The productivity of illiterate, irrational, unskilled, disease’ ridden, superstitious people is generally low and they do not provide much to development in a country. In case either human resources remain unutilized or the labour management remains defective, it will be a burden on the economy.

Efficiency or Productivity of labour force depends upon health, education and social services. The level of technical expertise has a direct bearing on the development. As the scientific and technological knowledge advances, man discovers more sophisticated techniques of production which steadily raise the productivity levels.

2. Political and Administrative Factors :
Dadabhai Naoroji has also explained in his classic work ‘Poverty and Un British Rule in India’ that the drain of wealth and capital from India under the British rule was the major cause for absence of development in India during that period.

‘Political and administrative factors also helped in modem economic growth. The economic growth of Britain, Germany, the United States, Japan and France is due to their political stability and strong administration. But, Italy has not been able to grow upto their level due to political instability and corrupt and weak administration. Peace, protection and stability have encouraged the development of entrepreneurship in developed countries, along with the adoption of appropriate monetary and fiscal policies.

3. Social Factors :
Social attitudes, values and institutions also influence economic growth. Attitudes are beliefs and values that cause human behaviour to be “What it is”. Values refer to motivations of human behaviour towards particular ends. Myrdal advocates the adoption of modernization values for the rapid economic development of less developed countries.

Changes in attitudes due to modernization of values lead to development of the agricultural, industrial and tertiary sectors of the economy. But the development of these sectors is not possible without entrepreneurship. According to Myrdal, less developed countries lack entrepreneurship because they are deficient in persons with right attitude for entrepreneurship.

Mass participation in development programmes is a pre-condition for accelerating the growth process. However, people show interest in the development activity only when they feel that the fruits of growth will be fairly distributed. Experiences from a number of cpuntries suggest that whenever the defective social system allows some elite groups to appropriate the benefits of growth, the general mass of people develop apathy towards State’s development programs. Under those circumstances, it is futile to hope that masses will participate in the development projects undertaken by the State. India’s experience during the whole period of development planning is an example.

Question 6.
Explain the physical quality life Index (PQLI)
Answer:
Physical Quality of Life Index (PQLI)

It was invented by M.D. Morris in 1979. He constructed a composite Physical Quality of Life Index relating to 23 countries for a comparative study. This is a non-income indicator of economic development because this uses physical quality of life as an indicator. This method of measuring economic development is based on the following three things. They are : (i) life expectancy, (ii) infant mortality rate, and (iii) basic literacy. This index measures performance in meeting the most basic needs of people. This index represents basic needs such as health, education, drinking water, nutrition and sanitation.

If in any country PQU is increasing then it indicates the increase in the physical quality of life of the people with increase in life expectancy, fall in infant mortality rate and rise in basic literacy rate. Increase in per capita income does not necessarily indicate the increase in the facilities like health, food, sanitation and education. Therefore, PQU method is taken to be a better indicator than per capita income method. The PQU measures quality of life directly and points towards that indicator which requires immediate action.

The PQU has certain limitations. These are :
a) Morris admits that PQU is a limited measure of basic needs.
b) It does not explain the changing structure of economic and social organisation.
c) it does not measure total welfare.
d) Equal weights are given to the three variables of PQU.

Question 7.
Discuss the human development Index (HDI) How it is measured.
Answer:
Human Development Index (HDI) :
Mahbub – UI – Haq developed the Human Development Index and UNDP incorporated it in its first Human Development Report in 1990. Since then, the UNDP is presenting the measurement of human development in its annual report.

Human Development Index (HDI) is a modern indicator of economic development. It is a statistical tool used to measure a country’s overall achievement in its social and economic dimensions. The following indicators are required to construct HDI:

1. Life expectancy at birth.
2. Education – adult literacy, combined gross enrolment ratio.
3. Real GDP per capita based on purchasing power parity in terms of dollar.

For the construction of HDI, an index is created for each of these indicators with fixed minimum and maximum values for each of these indicators as shown below :

• Life expectancy at birth, 25 years and 85 years.
• Adult literacy rate 0% and 100%
• Combined gross enrolment ratio, 0% and 100%
• Real GDP per capita (PPP) $ 100 and $40,000-

For the components of the HDI, individual indices are calculated according to the following formula.

Then, the HDI is calculated as a simple average of the three dimension indices. HDI value ranges from zsero to one. Countries with HDI below 0.5 are considered to have a low level of human development, those between 0.5 to 0.8 a medium level and those above 0.8 a high level. But as per Human Development Report 2014 (HDI, 2013) Countries have been grouped under four categories, (i) Countries in the HDI 0.8 and above are in the very high Human development group, (ii) Countries in HDI range 0.7 to 0.8 are in the High Human Development group, (iii) Countries in the HDI range 0.5 to 0.7 are in the range of Medium Human development group and (iv) Countries in the HDI range less than 0.5 are in the low. Human Development group. India’s HDI value is shown in the following table :

Very Short Answer Questions

Question 1.
Economic growth.
Answer:
Increase in the real output of goods and services over a long period of time is known as economic growth. It is a narrow concept. It explains quantitative changes. It relates to developed countries.

Question 2.
Economic Development.
Answer:
The Institutional changes and Tecyhnological changes which are used to achieve some amount of goods and services is known as economic development. It is a wider concept. It relates to developing countries.

Question 3.
Self Reliance.
Answer:
Self reliance implies that a country generates sufficient surplus to buy what it needs. It does not depend upon other countries for the resources of funds needed to acquire them. Self reliance allows imports.

Question 4.
Sustainable development.
Answer:
This concept was given by Brutland commission in the year 1987. It means to meet the needs of present generations, without comprising the ability of future generations.

Question 5.
Inclusive growth.
Answer:
Inclusive growth refers to both the pace and the pattern of the economic growth. This concept stresses the inclusiveness of the higher to scheduled population in the growth process, which is respected to bring in several other benefits as well to the economy. If the bottom 20% share can increase to 5 to 10% at lease, then it can be termed as inclusive growth.

Question 6.
Physical quality of Life Index (PQLI).
Answer:
If refers to physuical quality of life index. This concept can be studied with 3 ideas.

1. Life expectancy – 65%
2. Literacy Rate -.74%
3. Infant molality rate 61/1000 live birth

This is a non income indicator of Economic development.

Question 7.
Human development Index (HDI).
Answer:
It refers to Human Development index. This concept measures the average achievement in three basic dimensions of human development. They are life expectancy at birth, adult literacy contained enrolment ratio and real GDP percapita based on purchasing power purity (PPP),

Question 8.
Gender related Development Index.
Answer:
This concept was introduced by Human development report (HDR) 1995. This concept is a composite index which measures the average achievement of population in the same dimensions as the HDI while adjusting for gender inequalities in the level of achievement in the three basic aspects of human development. It uses same variables as the HDI while adjusting for gender inequalities in the level of achievement in the three basic aspects of human development. It uses same variables as the HDI, dis eggregated by gender.

Question 9.
Social Progress Index (SPI).
Answer:
SPI is published by the non-profit social progress imperalised and it is based on the workings of Amartya Sen. This concept measures the well being of a society by observing social and environmental outcomes directly rather than the economic factors. The social and environmental factors include wellness, equality, inclusion, sustainability and personal freedom and safety.

Question 10.
Multi dimensional poverty Index (MPI).
Answer:
This concept was first introduced in the year 2010. It is an attempt designed to illustrate the many deprivations faced by the most several disadvantages. This concept requires a household to be deprived in multiple indicators at the same time. A person is multi dimensionally poor if the weighed indicators in which he or she is seprives add up to at least 33 percent.

Question 11.
Natural resources.
Answer:
Natural resources refers to land are and quality of soil forest wealth, good river system, minerals and Oil resources and ecosystem are included. For economic growth the existence of natural resources in abudance is essential.

Question 12.
Human Capital.
Answer:
Investment on human is called human capital most of the developing countries the people are illiterate. Their standard of living and mobility of labour is very low. The attitude and values of people do not encourage economic change and growth.

Question 13.
Vicious circles of poverty.
Answer:
A country is poor language it is poor. This concept was given by Ragnar Nurksc. The basic vicious circle stems from the fact that in developing countries total productivity is low and to deficiency of capital, market imperfections, economic backwardness and under development.

The vicious circle operates both on demand side and supply side. The demand side is that the low level of real income leads to a low level of demand the supply side, is that the low productivity reflected in low real income.

Question 14.
Capital formation.
Answer:
It refers to the net addition of capital stock such as equipment, buildings and other intermediate goods. A nation uses capital stock in combination of labour to provide services and to produce goods. An increase in this capital stock is known as capital formation.

Question 15.
Markatable surplus of agriculture.
Answer:
In refers to the success of agricultural output over and above what is required for subsistence living of the rural population. In case a country fails to produce a sufficient markable surplus it will be left with no choice select to import food grains which may cause a balance at payments problem.

Question 16.
Social factors.
Answer:
Social attitudes, values, and institutions also influence economic growth. These are rationality in throughout and action through on deliberate cultivation of scientific attitude and application of modem technology in order to increase productivity, raise levels of living and brings about social and economic equalisation, changes in attitudes due to modernisation of values lead to development of agriculture, industry and tertiary sectors of the economy.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 6th Lesson Setting up a Business Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 6th Lesson Setting up a Business

Long Answer Type Questions

Question 1.
Explain the steps involved in the preliminary stage of setting up of a business.
Answer:
For setting up a business, certain procedures are to be followed. These procedures are governed by the current rules and regulations of the state and central Governments. The following steps involved in the preliminary stage of setting up of a business.

Step (1): Decision to be self – employed
1. The decision to become entrepreneur is influenced by a number of factors. All the factors are divided into two types i.e. (A) Internal Factors & (B) External factors.

2. The internal factors like Education back ground, occupational experience, desire to work independently, family background etc are motivated the person to fruitify his proposition to become entrepreneur when external factors such as financial assistance, technology anjd raw materials and infrastructural facilities are available.

Step (2) : Study and Scanning Business Environment
1. After taking a decision to be self-employed, the entrepreneur should study following business environment prevailing with respect to the proposed industrial unit:

1. Administrative Framework.
2. Policy Guidelines.
3. Rules and Regulations.

2. Administrative framework constitutes sources of ideas to the enterpreneurs which are provided by (a) Development commissions (b) Associated institution and (c) State governments. The policy guidelines and rules and Regulations are provided by the government concerned.

Step (3) : Selection of Idea :

1. After selecting the suitable project to manufacture certain product or to provide any service, an entrepreneur should undertake market survey of the product line chosen by him.
2. This would help him to gain in sight into the “Existing Market conditions” and “Market Reactions” for the product. He can also ascertain the advantages and disadvantages of launching the new product.

Step (4) : Deciding Organisational Structure :
1. The options for the organisational patterns of the business unit are as follows :
(i) Proprietary, (ii) Partnership Firm, (iii) Co-operative Society, (iv) HUF and (v) Company.

2. The following factors are to be considered while choosing a firm of organisation.
Size of Business, Capital Investment, Nature of Business,. Degree of Control, Tax incidence and Government Stipulation.

Step (5) : Preparation of Project Report

1. After decided the product and organisation, the entrepreneur has to put his ideas and other information is black and white.
2. This should be so well presented that it provides all relevant information in refeence to the project.

Step (6) : Project Appraisal Stage

1. The velocity of a project depends on the technical feasibility, marketability of a profitable price and management of the unit.
2. Project Appraisal is the process of examining the viability of a project which is based on technical feasibility, and marketability of the products.

Step (7) : Selection of Location and Site

1. For any Industrial project, selection of a suitable industrial site is very important decision and it is based on several considerations like, Nearness to market and nearness to raw material, availability of power and water, availability of transporting system and skilled workers etc.
2. A plot can be obtained from (a) State Government Industrial Development, (b) Industrial Cooperative Societies (c) Private Parties.

Step (8) : Provisional Registration

1. Provisional Registration enables a party to take the necessary steps to bring the unit into existence.
2. Application for Provisional Registration is submitted to the District Industries Centre (DIG).
3. The issue of provisional registration! is normally automatic and is given within seven days on the receipt of the Application.
4. The initial validity of the provisional registratioin is Six months, it may be renewed for a further period Of six months on submission of satisfactory proof that the party has taken effective steps to establish the unit but could not complete the same.

Step (9) : Enquire for Machinery and Tocimology :

1. The requirement of machinery/equipmen, spare parts, tools, etc., should be properly assessed and the proper size of plant and machinery should be decided upon.
2. The names of various manufactures of the required machinery may be ascertained and quotations obtained. After careful comparison of machinery specifications, quality, delivery time and price, decision is to be taken for purchase of a particular machinery. Availability of after sales service is an important point to be kept in mind.
3. In case the Plant and Machinery are to be obtained from the Hire Purchase Scheme of National Small Industries Corporation (N.S.I.C.) the quotations are to be obtained from the suppliers approved by N.S.I.C.

Question 2.
Explain the steps involved in the implementation stage of setting up of a business.
Answer:
The second stage in the setting up of a business is the implementation stage. It involves 12 steps which are given below :

Step (1) : Statutory Licences / Clearance :

1. Various administrative bodies have been set up to consider requests for the issue of industrial licence, import of capital equipment, foreign collaboration etc. These bodies are expected to decide the requests within the stipulated time limit.
2. The industrial licence is issued on furnishing evidence that the prescribed conditions are fulfilled.
3. A licence from Government of India is necessary for the manufacture of any article included in the schedule to the IDR Act, 1951. Such a few industries are metallurgical industries, fuels, boilers and steam generating plants, electrical equipments, telecommunications, transportation, industrial machinery, fertilizers, chemicals etc.

Step (2) : Arrangement of Finance :
Business units can obtain finance for their projects under three main categories :
1. Term Loan :
Long term requirements for acquiring fixed assets like land and building, plant and machinery and for security deposit and working capital margin.

2. Bridge Loans :
This loan is granted for a short duration to enable the entrepreneur to continue with the implementation of the project till the term loan, applied for and sanctioned is disbursed by the financial institution.

3. Working Capital :
Short – term advances for working capital in the form of pledge / hypothecation / cash / credit / bills facility.

Step (3) : Application for Financial Assistance :
1. After the project is finalized, provisional registration and other formalities are completed, the entrepreneur has to submit an appliation for financial assistance along with the Project Report to the financial institution / bank for a term loan.

Encloseres with Application for term Loan :
2. Along with the appliation submitteu ! – the Financial Institution / Bank, the following documents have to be enclosed :
a) Copy of the Project Report
b) Copy of the partnership deed / memorandum and articles of assocaition
c) Quotations in respect of plant and machinery
d) Income – tax assessment order or incometax clearance relating to partners/ directors.
e) Architect’s estimates in respect of factory building.
f) Copies of balance sheet and profit and loss account for the previous years relating to the associate concerns, if any, of the promoters.

Step (4) : Building Construction and Civil Works :
1. After the sanction and disbursement of first installment of loan from financial institution Building Construction activities are started. If the pre-built factory is obtained from State Government. Industrial Estate, this activity is already completed by taking the possession of the shed. If the plot is already acquired the civil work follow.

2. Before commencing construction activities, the entrepreneur should obtain necessary licence from the Corporation or Municipal authorities other local authorities and should also ensure that the plan of the building conform to the norms stipulated by the Inspector of Factories.

Step (5) : Placement of Order and Procurement of Fixed Assets and Plant and Machinery
The orders are placed with selected suppliers. The timings of placing the order are decided on the delivery of suppliers so that the procurement of Plant and Machinery should synchronise with the completion of the building construction.

Step (6) : Power and Water Connection :
As the application for power and water connection has already been made, the required formalities are completed and water and electrical connections are obtains.

Step (7) : Procurement of Personnel and their Training

1. Two of the most critical points to be considered in terms of employees are productivity and Trust.
2. Untrained and unmotivated employees can cause a business to fail just as surely as strong competition or economic downtowns.
3. Before hiring process is started, careful analysis of business needs and specific duties of each new employee are required to be written very clearly. Determine the pay in terms of salary and benefits.
4. It enables to clarify and prioritise the‘skills, experience and qualities the enterprise seeking. The enterprise has to determikne the need to hire new and full time employees. This is also the time to formulate the Personnel Policy. An optimum balance between technical and commercial staff must be maintained.

Step (8) : Procurement of Raw Material :

1. The new enterpreneur will have to ensure timely flow of raw materials in anticipation of actual requirement before launching his hew product into the market.
2. He has to keep more sources of supply of the required raw materials, instead of depending on a single source of supply.

Step (9) : Installation and Commissioning of Plant and Machinery

1. The new entrepreneur should formulate a suitable layout which would facilitate production operations in the best possible manner.
2. The prospective entrepreneur should formulate a blue print covering the actual layout of factory and segregate the areas allocated for carrying out different operations in systematic manner.
3. Normally the suppliers of Plant and Equipment provide the services of installation and commissioning of their Plant and Equipment. However the entrepreneur along with his technical staff should co-ordinate the installations of different Plant and Equipment for perfect machinery and synchronisation.

Step (10) : Marketing

1. Marketing is the complex process of creating customers for products and services;
2. Effective marketing planning and promotion begin with gathering factual information about the market place.
3. A very important part of marketing plan should be overall promotional objectives : to communicate message, create an awareness of product or service, motivate customers to buy and increase sales.

Step (11) : Permanent Registration

1. Permanent Registration is obtained from District Industry Centres (DIC),. When the entrepreneur has taken all the steps to establish the unit i.e. where the factory building is ready, power connectioni is given, the machinery is installed etc., they may apply for Permanent Registration of a unit.
2. Within seven days of the receipt of appliation, the District Industries Officer or other designated officer informs the party, of the date and time for inspection of unit
3. On being satisfied that the unit is capable of production activity, a permanent registration Certificate will be issued by the Directorate of Industries.

Step (12) : Profit Generation and Repayment of Loan :

1. A successful entrepreneur should be ever vigilant about his cost of production and profit generation. If profits are not generated, he should find out the reasons and try to minimize his costs and adjust his production volume.
2. If, for any unforeseen reasons he is not able to make profits at a reasonable level of production, he should immediately take steps to remedy the situation.
3. Regarding the repayment of loan amount, normally banks and financial institutions insist on its payment along with interest charges by the borrower as per repayment schedule formulated in respect of the project. Normally permitted for repaying the instalments of the principal amount varies from 12 months to 24 months from the date of the first release of the loan.

Question 3.
Discuss the entrepreneurial opportunities provided by the state of Telangana.
Answer:
The opportunities provided by the government are very important environmental factor which induce the entrepreneurs to setup their enterprise. The Industrial policy framework for the state of Telangana has provided a grafti – free, hassle – free environment in which the entrepreneurial spirit of local, domestic and international investors will thrive to takeup their industrial units in the State of Telangana as the preferred investment destination. The various opportunities provided by Government of Telangana are detailed below :

1. An online and help desk grievance redressal system is available in place where entrepreneur is encouraged to report instances as corruption of any delays in performing timely tasks by Telangana state government departments.

2. The departments have developed a Minimum Inspection System where each industrial unit is inspected only once the 3/4 years and the cycle of inspections to be fixed in advance.

3. Self certification is encouraged and automatic renewals are implemented. There is a web based E – helpline facilities as well as physical help-desks at Hyderabad and District Head quarters.

4. The government introduced a Telangana State Industrial Project Approval and Self – Certification System (TS – iPASS) whereby a right to single window clearance, on the lines of the right to information, is bestowed for all applicants.

5. The Telangana State Government recognized 14 sectors as thrust areas, investments in which will be accorded a higher priority over others.

6. The special provision for the micro, small and medium enterprises are as follows :
(a) Adequate number fo smaller plots in industrial parks for SMEs and developed sheds for Micro units.
(b) Special fund for IP registrations assistance.
(c) Special fund for technology transfer and modernization of MSME sector.
(d) Marketing assistance to participate in national and international trade shows and buyer seller meets.
(e) Separate state level Bankers Committee for industries, particularly small and medium enterprises.

7. The government crated a corpus fund jointly with the industries and their associations which will act as a safety net for SMEs that face any crisis and run the risk of imminent sickness.

8. Each of districts of the state excluding Hyderabad have one or more industrial parks exclusively for women.

9. Special support to SC/ST entrepreneurs is offered through TS-PRIDE i.e., Telangana State Programme for Rapid Incubation of Dalit Entrepreneurs Some of the activities are as follows :
(a) A special direct funding programme for financing SC/ST entrepreneurs.
(b) Payment of Margin money on behalf of SC/ST entrepreneurs by the government and creation of Rs 5 crores for Margin Money Refund Scheme.
(c) State departmental procurement policy in tune with GDI’s SME procurement policy of 20%.
(d) Organising Intensive entrepreneur and skill development programmes.
(e) Subsidy eligibility if funded by CRISIL rated NBFCs.

10. To improve the productivity and income of Traditional Arts and Handicrafts like Nirmal Paintings. Dokra metal work, Bidriware, Pembarthy Brassware as well as textiles like Pochampally Ikat, Gadwal sarees and Warangal carpets, the Government of Telangana provides various programmes under T – HART Telangana State Handicrafts and Artisans Revival with Technology Program.

11. About 20 lakh acres of land is identified as unfit for cultivation in Telangana, which is transferred to the Telangana State Industrial Infrstructure Corporation for establishing industrial parks.

12. The TS IIC develops all required infrastructure in the industrial parks like approach roads, water supply, industrial tower, and common effluent treatment facilities and thereby the investor can begin the construction of his unit from the day of getting sanction letter.

13. The details of land in the industrial parks are made avilable on the website of TSIIC and the department of Industries and commerce. All required information like distance of the industrial park from nearest highway/railway station / airport / town, size of individual plots, photographs of the lands, google maps etc., are displayed.

14. Every Industrial park have plots earmarked for common facilities like electricity sub-stations, police outposts, five stations, e-seva centres, banks, petrol stations, canteens, local shopping etc.

15. The skill development programmes which are aimed to train the young entrepreneurs are undertaken by Telangana State Accelerated SSI sikns Training Centres of the Industries and Commerce Department.

16. The Telangana State Industrial Development and Entrepreneur Advancement Incentive Scheme is offering the following incentive^ to the entrepreneurs.
(a) Stamp duty reimbursement
(b) Land cost rebate
(c) Power cost reimbursement
(d) Power cost reimbursement
(e) Interest subsidy etc.

17. A conductive State taxation structure is devised for industrial growth and finance resource augmentation by the Telangana State Government. This helps in bringing inter-state tax rationalization on industrial inputs and outputs with neighbouring states.

Thus, the new industrial policy of government of Telangana provides many . opportunities to the industrislists, investors and entrepreneurs in the new state and promises to fulfill their aspirations.

Question 4.
Define startup and explain its prerequisites.
Answer:
I. 1) Meaning :

1. A startup is a company that is in the first stage of its operations.
2. Startup companies attempt to capitalise on developing a product or service for which the entrepreneurs believe that there is demand in the market.
3. The start ups are founded by one or more entrepreneurs with high costs and limited revenue. Hence, they require capital from different sources to meet their new venture requirements.

2) Definition :
The purpose of the government schemes startups are defined as an entities of private limited company under the Companies Act, 2013 Or a registered partnership firm under Indian Partnership Act 1932 or limited liability partnership under the Limited Partnership Act, 2008. They should work towards innovation or registered in India not prior to ten years, with annual turnover not exceeding Rs. 100 crores in any preceding financial year. They should work towards innovation, development, deployment of commercialization of new products, processes or services driven by technology or intellectual property.

3) Pre-requisites :
The pre-requisites of startups are as follows :
1. Company Age :
Period of existence and operations should not be exceeding 10 years from the Date of Incorporation.

2. Company Type :
Incorporated as a Private Limited Company, a Registered Partnership Firm or a Limited Liability Partnership.

3. Annual Turnover :
Should have an annual turnover not exceeding Rs. 100 crore for any of the financial years since its incorporation

4. Original Entity :
Entity should not have been formed by splitting up or reconstructing an already existing business.

5. Innovative and Scalable :
Should work towards development or improvement of a product, process or service and/or have scalable business model with high potential for creation of wealth & employment.

Question 5.
Explain the success of any two Indian enterpreneurs.
Answer:
India is a highly populated country with a population of morethan 130 crores. Every year on an average 1.2 crore are graduating from the universities. It is not.possible for any economy to provide employment to all of them. The successful entrepreneurs stories shall help them to become self employed. With this background view, an attempt is made to study the stories of some of the successful entrepreneurs of India and the state of Telangana.

1) Lakshmi Niwas Mittal :
Lakshmi Niwas Mittal is an Indian – bom steel magnet who is currently in the U.K. He is known as king of steel. He was bom on 15th June, 1950 at Sadulapur town in Rajasthan State. After graduating he served as a trainee at the mill, and in 1976 he opened his own steel mill in Indonesia. He spent more than a decade learning how to run it efficiently.

In 1989 Mittal purchased the state owned steel works in Trinidad and Tobago, which had been losing huge sums of money. A year later that facility had doubled its output and had become profitable. He used a similar formula for success in a series of acquisitions all around the world, purchasing failing outfits and sending in special management teams to recognize the business.

Mittal’s company controlled about’ 40% of American Market for the flat rolled steel used to make cars. In 2004 Mittal merged his companies, Ispat International and LNM Holdings and acquired Ohio-based International steel Group.

Status of Mittal:

1. Lakshmi Mittal serves as chairman & CEO of Arcelor Mittal, the world’s biggest steel maker whose revenue is $ 70.6 billion.
2. The Newly created Mittal steel Co, NV, emerged from the deal as world’s largest steel maker and oversaw another merger when mittal steel joined with Arcelor to form Arcelor Mittal.
3. Mittal has donated Rs. 3300 crores in July, 2020 to Oxford University to develop Covid-19 vaccine.

2) Sahitya Raj :
Sahitya Raj is young and successful woman entrepreneur from Hyderabad. She is an Electronics Engineer with an MBA degree. Sahitya Raj was working as a SAP-BI consultant at IBM, till 2017. As an employee of IBM, she got the opportunity to travel across the world. But her passion to become an entrepreneur made her to start the firm “Sweetooth” in the year 2018 as a small production unit at Madhapur in Hyderabad. She started a small kitchen in her rented apartment and delivered the products to the people known to her. The response received gave her confidence to carry on the business on a large scale. She is chose as one of the top fire entrepreneurs of 2020 by we Hub, Govt, of Telangana.

The product offered by Sahitya Raj are Gulabjamin, Cheese Cakes, butter scotch, rasmalai, burger buns, chocolates, etc. The Swertooth produces around 250 products which are available at popular cafes and restaurants across Hyderabad. Some of the clients are Barista Cafe, cream stone, zee left etc.

Sahita Raj’s Startup :

1. Sweetooth has grown from the home kitchen to a large production unit which employees more than 30 people.
2. It’s turnover is around Rs. 32 lakh a month business in the short span of time.
3. Decently, it has setup its retail outlets in IT Tech parks across Hyderabad.
4. Luring COVID period, she took under online business to serve the needs of the customers of sweetooth.
5. She is chosen as one of the top 5 women entrepreneurs for the year 2019-20 by WE HUB Govt, of Telangana.

Question 6.
Explain how the funds required for the startups can be generated?
Answer:
I. Funding of Startups :
Funding of the Startups may come from one or more sources. The following are the various sources for mobilizing the required finance for the Startups.

1. Organic Growth :
Grow the business Slowly based on its own sales, without the need to raise any external funds. Thus, the ned for funds depends on sales volume and new fund generated is used for expansion of the business.

2. Startup Loan :
The enterpreneur who starts a new business or he has been trading for longer than two, years, he is eligible for government backed startup loan. This loan is unsecured personal loan for business and repayable at fixed rate of interest.

3. Friends and Family :
The entrepreneurs of startups can also raise funds from friends and relatives. They may pay a fair rate of interest, sign a legal promissory note and repay the money as agreed.

4. Personal Savings :
Personal savings are commonly used funds to pay for startup costs. Since these funds are owners funds, they won’t incur any interest expense and financing startup becomes a easy task.

5. Supplier Credit :
The suppliers with whom startup company do business can be a source of funds if they extend favourable credit terms to startup. Normally a credit period of 30 days is extended to the company.

6. Leasing :
Leasing is a rental arrangement that gives startup the use of an asset. This will reduce the amount of initial investment required for the business unit.

7. Term Loans :
These loans are granted for a specific purpose and repayable at a regular intervals over a specified length of time. Term loan may range from short term to long term.

8. Factoring :
It is a transaction in which business sells its accounts receivable or invoices to a third party commercial financial company. Here, the entrepreneurs receive cash more quickly instead of waiting for customers payment.

9. Community Schemes :
These schemes are available to help individuals and business- denied credit by banks and lending companies. These schemes provide help with everything from bridging loans and working capital to funds for purchasing property and equipment.

10. Credit Cards :
The starts ups can also use business or personal credit card to pay business startup costs. The interest rate is lower but he has to repay the amount at regular intervals, otherwise it may attract penal interest also.

11. Venture Capitalists :
Venture capitalists invest their funds in the startups along with angle investors. They may refer to invest funds in such startups which are making revenues. Hence, many startups resent venture capital companies for failing to invest in a new venture or risky venture.

12. Government – Assisted Loans :
There are several loan programms in which government either directly lends to small business owners or provide a guarantee or repayment for other small business lenders.

Thus, we find different sources for mobilising the funds for financing the startups. These startups can also avail a number of benefits from government schemes with which the companies will have growth and prosperity.

Short Answer Type Questions

Question 1.
How a Startup is. Registered?
Answer:
Registration of Startup :
The process of registering Startup is detailed below :
1. Incorporating the Business :
The entrepreneurs have to firstly incorporate their business as a Private Limited Company or a partnership firm or a Limited Liability Partnership.

2. Registering as a Startup :
The entrepreneurs have to register their startups as Startups. For this they have to fillup the form online – log on the startup India website and the Telangana state Website. The application form is to be filled up with details of business.

Question 2.
How the startups are funded?
Answer:
Funding of the Startups may come from one or more sources. The following are the various sources for mobilizing the required finance for the Startups.

1. Organic Growth :
Grow the business slowly based on its own sales, without the need to raise any external funds. Thus, the ned for funds depends on sales volume and new fund generated is used for expansion of the business.

2. Startup Loan :
The enterpreneur who starts a new business or he has been trading for longer than two years, he is eligible for government backed startup loan. This loan is unsecured personal loan for business and repayable at fixed rate of interest.

3. Friends and Family :
The entrepreneurs of startups can also raise funds from friends and relatives. They may pay a fair rate of interest, sign a legal promissory note and repay the money as agreed.

4. Personal Savings :
Personal savings are commonly used funds to pay for startup costs. Since these funds are owners funds, they won’t incur any interest expense and financing startup becomes a easy task.

5. Term Loans :
These loans are granted for a specific purpose and repayable at a regular intervals over a specified length of time. Term loan may range from short term to long term.

6. Government – Assisted Loans :
There are several loan programms in which government either directly lends to small business owners or provide a guarantee or repayment for other small business lenders.

Question 3.
What factors influence a person to become an entrepreneur?
Answer:
The decision to become entrepreneur is influenced by a number of factors which are presented in the following chart.

6. Other factors.

All these internal and external factors are highly necessary for entrepreneurial activity to take place. The small entrepreneur motivated by internal factors, can fruitify his proposition to become entrepreneur when external factors such as financial assitance, technology and raw materials and infrastructural facilities are available. These facilities or assitance serve as a park in the lightening of the entrepreneurial idea.

Question 4.
What factors to be considered in the selection of an idea?
Answer:
For selecting suitable project to manufacture certain product or to provide any service following factors should be considered.

1. Is it an Innovative idea?
2. Whether competition in the area is less?
3. Whether raw material is easily available.
4. Whether infrastreatural facilities viz. Industrial land, power, water etc., are available?
5. Whether the entrepreneur has relevant experience and reasonable knowledge in the field?
6. If the product is being manufactured already, whether the demand-supply gap is large?
7. Whether Government policy encourages production of product ?
8. What is the profit margin available?

Question 5.
List out the various aspects to be covered in preparing a project report.
Answer:
1. According the task of project report preparation encompasses information under various heads. Necessary documents, quotations and enquiry should be attached . with the details under given heads to herm a project report.

2. It may not be out of place to emphasise that the project report should be prepared by entrepreneur himself. This not only would save his money but also clarify many doubts thereby making him more optimistic of the success of the project report.

3. A project report should normally cover brief introduction of the proposed project, constitution and nature of the unit, the details and promoters and products, marketing 1 and competitions, manufacturing process, machinery and plant capacity, raw materials availability, land and building, general management and technical staff involved, cost of the project means of finance, working capital requirements, cost of production and profitability, project schedule, repayment schedule, security offered etc.

Question 6.
What are the important confederations to be made in the selection of location and site of business enterprise.
Answer:
For any industrial project, selection of a suitable industrial site is vey important decision. The followiong are the importance consideration to be made in the selection of location site :

1. Nearness to market and nearness to raw materials.
2. Availability is power and water.
3. Availability of modem transporting system.
4. Taking an industrial shed with essential services such as water and power.
5. Availability of required skills.
6. Climatic conditions.
7. Concessions applicable for industrially backward areas.
8. Availability of freight, express and parcel delivery services.
9. Insured that the site allow for future extension.

Question 7.
Under which categories, the business units obtain their finances?
Answer:
Business units can obtain finance for their projects under force main categories.
1) Term loan :
Long term requirements for acquiring fixed assets like land and building, plant, machinery and for security deposits and working capital margin.

2) Bridge loan :
This loan is granted for a short duration to enable the entrepreneur to continue with implementation of the project till the term loan, applied for and sanctioned is disbursed by the financial institution.

3) Working capital :
Short term advances for working capital in the form or pledge/ hypothecation/cash/credit facility.

Question 8.
What are the formalities pertaining to permanent registration of a business unit?
Answer:

1. Permanent registration is obtained from district industry centres.
2. When the entrepreneur has taken all the steps to establish the unit i.e, where the factory building is ready, power connection is given, the machinery is installed etc., they may apply for permanent registration of unit.
3. Within seven days of the receipt of application, the district industries officer designated officer informs the party of the date and time for inspection of unit. The inspection includes an assessment of installed capacity of the unit.
4. On being satisfied that the unit is capable of production activity, a permanent registration certificate will be issued by the directorate of industries.

Question 9.
What are the thrust areas of investment indefined by the Government of Telangana?
Answer:
The Telangana State Government recognised 14 sectors as thrust areas, investments in
which will be accorded a higher priority over others. The thrust areas are

1. Life sciences including bulk drugs, formulations, vaccines, nutracenticals, biological, R & D facilities.
2. IT hardware including bio-medical device, electronics, cellular communications.
3. Precision engineering including aviation, aero-space, defence.
4. Food processing and nutrition products including dairy, poultry, meat and fisheries,
5. Automobiles, transport vehicles, Auto components, tractors and farm equipments.
6. Textiles and apparel, leather and leather value added products.
7. FMCG and domestic appliances.
8. Engineering and capital goods.
9. Gems and jewellery.
10. Waste management arid green technologies.
11. Solar parks and renewable energy.
12. Woodland mineral based industry.
13. Transportation.
14. Plastic, chemicals and petro chemicals.

Question 10.
What are the special provisions enacted by the Telangana State for the MSMCs?
Answer:
The special provision for the micro, small and medium enterprises (MSMEs) are as follows:

1. Adequate number of smaller plots in industrial parks for SMEs and developed sheds for micro units.
2. Special funds for addressing incipient sickness.
3. Special fund for IP registrations assistance.
4. Special fund for anti-pirating assistance.
5. Special fund for technology transfer and modernization of MSME sector.
6. Reimbursement of land conversion charges for units in own land.
7. Marketing assistance to participate in national and international trade shows.
8. Consultant panel to respond to MSME entrepreneur needs.
9. Separate state level bankers committee for industries Of SME’S. “

Question 11.
How the special support is extended by the government of Telangana to the SC/ST entrepreneurs in our state?
Answer:
Special support to SC/ST entrepreneurs is offered through TS-PRIDE. Some of the activities are as follows :

1. A special direct funding programme for financing SC/ST entrepreneurs.
2. Payment of margin money on behalf of SC/ST entrepreneurs by the Gcvemmenf and creation of ₹ 5 crores for margin money refund scheme.
3. Preferential allotment of plots in industrial parks and reservation of 22% land in Industrial Estates.
4. Supplier diversity opportunities in large industries.
5. State departmental procurement policy in tune with GOI’s SME procurement policy of 20%.
6. Organising intensive entrepreneur and skill development programmes programmes.
7. Subsidy eligibility if funded by CRISIL rated NBFCs.
8. Representation in all the districts and state level committee.
9. Interest subsidy for service sector units, other than transport sector.

Question 12.
What are the steps initiated by Telangana Government for improving the productivity and income of traditional arts and handicrafts of our region?
Answer:
To improve the productivity and income of Traditional arts and Handicrafts like Nirmal paintings, Dokra metal work, Bidriware, Pembarthy Brassware as well as textiles, like Pochampally Ikat, Gadwal sarees and Warangal carpets, the Government of Telangana provide various programmes under T-HART Telangana State Handicarfts and Artisans Revival with technology program.

1. Cluster approach for specific arts and crafts.
2. Identification and documentation of arts and crafts.
3. Technology upgradation and design support centres.
4. Skill upgradation and quality improvement.
5. Common facility centres.
6. Registration support.
7. Niche product development.
8. Marketing assistance and marketing events participation.

Question 13.
What are the incentives offered by Telangana State Industrial Development and Entrepreneurs Advancement Incentive Scheme to the entrepreneurs.
Answer:
The Telangana State Industrial Development and Entrepreneur Advancement Incentive Scheme is offered by the State Government under which the following incentives are offered to the entrepreneurs :

1. Stamp duty reimbursement
2. Land cost rebate
3. Land conversion cost
4. Power cost reimbursement
5. Investment subsidy
6. VAT reimbursement
7. Interest subsidy
8. Training and skill development cost reimbursement
9. Quality and patent support
10. Reimbursement of infrastructure development costs

Very Short Answer Type Questions

Question 1.
Startup:
Answer:

1. A startup is a company that is in the first stage of its operations.
2. Startup companies attempt to capitalise on developing a productor service for which the entrepreneurs believe that there is demand in the market.
3. They should work towards innovation, development of a new products, processes or services driven by technology or intellectual proverty.

Question 2.
Project Report.
Answer:
It is the document prepared by the entrepreneur where he has to put his ideas and other information in black and white.

Question 3.
Project Appraisal
Answer:
It is the process of examining the viability of a project which is based on technical feasibility, and marketability of the products.

Question 4.
Provisional Registration.
Answer:
Provisional registration enables a party to take the necessary steps to bring the unit into existence. After providing satisfactoy proof of the unit having come into existence, it can be converted into a regular registration later. Application for provisional registration is submitted to the district industries centre.

Question 5.
Industrial Licence.
Answer:

1. Various administrative bodies have been set upto consider requests for the issue of industrial licence.
2. The industrial licence is issued on furnishing evidence that the prescribed conditions are fulfilled.
3. Under the IDRAct 1951 an industrial licence is necessary for manufacturing of fuels, electronical equipments, telecommunications, transportations, chemicals etc.

Question 6.
Term Loans.
Answer:
It is the loan required for long term needs for acquiring fixed assets like land & buildings plant and machinery etc.

Question 7.
Bridge Loans.
Answer:
It is short term loan which enable the entreprenour to continue with the impl%nentation of the project till the term loan is applied and obtained.

Question 8.
Working Capital
Answer:

1. Working capital is the capital that is required by a business to run its day-to-day operations.
2. Short-term advance for working capital in the form of pledge/cash/credit/bills facility.

Question 9.
Uploading Documents :
Answer:
After duly filling, out the application form, the following documents are required to be uploaded.

1. Letter of recommendation/support.
2. Certificate of incorporation of the company.
3. Registration certificate in case of the partnership firm.
4. Description of the business and innovative nature of their products and services.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 5th Lesson Entrepreneurship Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 5th Lesson Entrepreneurship

Long Answer Type Questions

Question 1.
Define entrepreneur and explain the characteristics.
Answer:
Meaning :

1. The word entrepreneur is derived from from the French word “Entrepredre” which mean “Undertake i.e. individual who undertake the risk of new enterprise.
2. An entrepreneur should be one who bears, innovates and organises the business.
3. Entrepreneur is an economic agent who unites all means of production to maximize his profits by Innovations.

Definitions :

1. According to F.Dc Bolidar, entrepreneur is a person who performs the task of bringing labour and material at certain price and selling the resultant product at a contracted price.
2. The American heritage dictionary defines an entrepreneur as “a person who organise, operate and assumes the risk for a business venture”.

Characteristics of an Entrepreneur :
1. Innovation :

1. Innovation means doing newthings. or doing of things that are already being done in a new way
2. Entrepreneurs deals with the changes. He does not countinue with the old ideas. Entrepreneurs tend to tackle the unknown.

2. Risk Taking :
Any new business poses risk for enterpreneurs. They may succeed or fail. Thus entrepreneur main characteristic is bearing the risk.

3. Self confidence :
Entrepreneurs beliyes in themselves. They have the confidence that they can change the existing position.

4. Hard work :
Entrepreneurs are hard workers to get the desire results entrepreneurs put in longer hours of work. They are not depend on others.

5. Goal setting :
Entrepreneur get happiness by setting and striving for goals. Reaching one goals set by entrepreneur will lead to the setting up of another goal.

6. Accountability :
Entrepreneurs take success or failure to their stride. Credit for success, balance for the failure will go to entrepreneurs they are responsible and accountable for results.

7. Leadership :
Leadership represents an abstract quality of a man it is the process of directing, guiding and influencing the people to do their best for the attainment of a specified god. The entrepreneur’s leadership acts like a motive power to group efforts. Hence, the entrepreneur must possess good leadership qualities to become on successful entrepreneur.

8. Managerial skills :
The managerial skills of an entrepreneur refer to ability to formulate a clear policy, ensuring proper balance between the duties, responsibilities, rights and authority of different personnel. Hence the entrepreneur required the managerial skills, for achieving he goals of the enterprises.

Question 2.
Explain the functions of an entrepreneur.
Answer:
Modem writers have emphasised that an entrepreneur is supposed to perform the following functions:

1. Innovation :

1. The word entrepreneur is associated with innovation. Innovation means doing new things, or the doing of things that are already being done in a new way.
2. Innovation includes production of new products, creation of new markets, introduction of new method of production, discovery of new and better channels of supply of raw materials and creation of new organisational structure.
3. According to Schumpeter, the basic function of an entrepreneur is to innovate.

2. Risk Bearing :

1. Due to unforeseen contingencies like changes in consumer tastes, techniques of production, government policies and new inventions, there may be losses which are bom by the entrepreneur.
2. He is an enterprising person willing to assume the risks involved in inventions, new ventures and expansions.
3. J.B. Say and others stressed risk taking as the specific function of the entrepreneur.

3. Organisation and Management :

1. The entrepreneur has to decide, the nature and type of goods and services to be produced. He brings together the various factors of production, such as land, labour, capital.
2. In order to minimicse the losses, entrepreneur allocatges resourcees more judiciously. He makes required alternation in the size of the business, its location, techniques of production etc.
3. Entrepreneur also undertakes the managerial functions like formulation of production plans, organisation of sales and personnel management.
4. Alfred morshasll, organisation and management of the enterprise is main function of an enterprineur.

4. Business Planning :

1. The entrepreneur must provide a logical and scientific basis for planning the business operations like need of raw materials, and men, production schedules, sales, inventory, advertising, budgetary allocation etc.
2. For a systematic business planning, the entrepreneur must be able to formulate goals, policies, procedures, programmes and budgets.
3. Proper planning minimises the cost, activities are taken up in an orderly manner, guides the business along predetermined channel and highly helpful in performance of other managerial functions.
4. Hence, the entrepreneurs have to give utmost importance to this function as it pervades all other managerial functions.

5. Decision Making :

1. Another important function discharged by entrepeneur is the decision making. He has to take decisions regarding the activities of the enterprise.
2. He is expected to make a number of decisions to run and maintain business concern. The function of decision making is considered as vital for the success and growth of any business entiry.

Question 3.
Explain the functions of an entrepreneur.
Answer:
I. Danhof classification of Entrepreneurs :
Danhof has classified entrepreneurs into four categories
1) Innovating entrepreneurs,
2) Adoptive (or) -imitative entrepreneurs,
3) Fabian entrepreneurs,
4) Drone entrepreneurs.

1) Innovating entrepreneurs :
He introduces new products, new methods of production and opens new market. Innovating entrepreneur experiments.

2) Adoptive (or) imitative entrepreneurs :
This type of entrepreneurs instead of innovating new things they just adopt the successful innovations innovated by others. In such cases the imitative innovations may make some changes in the innovations made by the innovative entrepreneur so as to suit their requirements.

3) Fabian entrepreneurs :
These are entrepreneurs rigid and fundamental in approach. They follow the foot steps of their successors. They are shy to introduce new methods and ideas. Fabian entrepreneurs are no risk takers.

4) Drone entrepreneurs :
They resist changes. They are laggards. They may close down their business but they don’t accept for changes.

II. Other catetories of Entrepreneurs :
1) Individual entrepreneurs :
There are found in small scale business firms. When an individual setup an enterprise, arrange finance, bear the risk and adopt the latest techniques in the business with an intention to earn profits, he is called as an individual entrepreneur.

2) Institutional entrepreneurs :
In the case of business organisations where complex decisions are required to be taken, group entrepreneurs or institutional entrepreneurs emerge to arrange finance, bear the risk and adopt latest technological changes with an intention to earn profits.

3) Entrepreneurs by inheritance :
This type of entrepreneurs are found in India, where a person inherit the bustiness of the family through succession. They ae also called as second generation entrepreneurs since they inherit the family business firms and pass it from one generation to another.

4) Forced entrepreneurs :
Force people to become entrepreneurs. Rich people from agriculture sector, unemployed youth, non-resident indians may belong to this group.

5) Industrial entrepreneurs :
Industrial entrepreneur through research or otherwise estimate customer needs and wants manufacture the products to cater to their needs.

6) Agricultural Entrepreneurs :
Agricultural entrepreneurs are normallyh engaged in the activity of raising crops and marketing crops, fertilisers and ohter inputs of agriculture. They are also engaged in allied agricultural activity.

7) Spontaneous entrepreneurs :
This type of entrepreneurs are in quite contrast with induced entrepreneurs. They commerce their business out of their confidence and talent. They are not induced by other agencies.

8) Pure entrepreneurs :
Pure entrepreneurs is one who undertakes any activity to satisfy his ego. He is motivated to achieve or prove his excellence.

9) Motivated entrepreneurs :
These are induced or motivated government or non-government agencies which may be providing financial and other assistance, concessions, subsidies, training etc.

10) Professional entrepreneurs :
Professional entrepreneurs make it as a profession in commencing a business. They develop a business and sell it to somebody and start another business to sell its to others.

Question 4.
Distinguish entrepreneur and entrepreneurship.
Answer:
The following table may help us to understand the distinction between entrepreneur and entrepreneurship.

Short Answer Type Questions

Question 1.
What is Business Planning?
Answer:
Business Planning :

1. The entrepreneur must provide a logical and scientific basis for planning the business operations like need of raw materials, and men, production schedules, sales, inventory, advertising, budgetary allocation etc.
2. For a systematic business planning, the entrepreneur must be able to formulate goals, policies, procedures, programmes and budgets.
3. Proper planning minimises the cost, activities are taken up in an orderly manner, guides the business along predetermined channel and highly helpful in performance of other managerial functions.

Question 2.
What are the risk bearing function of entrepreneurs?
Answer:

1. Due to unforeseen contingencies like changes in consumer tastes, techniques of production, government policies and new inventions, there may be losses which are born by the entrepreneurs.
2. Entrepreneurs, in the game of business wherein risks and rewards are a plenty will be ready to accept them.
3. He is an enterprising person willing to assume the risks involved in inventions, new ventures and expansions.

Question 3.
How innovation function is different fro invention functions of an entrepreneur?
Answer:
1) Innovation means doing new things that are already being done in a new way. Innovation includes production of new products creation of new market, introduction of new, method of production discovery of new and better channels of supply of raw materials and creation of new organisational structure.

2) Innovation is also different from invention. Invention implies discovery of new ideas, new articles and new methods whereas, innovations means the application of inventions and discovery to make a new and desired products and services that can be successfully sold in market.

3) Invention in creation of a new product, where as innovation mean adding value to that product.

Question 4.
How danhof classified the entrepreneurs?
Answer:
Danhof has classified entrepreneurs into four categories 1) Innovating entrepreneurs, 2) Adoptive (or) imitative entrepreneurs, 3) Fabian entrepreneurs, 4) Drone entrepreneurs.
1) Innovating entrepreneurs :

1. He introduces new products, new methods of production and opens new market.
2. Innovating entrepreneur experiments and converts the attractive possibilities into practice.

2) Adoptive (or) imitative entrepreneurs :

1. This type of entrepreneurs instead of innovating new things they just adopt the successful innovations innovated by others.
2. In such cases the imitative innovations may make some changes in the innovations made by the innovative entrepreneur so as to suit their requirements.

3) Fabian entrepreneurs :

1. These are entrepreneurs rigid and fundamental in approach. They follow the foot steps of their successors.
2. They are shy to introduce new methods and ideas. Fabian entrepreneurs are no risk takers.

4) Drone entrepreneurs :

1. They resist changes. They are laggards. They may close down their business but they don’t accept for changes.
2. Drone enterpreneurs are refuse to adopt changes.

Very Short Answer Type Questions

Question 1.
Entrepreneurs.
Answer:
He is an economic agent who unites all means of production, to maximize his profit by innovations.

Question 2.
EnterpMrise.
Answer:
It is unit of economic organisation. An organisation created for business venture.

Question 3.
Entrepreneurship.
Answer:
It is a purposeful activity of an individual or a group of associated individuals under – taken to initiate, maintain and to earn profit by production or distribution of economic goods and services.

Question 4.
Balanced Regional Develolpment.
Answer:
Entrepreneurs in the public and private sectors help to remove regional disparties by setting up industries in the backward areas. Government give to various concessions and subsidies to the entrepreneurs.

Question 5.
Leadership.
Answer:
Leadership represents an abstract quality of a man it is the process of directing, guiding and influencing the people to do their best for the attainment of a specified god. The entrepreneur’s leadership acts like a motive power to group efforts. Hence, the entrepreneur must possess good leadership qualities to become on successful! entrepreneur.

Question 6.
Innovation.
Answer:

1. Innovation means doing newthings. or doing of things that are already being done in a new way
2. Entrepreneurs deals with the changes. He does not countinue with the old ideas. En-trepreneurs tend to tackle the unknown.

Question 7.
Adoptive Entrepreneur.
Answer:

1. This type of entrepreneurs instead of innovating new things they just adopt the successful innovations innovated by others.
2. In such cases the imitative innovations may make some changes in the innovations made by the innovative entrepreneur so as to suit their requirements.

Question 8.
Fabian Entrepreneur.
Answer:

1. These are entrepreneurs rigid and fundamental in approach. They follow the foot steps of their successors.
2. They are shy to introduce new methods and ideas. Fabian entrepreneurs are no risk takers.

Question 9.
Drone entrepreneur.
Answer:

1. They resist changes. They are laggards. They may close down their business but they don’t accept for Changes.
2. Drone enterpreneur are refuse to adopt charges.

Question 10.
Forced entrepreneurs.
Answer:
Some circumstances force people to become entrepreneurs. Rich people from agriculture sector, unemployed youth, non-resident indians may belong to this group.

Question 11.
Industrial entrepreneurs.
Answer:
Industrial entrepreneur through research or otherwise estimate customer needs and wants manufacture the products to cater to their needs. He is essentially a manufacturer.

Question 12.
Spontaneous entrepreneurs.
Answer:
spontaneous entrepreneurs are in quite contrast with induced entrepreneurs. They commerce their business out of their confidence and talent. They are not induced by other agencies.

Question 13.
Pure entrepreneurs.
Answer:
Pure entrepreneurs is one who undertakes any activity to satisfy his ego. He is motivated to achieve or prove his excellence.

Question 14.
Corporate entrepreneurs.
Answer:
Corporate entrepreneur is one who promotes a corporation. A corporate undertaking is formed and registered under a statute which gives a separate legal entity.

Question 15.
Motivated entrepreneurs.
Answer:
These ace induced or motivated government or non-government agencies which may be providing financial and other assistance, concessions, subsidies, training etc.

Question 16.
Professional entrepreneurs.
Answer:
Professional entrepreneurs make it as a profession in commencing a business. They develop a business and sell it to somebody and start another business to sell its to others. They are not interested in managing or operating a business with is established by them.

Question 17.
Classical entrepreneurs.
Answer:
He is a sterotype entrepreneur whose main aim is to maximise his economic returns at a level consistent with the survival of the unit but with or without an element of growths.

Question 18.
Small scale entrepreneurs.
Answer:
On the basis of scale of operation of the unit entrepreneurs may be classified as large scale, medium scale and small scale industry entrepreneur. He is essentially a manufacturer. He manufactures the products in small scale and tiny industry. Government given many facilities to these small scale industry entrepreneurs.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 10th Lesson Functions of Management Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 10th Lesson Functions of Management

Long Answer Type Questions

Question 1.
What are the main points in the definition of planning?
Answer:
Planning is deciding in advance what to do and how to do. It is one of the basic managerial functions. Before doing something, the manager must formulate an idea of how to work on a particular task. Thus planning is closely connected with creativity and innovation. But the manager would first have to set objectives, only then will a manager know where he has to go. Planning seeks to bridge the gap between where we are and where we want to go. It requires taking decision since it involves making a choice from alternative course of action.

Planning involves setting objectives and developing appropriate courses of action to achieve these objectives. Objectives provide direction for all managerial decisions and actions. All members need to work towards achieving organizational goal. These goals set the targets which need to be achieved. This plan should be forecasting the future course of events. There are many steps in planning.
a) Determination of objectives for whole organization.
b) Laying down policies to be followed.
c) Laying down the standards of performance.
d) Preparation of budgets for whole organization.

Question 2.
Do you think planning can work in a changing environment?
Answer:
Planning can work in changing environment explained below.
1) Focus on objectives :
Planning determines the objectives of the enterprise and also various departments, for devises the ways for achieving the objectives, good plan is required. Planning compels the managers to consider the future and make them to recognize the need for revising and extending plans in the light of dynamic business environment,

2) Economical operation :
The working of the enterprise will be systematic a*.., purposeful. Under planning, there will be jointly directed effort instead of uncoordinated decisions are made on the .basis of facts. The resources are utilized in the best possible way.

3) Reduces uncertainty and change :
An enterprise works in a dynamic world. The future is uncertain. Changes take place in business environment, economic policies and supply of resources. There may be changes in technology. Planning can work in changing environment.

4) Facilitates control :
Planning helps the managers to exercise proper and effective control over the subordinates. In planned organization, the work to be done is determined in advance. This enables the management to check on the performance of subordinates.

Question 3.
If planning involves looking ahead, why does it not ensure success?
Answer:
Planning involves looking ahead why does it not ensure success are.
1) Uncertain future :
Planning is made on the basis of estimate of the conditions in future. Forecasting is done on the basis of information and facts collected. Even if the collected information is reliable. The future is uncertain and cannot be predicted accurately.

2) Rigid :
In planning, policies, procedures and programmes are determined in advance. They have to be followed by the employees. This restricts personal freedom. Individual initiative is suppressed. Thus, planning leads to inflexibilities and rigidities.

3) Expensive :
Planning requires more time and money for preparation. It involves heavy expenditure. Large organizations must consider the benefits of planning in relation to the expenditure. Small organizations cannot afford planning as it is time consuming and costly process.

4) Investment :
Changes in the environment requires over locking aspect of capital already invested in the business in the form of equipment. Managers develop a strong feeling so that committed managers to recovery of captial sunk as a result of some earlier decision that future planning is constrained and limited to its recovery, and very often capital so invested itself becomes a planning premise.

5) External factors :
These are external factors of planning which has no control at all by the internal agencies. Personnel policies and decisions may be limited aspects of labour union pressure specifically when union is conducting its activities at national level. The rules framed by governments, its rules, directives, and legal provisions also results in setting for planning.

Question 4.
What are the types of planning?
Answer:
1) Strategic planning :
Strategic planning means the process of formulating an integrated plan related to strategic benefits of the enterprises to meet the challenges of the business environment. It consists of identifying the strategy, the objectives to be achieved in future.

Strategic planning is a periodic in nature. It facilitates to coordination between departments in the organization.

2) Operational planning :
It is a short term practice designed to implement the strategy made under strategic planning. To carry on this plan the firm should prepare short term plan regarding the policy to make in the organization.

Question 5.
Dose organizing and explain the steps in organising?
Answer:

1. Organising in the process of defining and grouping activities and establihing authority and relationships among them.
2. Organising essentially implies a process which co-ordinates human efforts, assembles resources and integrates both into a unified whole to be utilized for achieving specified objectives.

Prof. Urwick defines “organization as determining what activities are necessary to any purpose and arranging them in groups which may be assigned to individuals”.

The process of organization consists of the following steps :
a) Identification and division of work.
b) Departmentalization.
c) Assigning the responsibilities. .
d) Establishing reporting relationships.

A process of organising are following steps.

1) Identification and division of work :
The first step in the process of organising involves identifying and dividing the work that has to be done in accordance with previously determined plans. The burden work can be shared among the employees.

2) Departmentalization :
Once work has been divided into small and manageable activities then those activities which are similar in nature are grouped together. Such sets facilitate specialization. This grouping process is called departmentalization.

3) Assignment of duties :
It is necessary to define the work of different job positions and accordingly allocate work to various employees. Jobs are then allocated to the members of each department in accordance to their skill and competencies.

4) Establishing reporting relationships :
Merely allocating work is not enough. Each individual should also know who has to take orders from and to whom he is accountable. The establishment of such clear relationships helps to create a hierarchical structure and helps in coordination among various departments.

Question 6.
Explain the meaning of controlling and explain its importance?
Answer:
Meaning of Controlling :

1. Control means seeing that everythig is taking place with the established rules and expressed commands.
2. Controlling is the process of ensuring that actual activities conform to planned activities.
3. Controlling also helps in judging accuracy of standards, ensuring efficient utilization of resources, boosting employeee morale, creating an atmosphere of order and discipline in the organization and coordinating different activites so that they all work together in one direction to meet targets.

Importance of controlling :
Control is an indispensable function of management Without control the best of plans can be misleading. A control system helps an organization in the following ways.

1. Accomplishing organizatinal goals :
The controlling function measures progress towards the organizational goal and bring to light the deviations indicating corrective action. It guides the organization on the right track so that organizational goals may be achieved.

2. Judging accuracy of standards :
A good control system enables management to verify whether the standards set are accurate and objective. An efficient control system keeps a careful check on the changes taking place in the organization to review the standards.

3. Making efficient use of resources :
By use of control a manager reduces wastages and spoilage of resouces. Each activity is performed in accordance with predetermined standdards and norms. These ensure that resources are used in the most effective and efficient manner.

4. Improving employee motivation :
A good control system ensures that employees know well in advance what they are expected to do and what are their standards of performances based on which they are appraised.

5. Ensuring order and discipline :
Controlling creates an atmosphere of order and discipline in the organization. It helps to minimize dishonest behavior on the part of the employees by keeping a close check on heir activities.

Question 7.
What is POSDCORB? What are its uses and limitations?
Answer:

1. As per “Luther Gullick” the functions of management are “POSDCORB”.
2. “POSDCORB” means planning, organising, staffing, Directing, co-ordinating, reporting and budgeting.
3. ‘POSDCORB’ represents the initial words of management functions.

Uses and Application of POSDCORB :

1. POSDCORB is used as a good starting point to analyze management functions and activities in a structural way to achieve organizational goal.
2. If benefits the organizations in structuring and analysing the management activities.

Limitations :

1. Mark Mopre believed that POSDCORB is too inward looking. In his view, the single most important job of a manager is understanding and shapint the environment of the organization, by means of the services it delivers to its customers and clients.
2. According to Dr. Lewis Meriam, the most important thing has been omitted in the fascinating world POSDCORB is knowledge of a subject matter. Because managers have to plan something, managers have to organize something, and managers have to direct something, Compare the training facility within the industry but do not pay any attention to what managers should achieve.

Question 8.
Explain the importance of organising in an enterprise?
Answer:
Importance of Organising :
In order for any business enterprise to perform tasks and successfully meet goals, the organising function must be properly performed. The following points highlight the crucial role that roganising plays in any business enterprise.

1) Benefits of specialization :
Organising leads to a systematic allocation of jobs amongst the work force, this reduces the workload as well as enhances productivity because of the specific workers performing a specific job on a reguiar basis. Repetitive performance of a particular task allows a worker to gain experience in that area and leads to specialization.

2) Clarity in Working Relationships :
The establishment of working relationships clarifies lines of communication and specifies who is to report to whom. It helps in fixation of responsibility and specification of the extent of authority to be exercised.

3) Optimum Utilization of Resources :
Organising leads to the proper usage of all maerial, financial and human resources. The proper assignment of jobs avoids overlapping of work and also makes possible the best use of resources. Avoidance of duplication of work helps in preventing confusion and minimizing the wastage of resources and efforts.

4) Adaptation to Change :
The process of organising allows a business enterprise to account moderate changes in the business environment. It provides much needed stability to the enterprise as it can then continue to survive and grow inspite of changes.

5) Effective Administration :
Organising provides a clear description of jobs and related duties. This helps to avoid confusion and duplication. Clarity in working relationships enables proper execution of work. Management of an enterprise thereby becomes easy and this brings effectiveness in administration.

6) Development of Personnel :
Organising stimulates creativity amongst the managers. Effective delegation allows the managers to reduce their workload by assigning routine jobs to their subordinates. It gives them the time to explore areas for growth and the opportunity to innovate thereby stengthening the company’s competitive position.

Short Answer Type Questions

Question 1.
What are the main features to be considered by the management while planning?
Answer:
1) Planning is an intellectual process :
In thinking of the objectives the manager goes through the intellectual process. The quality of planning will vary according to the quality of the mind of the manager.

2) Planning is goal oriented :
All planning is linked up with certain goals and objectives.

3) Planning is a primary function of management :
Planning has been described as the most basic of all managerial functions. Manager decides upon the policies, procedures, programms and projects.

4) Planning is directed towards efficiency :
The concept efficiency is implicit in planning. In planning, the manager evaluates the alternatives on the basis of efficiency.

Question 2.
What are the steps taken by management in the planning process?
Answer:
1) Awareness of business opportunity :
There will be many business opportunities. The management must be made aware of an opportunity.

2) Determination of objectives :
Objectives clearly state the results to be achieved by the management. They indicate what is to be done and on which greater emphasis should be placed.

3) Determining planning premises :
The management must makes assumptions about the future behaviour of various factors and forces which influence business.

4) Determining alternative course of action :
After evaluating the various alternatives the most suitable course of action is selected as the plan.

5) Formulating the derivative plans :
Once proper course of action is selected it is necessary to prepare derivative plans to support the basic plan.

Question 3.
Define staffing process and the various steps involved in it.
Answer:
Staffing is putting people to jobs. It begins with work force planning and includes different other functions like recruitment, selection, training, development, promotion, compensation and performance appraisal of work force.

Various steps involved in staffing following are :
1) Estimating the man power requirement :
Each job position requires the appointment of a person with a specific set of educational qualifications, skills, experience and so on. Thus understanding manpower requirement is not only a matter of knowing how many persons we need but also of what type.

2) Recruitment :
Recruitment is the process of searching for prospective employee and stimulating to apply for jobs in the organization.

3) Selection :
Selection is the process choosing from among the prospective job candidates developed at the stage of recruitment.

4) Placement and Orientation :
After submitting the joining report by the employee at work place, the employee is given brief presentation about the company.

5) Training and Development :
Organizations either have in – house training centers or have alliances with training institutes to ensure continuing learning. If the employee motivation is high, their competencies are strengthened.

Question 4.
Explain the procedure for selection of employees.
Answer:
Selection is the process of choosing from among the prospective job candidates developed at the stage of recruitment. Selection serves two important purposes. Firstly, it ensures that the organization gets the best among the available and secondly, it enhances the self esteem and prestage of those selected and conveys them seriousness with which the things are done in the organization.

Those who are able to successfully negotiate the test and interviews are offered an employment, a written document containing the offer of employment, the terms and conditions and date of joining.

Question 5.
Explain the principles of directing.
Answer:
The principles are explained below.
i) Maximum individual contribution :
This principle emphasizes that directing techniques must help every individual in the organization to contribute to his maximum potential for achievement of organizational objectives.

ii) Harmony of objectives :
Good directing provides harmony by convincing that employee rewards and work efficiency are complimentary to each other.

iii) Appropriateness of direction technique :
According to this people, appropriate motivational and leadership technique should be used while directing the people based on the needs of subordinates capabilities, attitudes and other situational variables.

iv) Unity of command :
This principle insists that a person in the organization should receive instructions from one superior only.

v) Managerial communication :
Effective managerial communication across all the levels in the organization makes direction effective. Directing should convey clear instructions to create total understanding subordinates.

vi) Use of informal organization :
A manager should realize that informal groups or organization exist within every formal organization.

vii) Leadership :
Managers should exercise good leadership as it influence the subordinates positively while directing the subordinates without causing dissatisfaction among them.

Question 6.
“Plainning is looking ahead and controlling is looking back” comment.
Answer:
Planning is deciding in advance what to do and how to do planning involves setting objectives and developing appropriate course of action to achieve these objectives.

Control means seeing that everything is taking place with the established rules and expressed commands. Controlling is the process of ensuring that actual activities conform to planned activities.

Planning provides rules and standards where controlling compared the actual work with the standards laid in the planning.

Thus, we can says that, “planning is looking ahead and controlling is looking back”.

Very Short Answer Type Questions

Question 1.
Features of Planning.
Answer:
The following are the features of planning :

1. Planning is an intellectual process.
2. Planning is goal oriented.
3. Planning is a primary function of management.
4. Planning is directed towards efficiency.

Question 2.
Process of organising.
Answer:
The following are the process of organising :

1. Identification and division of work.
2. Departmentalization.
3. Assignment duties.
4. Establishing reporting relationships.

Question 3.
Organization Structure.
Answer:
It is the process which co-ordinates human efforts, assembles resourses and integrates both into a unified whole to be utilized for achieving specified objectives.

Question 4.
Staffing.
Answer:
It is the process of management which is concerned with obtaining, utilizing and maintaining a satisfactory and satisfied work.

Question 5.
Need for staffing.
Answer:

1. Helps in discovering and obtaining for various jobs.
2. Puttings right person on the right job.
3. Optimum utilization of human resources.
4. Improve job satisfaction.

Question 6.
Importance of Directing.
Answer:

1. The importance of directing can be understood by the fact that every action in the organization is initiated through directing only.
2. Directing guides employees to fully realize their potential,
3. Directing guides towards achieving of common objectives.

Question 7.
Meaning of control.
Answer:

1. Controlling in the process of entering that actual activities conform to planned activities.
2. To control means seeing that everything is taking place in conformity with the established rules and expressed commands.

Question 8.
Relationship between planning and control.
Answer:

1. Planning is deciding in advance what to do and how to do planning involves setting objectives and developing an appropriate cause of action.
2. Controlling is the process of ensuring that actual activities conform the planned activities.
3. planning provides rules and standards where controlling compared the actual work the standards laid in planning, thus, “planning is looking a head and controlling is looking back”.

Question 9.
POSTCORB.
Answer:

1. As per “Luther gullick” the functions of management are “POSDCORB”.
2. “POSDCORB” means planning, organising, staffing, Directing, co-ordinating, reporting.and budgeting.
3. ‘POSDCORB’represents the initial words of management functions.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 4th Lesson Insurance Services Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 4th Lesson Insurance Services

Long Answer Type Questions

Question 1.
Define Insurance. What are the principles of Insurance?
Answer:
Meaning :

1. Insurance is a social device for spreading the chance of financial loss among a large number of people.
2. Insurance is “a contracct where by, for specified consideration, one party undertakes to compensate the other for a loss relating to a particvular subject as a result of the occurrence of designated hazards”.

Definition :
According to Oxford Dictionary, insurance is “an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium”.

I. Utmost Good Faith :

1. The contracts- of insurance are included in the category of contracts those contracts . which requiere absolute and utmost faith on the part of the parties concerned.
2. Insurance contracts of any kind, each one of the parties is under an obligation to make the fullest disclosure all such facts which may some bearing on the decision of the other party to enter into such contract.

II. Insurable Interest:

1. No person can enter into a valid contract of insurance unless he has insurable interest in the object or life insured. Insurable interest is in the nature of financial interest in a life or thing.
2. If there is no insurable interest such conditions, insurance contracts would be wager- mg contracts which are not valid and therefore, cannot be enforced at law.

III. Indemnity :

1. According to this principle, the insured may not collect more than actual loss.
2. All contracts of insurance, expect for life insurance contracts, are contracts of indemnity the principle of indemnity does not apply to life and other kinds of personal insurance.

IV. Subrogation :

1. According to the principle the insurer becomes entitled to all ‘rights of the insured regarding the subject – matter of insurance after the claim of the insured has been fully and finally settled’.
2. If the goods may have been partially damaged or the property may not have been fully destroyd. In such cases, the insured may try to obtain the value of scrap in addition to the money received in settlement of the claim.

V. Contribution :

1. Sometimes a person may get his goods insured with more than one insurer. In the event of loss the companies concerned will follow the principle of contribution.
2. Each company will contribute that proportion of the loss which the policy issued by it bears to the total amount for which insurance has been effected with all the companies.

VI. Mitigation of lose :

1. According to this principle it is the duty of the insured to take all such steps to mitigae or minimize the loss.
2. The idea behind this principle is that the insured should not become careless and inactive in the event of the mishap merely because the property which is getting dam-aged is insured, he must, instead, act like any uninsured prudent man. ,

VII. Causa proxima :

1. If loss is caused by series of events the insurance company will meet the losses only if it is definitely established that the said loss was caused directly by an event covered by the policy
2. The maxim in this regard is ‘Causa Proxima non remota optima’ i.e. the nearest or the direct cause and not the remote cause is to be looked to.

Question 2.
Explain the functions of Insurance. .
Answer:
The functions of insurance can be divided in two parts :
i) Primary Functions
ii) Secondary Functions

I. Primary Functions :
a) Insurance provides certainty :
Insurance provides certainty of payment at the un-certainty of loss, there are uncertainty of happening of time and amount of loss. Insurance removes all these uncertainty and the assured is given certainty of payment loss. The insurer charges premium for providing the said certainty.

b) Insurance provides protection :
The main function of the insurance is to provide protection against the probable chances of loss. The insurance guarantees the payment of loss and thus protects the assured from sufferings.

c) Risk – Sharing :
When risk takes place, the loss is shared by all the persons who ae exposed to the risk. The share is obtained from each and every insured in the shape of premium

II. Secondary Functions :
a) It Prevents Loss :
The insurance joins hands with those institutions which are
engaged in preventing the losses of the assured and so more saving is possible which will assist in reducing the premium. .

b) It Provides Capital :
The insurance provides capital to the society. The accumulated funds are invested in productive channel. The industry, the business and the individual are benefited by the investment and loans of the insurers.

c) It Improves Efficiency :
The insurance eliminates worries and miseries of losses at death and destruction of property. It improves not only his efficiency, but the efficiencies of the masses are also advanced.

d) It helps in Economic Progress :
The insurance by protecting the sociey from huge losses of damage, destruction and death provides an initiative to work hdnd for the betterment of the masses.

Question 3.
Describe the Life Insurance. Explain the different types of policies.
Answer:
Meaning :
“A life insurance contract may be defined as a contract where by the insurer, in consideration of a premium, paid either in lump – sum or in periodical installments undertakes to pay an annuity or a certain sum of money, either on the death of the insured or on the expiry of a certain number of years”.

Types of Life Insurance Policies :
Most of the life insumce policies are variations of the two basic types of policy, namely, ‘
i) Whole, life policiy and
ii) Endowment policy.

i) Whole life policy :

1. This policy run for the whole term of life of the assured. It is also called an ordinary policy.
2. The assured sum under such a policy becomes due forpayment to the beneficiary only after the death of the assured person. This means that the assured has to pay premia on such a policy throughout his life – time.
3. The premium on this type of life policy is, low. It is meant for the protection of family.

ii) Endowment Life Policy :

1. This policy runs only for a iimited period or up to a particular age. The policy money becomes due at the end of the period specified in the policy.
2. Incase, however, the assured dies before the specified time, the policy money is paid at the time of death. The premia have to be paid till the date of maturity, i.e. the time when the policy becomes payable. This type of live policy combines the advantage of investment for oldage with that of protection for the assured’s family in the event of his premature death.
3. Under pure endowment policies, he policy money becomes payable only if assured survives the endowment term; If he dies before th endowment term, nothing is payable. Under a double endowment assurance, the insurer agrees to pay to the assured double the amount of the insured sum if he lives on beyond the date of maturity of policy.

The details of various life insurance policies offered by Insurance companies are given below:
a) Annuity Policy :
In this policy, the amount of the policy is paid in the form of annuities for a specified number of years or till the death of the assured.

b) Sinking Fund Policy :
Such a policy is taken with a view to providing for the payment of a liability or replacement of an asset.

c) Term Assurance Policy :
The amount of this policy is made payable only when a person dies before a certain date or age. In such a policy, generally the premium is low at the starting but rises gradually with the passage of years. It also called as “Ascending Scale Policy.

d) Doubel Accident Indemnity Policy :
This policy provides that if the insured dies because of an accident, his survivors will get double the amount of policy.

e) Joint Life Policy :
This type of policy is taken upon the joint lives of two or more persons. Its amount can be claimed by the survivor whenever one of them dies.

f) Group Insurance Policy :
Such a policy may be taken on the lives of the members of a family or of the employees of a business concern.

g) Janata Policy Scheme :
A Janata Policy issued for terms of 10, 15 or 25 years provided that the policy should not mature beyond 60 years of age. It can be issued only up to the age of 45 years for a person. ‘No medical examination is required in regard to persons aged 35 or below at the time of taking out the policy.

Question 4.
What is the marine Insurance? What are the kinds of polices covered under Marine insurance?
Answer:
This type of insurance it is an arrangement by which the insurance company agree to indemnify the owner of a ship cargo against risks which are incidental to marine adventure.

Types of Marine Insurance :
i) Time policy :
This is a policy where by the subject matter is insured for a specific period of time. It is suitable mainly for hull insurance though it may be taken out also for movables and other goods when small quantities are involved.

ii) Voyage policy :
This policy is meant to insurance the subject matter in transit from one place to another. The subject matter insured under such a policy is generally cargo which is exposed to marine risks in the course of transit.

iii) Mixed policy :
It is also known as time and voyage policy. It seeks to insure the subject matter on particular voyage for a specific period of time.

iv) Floating policy :
It is used by the cargo owners who make regular shipments of cargo’s to insure the shipments expected to be* made during a certain period by one policy.

v) Blanket policy :
It is taken for a certain amount but the premium is paidtm the whole of it in the beginning of the policy and is read justed at the end of the term of the policy in accordance with the actual amount and risks as shown by records of the insured.

vi) Fleet insurance policy :
It is designed to insurance a whole fleet of liners or steamers.

vii) Valued policy :
In this policy the value of the subject matter is agreed between the under writers and the insured at the time of taking the insurance and is specified in the policy itself.

viii) Miscellaneous Insurance policies :
A number of insurance policies meant to cover a variety of other risks are also issued by general insurance companies.

Question 5.
What is Fire Insurance Explain various types of Fire Insurance?
Answer:
Fire Insurance Meaning :
Fire Insurance is an agreement where by one party, in return for a consideration, undertakes to indemnity the other party against financial loss or damage or goods destroyed by fire or other defined perils upto an agreed amount.

The following types of fife policies are commonly used :
I. Types Fire Insurance Policies :

1. Valued Policy
2. Average Policy
3. Specific policy
4. Floating Policy
5. Excess Policy
6. Blanket Policy
7. Comprehensive Policy
8. Consequential Policy
9. Re-instayrmmy Policy

1) Valued Policy :
It is a policy in which the value of the property is ascertained and / or agreed upon and the insurer undertakes to pay his agreed value in the event of the destruction of property by fire.

2) Average Policy :
a) An average policy is that which contains the average clause. The average clause in such a policy lays down that if the property is under insured, the insurer shall bear only that proportion of the actual loss as his insurance bears to the actual value of property at the time of loss.

For example :
If a person insures his property for Rs. 15,000 while the loss is assessed at Rs. 8,000 and the market value of the property at the time of loww is Rs. 20,000, the claim will be settled Rs 6,000. i.e., [\(\frac{15,000}{20,000}\) × 8000]

3) Specific policy :
A specific policy is that which insures a risk for specific sum. In case of any loss to the property insured under such a policy, the insurer will pay the whole loss of the insured provided that it does not exceed the specified sum mentioned in the policy. The value of the whole property is not considered for, this purpose.

4) Floating Policy :
A floating policy is that which covers one or several kinds of goods lying in different localities under one sum and for one premium.

5) Excess Policy :
a) When the stock of a merchant fluctuates, he may take out a policy for an amount below which his stocks do not fall and another policy to cover the maximum additional amount by which the stock may rise at times for example : If a merchant’s stock varies between Rs. 1,00,000 and Rs. 1,50,000, he may take the first loss polity for Rs. 1,00,000 and an Excess Policy for Rs. 50,000.

6) Blanket Policy :
It is issued to cover al assets – fixed as well as current, Of the insured under one insurance.

7) Comprehensive Policy :
Such Policies are generally issued to cover such risks as fire, explosion, lightning, thunderbolt, riot, civil, commotion, strikes, burglary, loss of rent oipto a certain limit, etc. These are also called ‘AH Insurance Policies.

8) Consequential Policy :
The purpose of this type of policy is to indemnify the insured against the loss of profit caused by any interruption of business by fire. It is also caUed ‘Loss of Profit Policy’.

9) Reinstalment Polity :
Under such a policy, the insurer pays the amount which is required to reinstate the asset or property destroyed. Thus, in calculating the amount of claim, depreciation is not deducted from the original value of the asset.

Question 6.
What is IRDA? Explain the powers and functions of IRDA?
Answer:

1. IRDA means Insurance Regulatory and Development Authority. On the recommendation of Malhotra Committee, the Government of India set up the IRDA as regulatory body to regulate and control the insurance business in India and to protect the interests of the policy holders.
2. IRDA was established by an act in indian Parliament known as IRDA Act, 1999, and it was amended in 2002.

Powers and functions of IRDA :
a) Protection of interests of policy holders in matters concerning assigning of policy nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contract of insurance.
b) Specifying-the requisite qualifications and practical training for insurance intermediaries or agents.
c) Specifying in the code of conduct for surveyors and loss assessors.
d) Promoting efficiency in the conduct of insurance business.
e) Promoting and regulating professional organizations connected with insurance, reinsurance business, levying fees and other charges for carrying out the purpose of IRDA Act.
f) Calling for information from undertaking inspection of conducting enquiries and litigations, including audit of insurers, insurance, intermediaries and other organizations connected with the insurance business.
g) Regulating investment of funds by insurance companies, regulating maintenance of margin of solvency.
h) Adjudication of disputes between insurers and intermediaries.
i) Supervising the functioning of the tariff advisory committee.
j) Excercising such other powers as may be prescribed.

Short Answer type Questions

Question 1.
State the features of Insurance.
Answer:
The following all the characteristic features of insurance :

I. Risk sharing device :
The basic function of insurance is to provide protection against certain or uncertain losses. The financial loss on the happening of certain events like death, fire, theft, accident etc. which an individual entity alone cannot bear it. This risk is equitably distributed over many through insurance. Thus, risk sharing forms the core featue of insurance.

II. Co-operative device :
The peculiar featue of an insurance contract is that a alarge number of persons, who are subject to similar losses come forward and agree to share the loss, arising due to a certain risk which is insured. Thus, it is a cooperative endeavor.

III. Protective device :
Insurance provides protection against all risks of loss. In absence of insurance, all losses have to be borne by the insured himself which is humanly impossible, Thus insurance serves as a tool of protection.

IV. Risk measurement device :
The insurance contract presupposes the evaluation of risk before insuring so that the amount of share of each insured towards the probable loss can be determined.

V. Payment device :
In an insurance contract, the insurer agrees to pay a certain sum on the happening of a certain event, which may or may not occur.

Question 2.
Differentiate Insurance and Assurance.
Answer:
The two terms “insurance” and Assurance are frequently used to mean one and the same thing. But the terms insurance and assurance are not synonymous.

Question 3.
What is the composition of IRDA?
Answer:
The IRDA would consist of a chairperson and not more than nine members of whom not more than five would be full-time members, to be appointed by the Government from amongst persons of ability, intergrity and standing who have knowledge or experience of life insurance or general insurance or actuarial service, finance, economics, law, accountancy, administration or any other discipline which can be extended upto the age of 62 for full-time members. However, the chairman can hold office upto the age of 65.

Question 4.
Explain the endowment policies offered under life insurance.
Answer:

1. This policy runs only for a limited period or up to a particular age. The policy money becomes due at the end of the period specified in the policy.
2. In case, however, the asured dies before the specified time, the policy money is paid at the time of death. The premia have to be paid til the date of maturity, i.e the time when the policy becomes payable.
3. Under pure endowment policies, the policy money becomes payable only if assured survives the endowment term; if he dies before the endowment term, nothing is payable. Under a double endowment assurance, the insurer agrees to pay to the assured double the amount of the insured sum if he lives on beyond the date of maturity of policy.

Very Short Answer type Questions

Question 1.
Fire Insurance.
Answer:
It is an agreement where by one party in return for a consideration, undertakes to indemnify the other party against financial loss or damage or goods destroyed by fire or other defined perils upto an agreed amount.

Question 2.
Role of IRDA.
Answer:

1. To protect the interest of the policy holders.
2. To promote, regulate and ensure orderly growth of the insurance industry.
3. Conduct insurance business across India in an ethical manner.

Question 3.
Mixed policy.
Answer:
It is also known a time and voyage policy. It seeks to insurance the subject matter on a particular voyage for a specific period of time.

Question 4.
Endowment policy.
Answer:
It runs only for a limited period or upto a particular age. The policy money becomes due at the end of the period specified in the policy. In case however, the assured dies before the specified time the policy money is paid at the time of death.

Question 5.
Insurance
Answer:
Insurance is a contract where by, for specified consideration, one party undertakes to compensate the other for a loss relating to aparticular subject as a result of the occurence of designated hazards.

Question 6.
Surrender value.
Answer:
It is the value at which policy holder devides to surrender his policy before its maturity. A policy acquires surrender value after it has run for at least 3 years.

Question 7.
Valued policy.
Answer:
It is a policy in which the value of the property is ascertained and / or agreed upon and the insurer undertakes to pay his agreed value in the event of the destruction of property by fire.

Question 8.
Floating policy.
Answer:
It is used by the cargo owners who make regular shipments of cargo’s to insure the shipments expected to be made during a certain period by one policy.

Question 9.
Average policy.
Answer:
a) An average policy is that which contains the average clause. The average clause in such a policy lays down tht if the property is under insured, the insurer shall bear only that proportion of the actual loss as his insurance bears to the actual value of property at the time of loss.

b) For example :
If a person insures his property for Rs. 15,000 while the loss is assessed at Rs. 8,000 and the market value of the property at the time of loss is Rs. 20,000, the claim will settled at Rs 6,000 i.e [\(\frac{15,000}{20,000}\) × 8000]

Question 10.
Comprehensive policy.
Answer:
Such Policies are’ generally issued to cover such risks as fire, explosion, lightning, thunderbolt, riot, civil, commotion, strikes, burglary, loss of rent upto a certain limit, etc. These are also called ‘All Insurance Policies.

Question 11.
Marine policy.
Answer:
Marine insurance policy is an arrangement by which the insurance company or the under writer, agree to idemntify the owner of a ship or cargo against risks which are incidental to marine adventure.

Question 12.
Time policy.
Answer:
This is a policy where by the subject matter is insured for a specific period of time. It is suitable mainly for hull insurance though it may be taken out also for movables and other goods when small quantities are involved.

Question 13.
Voyage policy.
Answer:
This policy is meant to insure the subject matter is in transit from one place to another. The subject matter insured under such a policy is general cargo that is exposed to marine risks in the course of transit.

Question 14.
Whole life policy.
Answer:

1. This policy runs for the whole term of life of the assured. It is also called an ordinary policy.
2. The assured sum under such a policy becomes due for payment to the beneficiary only after the death of the assured person. This means that the assured has to pay premia on such a policy throughout his lifetime.
3. The premium on this type of life policy is low. It is meant for the protection of the family.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 9th Lesson Principles of Management Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 9th Lesson Principles of Management

Long Answer Type Questions

Question 1.
What are the principls of management?
Answer:
Principles of Management :
Henry Fayol is known for the general principles of management formulated by him in the 20^th century. Hence, he is called as ‘Father of Management’. Fayol’s principles of management are as follows :

Fayol’s principles of management are as follows :

1. Division of Labour :

1. Division of labour leads to specialization which increases the efficiency of individual employees.
2. Fayol recommended that work of all kinds must be subdivided and allocated to number of persons. Sub division makes each task simpler and results in greater efficiency, by repeating a small’part of work the individual acqires speed and accuracy in his performance. This principle is applicable to both technical as well as managerial work.

2. Parity of Authority and Responsibility :

1. Authority refers to the right of a superior to give order to subordinate, take decision on specified matters, use resources of the organization, and guide and regulate the behavior of subordinates.
2. Responsibility includes with respect to performance of functions and achieving goals in the satisfactory manner.
3. The principle of parity suggests that there must be parity between authority and responsibility. Giving authority without corresponding responsibility can lead to arbitrary and unmindful use of authority.
4. Similarly, if a person is given some responsibility he must also be given adequate authority. Lack of necessary authority makes the individual ineffective.

3. Discipline :

1. Discipline in the context of management means obedience, proper conduct in relation to others and complying with the rules and regulations of the organization.
2. Discipline is required not only on the part of workers but also on the part of management, It is facilitated if there are good supervisors at all levels, rules are clear, and penalties ae imposed with fairness.

4. Unity of Command :

1. The principle states that a subordinate should receive orders and be accountable to one and only, one superior.
2. No employee, therefore, should receive instructions from more than one person. The principle is necessary to avoid confusion and conflict.

5. Unity of Direction :

1. According to this principle, the efforts of all the members of the organization should be directed towards common goals. A group of activities having the same objective must have one head and one plan.
2. For this purpose there should be one hed and one plan for a group of activities having the same objectives.
3. The principle seeks to ensure unity of action, co-ordination of strength and focusing of effort.

6. Subordination of individual to general interest:

1. The interest of one employee or group of employees should not prevail over that of the company organization.
2. The interest of the firm as a whole is more important than the interest of an individual or group of person.
   3) Individual interest must be subordinaed to the general interest or the interest of the whole firm.

7. Remuneration of personnel :

1. To maintain the loyalty and support of workers, they must receive full and fair wage for services rendered.
2. Remuneration should provide maximum possible satisfaction to employees and em-ployer. They should put in their best effors to improve productivity.

8. Centralization :

1. It refers to the extent to which authority is concentrated or dispersed.
2. The appropriate degree of centralization will vary with different concerns.
3. Under centralization managers or executives play an important role.

9. Scalar Chain :

1. The scalar chain is the chain of superiors ranging from the ultimate authority to the lowest ranks.
2. It shows the line of authority from the highest executive to the lowest one for the purpose of communication.
3. This will help an employee to know the person whom he sould contact for advice and guidance.

10. Order :

1. Order requires that there is a place for everything and everything in its place.
2. Social order requires the employment of ‘the right man in the right place’.

11. Equity :

1. Equity is a combination of kindliness and justice. It seeks to elicit loyalty and devo-tion from personnel.
2. The managers should show kindness and justice in dealing with their subordinaes.
3. The application of the principle equity leads to successful working of the firm.

12. Stability of tenure of personnel :

1. Every employes must feel that he enjoys security of the job. If he knows that he has to work at one place only, he will take interest in the give his best performance.
2. If there is no stability of tenue, he loses interest in the job and wits for an opportunity to quit the firm. It is said instability, of tenure is an evidence of bad running of affairs.

13. Initiative :

1. Initiative involves thinking out and execution of a plan and ensuring its success. This gives zeal and energy to an organization.
2. Fayol advised managers to allow employees. Show initiative as much as possible. The freedom to propose a plan and to execute it is known as initiative.
3. It will enable employees to experience the keenest satisfaction from their jobs.

14. Esperit de crops :

1. It implies that union is strength, which comes from the harmony of the personnel.
2. It emphasizes the importance of teamwork and group endeavors,
3. The management should never adopt divide and rule policy. It should encourage team spirit and team work. This ensures smooth working of the organization.

Question 2.
Management is considered to be both on art and science. Explain.
Answer:
Management is considered both an art and science, because it is systematized knowledge which Provides laws capable of universal application and has a cause and effect relationship.

Management is an art :

1. The application of management skills is governed by the type of aptitudes and ability possessed by the manager, which are highly personalized blending of imagination, creativity and insight.
2. This permits management being described as an art. Management cannot be compared with sciences like physics, chemistry or mathematics so far the degree of precision is concerned.
3. No doubt, mangement is a science, but not as exact in its results as in the case of physics or chemistry. This is for the simple reason that management science deals with human beings who are more widely influenced by a number of material factors.
4. Management as science is still in the evolutionary stage and management is practiced as yet largely as an art like the earlier period. But the growing needs of management service have evolved it as a profession.

Management is science :

1. Science is a systematized body of knowledge pertaining to a specific field of study and contains general facts that explain a phenomenon. It establishes the cause and effect relationship between two or more factors and ascertains the underlying principle governing the relationship.
2. Theories are being continuously formulated as an aid to a more systematic analysis of managerial behavior thus resulting in the study of management moving into the man-agement science.
3. This expression stresses the constant search for evolving and verifying principles and rules as well as for further knowledge resulting.in the emergence of managerial tech-niques effective universally.
4. Scientific method or attitude has been increasingly adopted by good managers towards performance of their job of managing.
5. They have developed inquiring minds which first attempt to identify the problem, for hypothesis or tentative solutions, then investigate in terms of current knowledge and even controlled experiments, classify the data so obtained and develop it into alternative courses of action.

Question 3.
What are the contributions of Henry Fayol in the field of management?
Answer:
Henry Fayol is known for the general principles of management formulated by him in the 20^th century. Fayol graduated in 1860 as a mining engineer. Henry Fayol, an engineer; industrial magnate and he was a successful cheif executive with a large experience in the field of general Administration and Management.

Fayol developed general theory of organization, and administration to all organizations. He wrote “to manage is to forecast and plan, to organize, to command to coordinate and to control”.

Fayol’s contribution to the science of management may be summerised as follows :
a) Classification of industrial activities.
b) Classification of managerial functions.
c) Universal principles of management.
d) Significance of management function.
e) Managerial qualities and training.
f) Macro approach to management.
g) Human aspect of management.

Henry Fayol has been rightly called “The father of the management”. He has identified 14 principles of management those are division of labour, authority and responsibility, discipline, unity of command; unify of direction; subordination; remuneration; centralisation, scalar chain, order, equity, stability of tenure; initiative; esperit-de-corps etc.

Question 4.
Explain the nature of management.
Answer:
1. Science as well as an Art :
Managemen is considered both a science and an art, because it is systematized knowledge which provides laws capable fo universal application and has a cause and efffect relationship.

2. Social Responsibility :
Management has been accepted as a profession in the area of discipline and its responsibilities have increased. A manager is not only answerble to his employer but equally to the society. He is considered to be .the representative of the society also and has to care for the interests of the consumers as well.

3. Mamagement has a Distinct Entiry :
Managers at the higher level do not work at the operative level. They get the work done by others. Organisation get success in maximum output of work at minimum imput in the form of man power, materials and time. Management is a process of universal application and it is required at each and every level of organization.

4. Purposive Activity :
Management is always aimed at achieving certain specified objecives. It is a tool which helps efficient use of human and physical resources to accomplish the predetermined goals. Management has no justification to exist without objectives.

5. Management is Pervasive :
Management is relevant for all types of organizations- economic political and political. Wherever more than one person is engaged in working for a common goal, management is necessary. That is why it is asserted that management is an essential element of organized activity irrespective of the type or size of the activity.

6. Management is a Group Activity :
Management is concerned with a group activity. It involves the use of group efforts in the achieving predetermined objectives.

Question 5.
What are the objectives of management?
Answer:
In any organisation there are different objectives and management has to achieve the objectives in an effective and efficient manner. Objectives of any business entity can be classified into Organizational objectives, Social objectives and Personal or individual objectives.

i) Organizational Objectives :

1. Management of a business is responsible for setting and achieving objectives for it ssuccess.
2. It has to achieve a variety of objectives in all areas considering the interest of all stakeholders including shareholders, employees, customers and government.
3. The main objective of any organization should be to utilize human and material resources to the maximum possible advantage i.e, to fulfil the economic objectives of a business. These are survived, profit and growth.

ii) Social Objectives :

1. It involves the creation of benefit for society. As a part of society, every organization whether it is business or non-business, has a social obligation to fulfill.
2. This includes using environmental friendly methods of production, giving employment opoortunities to the disadvantaged sections of society and providing basic amenities like schools and creches to employees.

iii) Peraonal Objectives :

1. Organizations are made up of person who have different personalities, backgrounds, experiences and objectives.
2. They all become part of the organization to satisfy their diverse needs. These vary form financial needs social needs growth and development.
3. Management has to reconcile personal goals with organizational objectives for har-mony in the organization.

Question 6.
Explain the significance of Management.
Answer:
Management plays an important and crucial role in a changing and complex society, whatever is the political philosophy, or structue of a society.

1. Management assembles and organizes available resources for achieving of the goals of an enterprise.
2. Management helps in improving the quality of lives of the people in the society by developing the human as well as non-human resources of production.
3. Management has to face and solve numerous labour problems which arise almost every day in society and industrial organizaion.
4. Management has to accomplish the objectives set forth in the beginning by any industrial organization.
5. Management ability is put to test when it helps organization to survive in the market under free cut-throat competition.
6. Management provides stability in the society by changing and modifying the resources or production in the fast changing economic and social environment.
7. Various factors of production are inter-related and interdependent each contributing to the efficiency of others. Management strikes proper balance among them by securing maximum efficiency.
8. Management provides maximum utilization of scarce resources by selecting its best possible alternative use in industry from out of various uses to which it can be put.
9. Management helps an organization to survive in its dynamic environment. Good management enables an enterprise to adjust to the complex and every changing external environment.

Question 7.
What are the characteristics of Management?
Answer:

1. Management is the process of planning organizing, staffing, directing and controlling the enterprise resources efficeintly and effectively for achieving the goals of the organization.
2. According to RF. Drucker, “Management is a multipurpose organ that manages a business and manages managers, and manages workers and work”.

CHARACTERISTICS :
The following are the important characteristics of management.
1. It is an Economic Activity :
Management is part and parcel of every economic activity of man who struggles for better living in his existing society moulded under different management aspects like planning, coordianting, controlling etc.

2. It is a creative activity :
Management is creative, purposeful, group, motivating, economy oriented and delegating activity, and above all decision-making activity.

3. It gets things done through others :
It is its purpose that management gets the things done through other people. It does not perform the work itself but helps others to do. It coordinaes individual actions into a team.

4. It coordinates efforts :
In any organization a group of people is involved in working. The management activity brings about a co-ordinated efforts of many individuals and small groups towards organisational objective.

5. It is a process :
Management is the process which managers create, direct, maintain and operate purposive organizations through systematic, Coordinative human efforts.

6. Its goal oriented :
The purpose of management is to achieve certain goals. If the objective of a comp is to maximize profit, steps may be taken to reduce the cost or production and add new line of product or replace the existing machine with automated machine to provide maximum output which results in attaining the aim of maximum profits.

7. If acts as a group :
Management refers to a group of people who together carryout various managerial activities. All the managers from the chief executive to the first line supurvisors are collectively addressed as management.

8. It is a discipline :
Management is recognized as formal discipline having an organized body of knowledge which can be learnt through instructions and teaching. All over world scholars are doing research on the principles and practices of management.

Question 8.
Explain the levels of Management?
Answer:
There are threee levels of management which are explained here under :

A. Top level :
1) According to of E.F.L Brech, the functions of top level, which actually are board of directors, Managing Director, Chief Executive and General Manager, who establishes policies, plans and objecives.
2) It needs more human skills, innovative decision making conceptual clarity to compare the technical skills.

3) The functions include :
i) Fixing the objectives of the enterprise and protecting the interests of the enterprises’ as its trustees;
ii) Evaluating the achievements of the enterprises
iii) Selecting the chief executive, allocating the incomes, discussing the complicated and serious matters.

B. Middle Level:

1. Middle level management bridges gap between Top level management and Lower level management.
2. Departmental heads of various departments are finance manager, personnel manager, production or marketing manager etc.
3. Their main function is to implement the policies and programs formulated by the top management for the execution and to render valuable services for the successful operation of their deparments.

C. Lower Lelvel:

1. Lower level management consist of superintendents, supervisors and foremen who are in touch with direct arrangement of workers.
2. Supervisors are those having authority to exercise independent judgement in hearing, discharging, disciplining, rewarding and taking other actions of a similar nature with respect to employees. In offices they are known as supervisors and in factories as foremen.
3. In the present age, supervisors have an important place in the management hierarchy and they are considered as ‘friends, guides and well wishers of labour.

Question 9.
Is management science or Art? Explain.
Answer:
Management is considered both an art and science, because it is systematized knowledge which Provides laws capable of univerwsal application and has a cause and effect relationship.

Management is an art:

1. The application of management skills is governed by the type of aptitudes and ability possessed by the manager, which are highly personalized blending of imagination, creativity and insight.
2. This permits management being described as an art. Management cannot be compared with sciences like physics, chemistry or mathematics so far the degree of precision is concerned.
3. No doubt, mangement is a science, but not as exact in its results as in the case of physics or chemistry. This is for the simple reason that management science deals1 with human beings who are more widely influenced by a number of material factors.
4. Management as science is still in the evolutionary stage and management is practiced as yet largely as an art like the earlier period. But the growing needs of management service have evolved it as a profession.

Management is science :

1. Science is a systematized body of knowledge pertaining to a specific field of study and contains general facts that explain a phenomenon. It establishes the cause and effect relationship between two or more factors and ascertains the underlying principle governing the relationship.
2. Theories are being continuously formulated as an aid to a more systematic analysis of managerial behavior thus resulting in the study of management moving into the management science.
3. This expression stresses the constant search for evolving and verifying principles and rules as well as for further knowledge resulting in the emergence of managerial techniques effective universally.
4. Scientific method or attitude has been increasingly adopted by good managers towards performance of their job of managing.
5. They have developed inquiring minds which first attempt to identify the problem, for hypothesis or tentative solutions, then investigate in terms of current knowledge and even controlled experiments, classify the data, so obtained and develop it into altemative courses of action.

Short Answer Type Questions

Question 1.
Define Management.
Answer:
Generally mangement has been defined as “getting things done through others”.

Definitions :

1. Management is a multipurpose organ that manges a business and manages managers and manages workers and work. – Peter F. Drucker.
2. Management is the art of knowing what you want to do and then seeing that it is done in the best and cheapest way”. – F.W. Taylor.
3. “To manage is to forecast and to plan, to organize, to*command, to co-ordinate and to control.” – Henry Fayol.

Question 2.
Name any two important dcharacteristics of management.
Answer:
The following are the important characteristics of management.

1. It is an economic activity.
2. It gets things done through others.
3. It is a creative activity.
4. It co-ordinates efforts.
5. It is a process.
6. It is goal oriented.
7. It acts as a group.
8. It is a discipline.

1) It is an economic activity :
Management is part and parcel of every economic activity of man who struggles for better living in his existing society, the fate of which is rather moulded by management under different aspects like planning, co-ordinating, controlling etc., It is the sum total of those activities.

2) It gets things done through others :
It is its purpose that management gets the things done through other people. It does not perform the work itself but helps to do. It co-ordinates individual actions into a team. In any organization a group of people is involved in working towards a common objective. Whatever the managers do they have some purpose in it. Managers motivate people to get things done through them.

3) It is a creative activity :
Management is creative activity-purposeful activity-group activity – motivating activity – economy oriented activity – delegating activity and above all, a decision – making activity.

Question 3.
What is the meant by unit of Direction.
Answer:
Unity of Direction :

1. According to this principle, the efforts of all the members of the organization should be directed towards common goals. A group of activities having the same objective must have one head and one plan.
2. For this purpose there should be one hed and one plan for a group of activities having the same objectives.
3. The principle seeks to ensure “unity of action, co-ordination of strength and focusing of effort.

Question 4.
What are the basic features of management as a profession?
Answer:

1. Profession refers to an occupation, which is supported a well-defined of knowledge that can be learnt through instruction, in which entry is restricted by examination or education and which is associated with service to others above self interest.
2. The view of management is progressively changing. Managers must receive training in management and possess requisite educational qualifications.
3. In the field of management does not any professional association as that of Bar Council of India for practicing lawyers, chartered accountants, cost accountants and company secretaries and so on.
4. In some respects management qualify as a profession but it does not have certain features which generally are recognized as profession.
5. We may say that the management is emerging as a profession backed by a number of principles, techniques and tools have developed which need proper training, education and learning.

Question 5.
Is Management Art?
Answer:
Management is an art :
The application of management skills is governed by the type of aptitudes and ability possessed by the manager, which are highly personalized blending of imagination, creativity and insight. This permits management being described as an art. Management cannot be compared with sciences like physics, chemistry or mathematics so far the degree of precision is concerned. No doubt, mangement is a science, but not as exact in its results as in the case of physics or chemistry.

This is for the simple reason that management science deals with human beings who are more widely influenced by a number of material factors. Management as science is still in the evolutionary stage and management is practiced as yet largely as an art like the earlier period. But the growing needs of management service have evolved it as a profession.

Question 6.
Is Management Profession.
Answer:

1. Profession refers to an occupation, which is supported a well-defined of knowledge that can be learnt through instruction, in which entry is restricted by examination or education and which is associated with service to others above self interest.
2. The view of management is progressively changing. Managers must receive training in management and possess requisite educational qualifications.
3. In the field of management does not any professional association as that of Bar Council of India for practicing lawyers, chartered accountants, cost accountants and company secretaries and so on.
4. In some respects management qualify as a profession but it does not have certain features which generally are recognized as profession.
5. We may say that the management is emerging as a profession backed by a number of principles, techniques and tools have developed which need proper training, education and learning.

Question 7.
Is management a science?
Answer:
Management as science :
Science is a systematized body of knowledge pertaining to a specific field of study and contains general facts that explain a phenomenon. It establishes the cause and effect relationship between two or more factors and ascertains the underlying principle governing the relationship. Theories are being continuously formulated as an aid to a more systematic analysis of managerial behavior thus resulting in the study of management moving into the management science.

This expression stresses the constant search for evolving and verifying principles and rules as well as for further knowledge resulting in the emergence of managerial techniques effective universally. Scientific method or attitude has been increasingly adopted by good managers towards performance of their job of managing. They have developed inquiring minds which first attempt to identify the problem, for hypothesis or tentative solutions, then investigate in terms of current knowledge and even controlled experiments, classify the data so obtained and develop it into alternative courses of action.

Question 8.
What are the organisational objectives of Management?
Answer:
Organizational Objectives :

1. Management of a business is responsible for setting and achieving objectives for it ssuccess.
2. It has to achieve a variety of objectives in all areas considering the interest of all stakeholders including shareholders, employees, customers and government.
3. The main objective of any organization should be to utilize human and material resources to the maximum possible advantage i.e., to fulfil the economic objectives of a business. These are survival, profit and growth.

Question 9.
What is top level management.
Answer:
Top level:
1) According to of E.F.L Brech, the functions of top level, which actually are board of directors, Managing Director, Chief Executive and General Manager, who establishes policies, plans and objecives.

2) It needs more human skills, innovative decision making conceptual clarity to compare the technical skills.

3) The functions include :
i) Fixing the objectives of the enterprise and protecting the interests of the enterprises’ as its trustees;
ii) Evaluating the achievements of the enterprises :
iii) Selecting the chief executive, allocating the incomes, discussing the complicated and serious matters.

Question 10.
Distinguish management and administration.
Answer:
Management and Administration :
Administration is considered as wider in scope in comparison with management. Administration is concerned with policy making for achieving objectives whereas management is considered as executing the policy.

Distinction between Management and Administration :

1. Administration lays down broad goals and objectives for which the industrial enterprises have been set up. Management formulates plans which would lead to the fulfillmen of the enterprise objectives.
2. Administration lays down broad policies and principles for guidance. Management execute these policies into practice.
3. Administration draws out the outline and framework for the execution of its policies. Management controls and supervises the activities concerned to execution of policies.
4. Administration provides directon, guidance and leadership in all the activities of the enterprise. Management co-ordinates the various activities within a particular department and co-ordinates the activities of the various departments.

Question 11.
Distinguish Unity of command and unity of Direction.
Answer:

Question 12.
What is parity of authority and responsibility.
Answer:
Partiy of Authority and Responsibility

1. Authority refers to the right of a superior to give order to subordinage, take decision on specified matters, use resources of the organization, and guide and regulate the behaviour of subordinaes.
2. Responsibility includes obligation with respect to perforance of functions and achieving goals in the satisfactory manner.
3. The principle of parity suggests that there must be parity between authority and responsibility. Giving authority without corresponding responsibility can lead to arbitrary and unmindful use of authority.
4. Similarly, if a person is given some responsibility he must also be given adequate authority. Lack of necessary authority makes the individual ineffective.

Very Short Answer Type Questions

Question 1.
Scalar chain.
Answer:

1. The scalar chain is the chain of superiors ranging from the ultimate authority to the lowest ranks.
2. It shows the line of authority from the highest executive to the lowest one for the purpose of communication.
3. This will help an employee to know the person whom he sould contact for advice and guidance.

Question 2.
Administration.
Answer:

1. Administration is concerned with policy making.
2. Administration is considered as wider in scope in comparision with management.
3. According to Haimann, administration is overall; determination of policies, the setting of major objectives, layingout of broad programmes, major projects so forth.

Question 3.
List out the principles of management.
Answer:
Henry Fayol contributed 14 principles. He is a ‘Father of Management’ The important principles are division of labour, parity of authority and responsibility, discipline, unity of com-mand, esperit-de-corps etc.

Question 4.
Unit of command.
Answer:

1. The principle states that a subordinate should receive orders and be accountable to one and only one superior.
2. No employee, therefore, should receive instructions from more than one persoji. The principle is necessary to avoid confusion and conflict.

Question 5.
Esperit de corps.
Answer:

1. It implies tht union is strength, which comes from the harmony of the personnel.
2. It emphasizes the importance of teamwork and group endeavors.
3. The management should never adopt ‘divide and rule’ policy. It should encourage team spirit and team work. This ensures smooth working of the organization.

Question 6.
Unity of Direction.
Answer:

1. According to this principle, the efforts of all the members of the organization should be directed towards common goals. A group of activities having the same objective must have one head and one plan.
2. For this purpose there should be one hed and one plan for a group of activities having the same objectives.
3. The principle seeks to ensure “unity of action, co ordination of strength and focusing of effort.

Question 7.
Authority and responsibility.
Answer:

1. Authority refers to the right of a superior to give order to subordinate, take decision on specified matters, use resources of the organization, and guide and regulate the behavior of subordinates.
2. Responsibility includes with respect to performance of functions and achieving goals in the satisfactory manner.
3. The principle of parity suggests that there must be parity between authority and re-sponsibility. Giving authority without corresponding responsibility can lead to arbitary and unmindful use of authority.

Question 8.
centralization.
Answer:

1. It refers to the extent to which authority is concentrated or dispersed.
2. The appropriate degree of centralization will vary with different concerns.
3. Under centralization managers or executives play an important role.

Question 9.
Principle of Inititative.
Answer:

1. The freedom to propose a plan and to execute it is known as initiative. Initiative involves thinking out and execution of a plan and ensuring its success. This gives zeal and energy to an organization.
2. Fayol advised managers to allow employees.
3. It will enable employees to experience the keenest satisfaction from their jobs.

Question 10.
Middle level management.
Answer:

1. Middle level management bridges gap between Top level management and Lower level management.
2. Departmental heads of various departments are finance manager, personnel rpanager, production or marketing manager etc.
3. Their main function is to implement the policies and programs formulated by the top management for the execution and to render valuable services for the successful operation of their deparments.

Question 11.
Principle of Discipline.
Answer:

1. Discipline in the context of management means obedience, proper conduct in relation to others and complying with the rules and regulations of the organization.
2. Discipline is required not only on the part of workers but also on the part of management, It is facilitated if there are good supervisors at all levels, rules are clear, and penalties are imposed with fairness.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 3rd Lesson Banking Services Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 3rd Lesson Banking Services

Long Answer Type Questions

Question 1.
Define banking and explain its functions.
Answer:
Banking is derived rom French word “Bance” means a “Bench”. A bank is regarded as an institution which attracts deposits for the purpose of lending to business (or) other.

According to Banking Regulation Act 1949, Banking is defined as “accepting for the pur-! pose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.

Function of Banking :
Banking functions are divided into two categories.
A) Primary functions
B) Secondary functions

A) Primary functions :
The primary functions of Banks are divided into
I. Acceptance of deposits and
II. Advancing Loans

I. Acceptance deposits :
Accepting deposit is the primary functions of a commercial bank. The bank accept deposits from the customers in the forms such as fixed deposits, current deposits savings deposits and recurring deposits accounts.

II. Advancing Loans :
The second primary function of a commercial Bank is to make loans and advances to all types of persons particularly to business men, and entrepreneurs. Loans are made against personal security, gold and silver, stocks of goods and other assets.

Banks offers loans in the form of overdraft, cash credit, term loans, consumer credit money at call, retail loans etc.

B) Secondary Functions :
Secondary functions of a bank includes
I. Agency Services and
II. General utility services .

I. Agency Services :
Banks perform certain agency functions / services on the behalf of their customers.

The various agency services rendered by banks are as follows.

1. Collection and payment of credit instruments like cheques, bills of exchange, promissory note. etc.
2. Purchase and sale of securities on behalf of their customers.
3. Collection of dividends on shares and credit to their accounts.
4. To work as correspondent, representative of their customers.
5. Banks also prepare income tax returns for their customers and help them to get refund of Income Tax.

II. General Utility Services :
In addition to agency services, banks provides many general utility services which are given belows.

1. Bank provides locker facility.
2. Bank issue traveller’s cheques to help their customers to travel without fear of theft or loss of money.
3. Banks issue letters of credit to their customers certifying their credit worthiness.
4. Banks accept and collect foreign bills of exchange on behalf of their customers.
5. Banks underwrite the shares and debentures issued by the Govement, public or privage companies.

Question 2.
Explain the various types of deposit accounts in bank.
Answer:
Banks generally accept four types of deposits viz., Current Deposits, Savings Deposits, Fixed Deposits and Recurring Deposits.

a) Current Deposits :

1. These deposits are also known as demand deposits. These deposits can be withdrawn at any time.
2. These deposits are kept by businessmen and industrialists who receive and make large payments through banks.
3. Generally, no interest is allowed on current deposits.

b) Savings Deposits :

1. This is meant mainly for professional men and middle-class people to help them deposit their small savings.
2. There is a restriction on the amount that can be withdrawn at a particular time or during a week.
3. Interest is allowed on the credit balance of this account. The rate of interest is less than that on fixed deposit. The present rate of interest offered by SBI is 2.75% p.a.

c) Fixed Deposits :

1. These deposits are also known as time deposits. Thews deposits cannnot be with-drawn before the expiry of he period for which they are deposited.
2. Fixed deposits are liked by depositors both for their safety and as well as for their interest.
3. The present rates of interest offered by SBI ranges between 4.5% and 6.10% p.a.

d) Recurring Deposits :

1. This type of deposit allows the account holder to deposit a fixed amount once a month for a certain period.
2. The total deposit along with interest is payable on maturity.
3. The present rates of interest offered by SBI ranges between 5,8% and 6.25% p.a.

Question 3.
Discuss the different forma of lending by a banker.
Answer:
Types of Deposits :
Bank lending can be classified into
I. Cash credit.
II. Loans (Demand loans & Term loans),
III. Overdraft.
IV. Purchasing and Discounting of bills.

I. Cash credit :
Bank agrees to lend money to the borrower upto a certain limit. The amount so agreed upon will be credited to the account of the borrower. The borrower draws the money as and when he needs and interest will be charged only on the amount actually drawn by the borrower.

II. Loans :
Loan is a specified amount sanctioned by a bank to the customer. It is granted for a fixed period. Loans are classified into A) Demand Loan B) Term Loan.
A) Demand Loan :
Demand loan is a loan which is repayable on demand. In other words, these are repayable at short notice.

B) Term Loan :
Medium and long term loans are called ‘Term Loans”. Term loans are granted for more than one year.

III. Overdraft :
The account holder is allowed to draw an amount in excess of the balance held in the account. OD facility provides on current accounts only.

IV. Purchasing and Discounting of Bills :
Bills are negotiable instruments, banker purchasing the bills. If the discounted bill is dishonoured on the due date, the banker can recover the amount from the customer who had discounted thebill.

Question 4.
How the banks in India are classified? Explain.
Answer:
Classification of Banks :

All the banks in India are governed by RBI and classified as scheduled and non scheduled banks .

A) Scheduled Bank :
1) Scheduled Banks ae banks which are included in the Second Schedule of the Banking Regulation Act, 1965. According to this schedule, a scheduled Bank :
i) Must have paid-up capital and reserve of not less than Rs. 5,00,000.
ii) Must also satisfy the RBI that its affairs arer not conducted in a manner detrimental to the interests of is depositors.

2) scheduled banks include all commercial banks like nationalised, foreign, development, co-operative and regional rural banks. There are 202 scheduled banks as on 8^th October 2018)

Scheduled banks types :
1) State Co-operative Banks :
These are co-operatives owned and managed by the State.

2) Commercial Banks :
These are business entities whose main business is accepting deposits and exending loans. Their main objective is profit maximization and adding shareholder value.

Commercial Banks further sub-divided as :
1) Indian Banks :
These banks are companies registered in India under the Companies Act, 1956. Their place of origin is in India.

2) Foreign Banks :
These are banks that were registered outside India and had originated in a foreign country.

A) Non Scheduled Banks :

1. These are banks which are not included in the Second Schedule of the Banking Regulation Act, 1965. It means they do not satisfy the conditions laid down by that schedule.
2. These banks are not allowed to borrow money from RBI for regular banking purposes. Periodic returns need not be submitted wih RBI and cannnot become memeber of clearing house.

Question 5.
Explain the features of Internet Banking.
Answer:

1. It could reach out to customer spread across the countries. It removes geographical barriers.
2. Traditional risks in bank transactions are eliminated.
3. It enables the customers to pay electricity bills, insurance premiums etc.
4. Internet is a public domain which is not subject to control of any single authority or group.
5. Railway tickets air tickets are booked through E – system.
6. It facilitates payment of direct taxes online.
7. It enables Real Time Gross Settlement (RTGS) i.e., inter-bank funds transfer.
8. It should continuously update their technology, as when a new technology is developed.
9. New technology is developed for future period.
10. It leads to establishment of an efficient and effective cost and control system.

Question 6.
Explain the primary functions of Banks.
Answer:
1) Primary functions of Banks are divided into two types.
A) Accepting Deposits and
B) Advancing loans

A) Accepting deposits:
Accepting deposits is the primary function of a commercial Bank. Banks accept deposita from the customers in the form of Fixed Deposits, current deposits, savings deposits and Recurring Deposits accounts.

a) Current Deposits :

1. These deposits are also known as demand deposits. These deposits can be withdrawn at any time.
2. These deposits are kept by businessmen and industrialists who receive and make large payments through banks.
3. Generally, no interest is allowed on current deposits.

b) Savings Deposits :

1. This is meant mainly for professional men and middle-class people to help them deposit their small savings.
2. There is a restriction on the amount that can be withdrawn at a particular time or during a week.
3. Interest is allowed on the credit balance of this account. The rate of interest is less than that on fixed deposit. This system greatly encourages the habit of thrift or savings. The present rate of interest offered by SBI is 2.75% p.a.

c) Fixed Deposits :

1. These deposits are also known as time deposits. These deposits cannnot be with-drawn before the expiry of he period for which they are deposited.
2. Fixed deposits are liked by depositors both for their safety and as well as for their interest which is higher.
3. The present rates of interest offered by SBI ranges between 4.5% and 6.10% p.a.

d) Recurring Deposits :

1. This type of deposit allows the account holder to deposit a fixed amount once a month for a certain period.
2. The total deposit along with interest is payable on maturity.
3. The present rates of interest offered by SBI ranges between 5.8% and 6.25% p.a.

B) Advancing Loans :
The second primary fucntion of commercial bank is to make loans and advances to businessmen, and entrepreneurs. Loans are made against personal security, gold and silver, stocks of goods and other assets.

Bank tendering can be classified into
I. Cash credit.
II. Loans (Demand loans & Term loans).
III. Overdraft.
IV. Purchasing and Discounting of bills.

I. Cash credit :
Bank agrees to tend money to the borrower upto a certain limit. The amount so agreed upon will be credited to the account of the borrower. The borrower draws the money as and when he needs and interest will be charged only on the amount actually drawn by the borrower.

II. Loans i Loan is a specified amount sanctioned by a bank to the customer. It is granted for a fixed period. Loans are classified into
A) Demand Loan
B) Term Loan.

A) Demand Loan:
Demand loan is a loan which is repayable on demand. In other words, these are repayable at short notice.

B) Term Loan :
Medium and long term loans are called “Term Loans”. Term loans are granted for more than one year.

III. Overdraft :
The account holder is allowed to draw an amount in excess of the balance held in the account. OD facility provides on current accounts only.

IV. Purchasing and Discounting of Bills :
Bills are negotiable instruments, banker purchasing the bills. If the discounted bill is dishonoured on the due date, the banker can recover the amount from the customer who had discounted the bill.

Question 7.
Discuss the secondary functions of banks.
Answer:
Secondary Functions :
Secondary functions of a bank include A) Agency services and B) General utility services

A. Agency Services :
Banks also perform cerain agency functions for and on behalf of heir customers. The various agency services rendered by banks are as follows:
1. Collection and Payment of Credit Instruments :
Banks collect and pay various credit instrumets like cheqes, bills of exchange, promissory notes etc., on behalf of their customers.

2. Purchase and Sale of securities :
Banks purchase and sell various securities like shares, stocks, bonds, debentures on behalf of their customers.

3. Collection of Dividends on Shares :
Banks collect dividends and interet on shares and debentures of their customers and credit them to their accounts.

4. Acts as Correspondent :
Sometimes banks act as representative and correspondents of their customers. They get passports, traveller’ stickets and even secure air and sea passages for their customers.

5. Income-tax Consultancy :
Banks may also employ income tax experts to prepare income tax returns for their customers and to help them to get refund of income tax.

6. Execution of Standing Orders :
Banks execute the standing instructions of their cus-tomers for making various periodic payments. They pay subscriptions, rents, insurance premium etc., on behalf of their customers.

7. Acts as Trustee and Executor :
Banks preserve the “will’s of their customers and execute them after their death.

B. General Utility Services :
In addition to agency services, the modern banks provide many general utility services for the community given as under :

1. Locker facility :
Bank provides locker facility to their customers. The customers can keep their valuables, such as gold and silver ornaments, imporant documents; shares and de-bentures in these lockers for safe custody.

2. Traveller’s Cheques and Credit Cards :
Banks issue travller’s cheques to help their customers to travel without the fear of theft or loss of money.

3. Letter of Credit :
Letters of credit are issued by the banks to their customers certifying their credit worthiness. Letters of credit are very useful in foreign trade.

4. Collection of Statistics :
Banks collect statistics giving important information relating to trade, commerce, industries, money and banking. They also publish valuable journals and bulletins containing articles on economic and financial maters.

5. Acting Referee :
Banks may act as referees with respect to the financial standing, business reputation and respecability of customers.

6. Underwriting Securities :
Banks underwrite the shares and debentures issued by the Government, public or private companies.

7. Gift Cheques :
Some banks issue cheques of various denominations to be used on auspicious occasions.

8. Accepting Bills of Exchange on Behalf of Customers :
Sometimes, banks accept bills of exchange, internal as well as foreign, on behalf of their customers. It enables customers to import goods.

Question 8.
Explain the different types of bank payments.
Answer:
Different types of bank payments are given below
1. Cheque :
1) A cheque is document which orders a bank to apy a particular amount of money from a person’s account to another individual or company’s account in whose name the cheque has been made or issued.

2) The cheque is utilized to make safe, secure and convenient paymens. It serves as a secure option since hard cash is not involved during the transfer process; hence the fear of loss or theft is minimized.

2. National Electronic Funds Transfer (NEFT) :

1. Naional Elecronic Fund Transfer (NEFT) is a country-wide electronic fund transfer system for sending money from one bank account to another in a safe and hassle-free manner.
2. All NEFT settlements are made in a batch-wise format. Money can be sent using this system to all NEFT-enabled banks in India on an individual basis.

3. Real Time Gross Settlement (RTGS) :

1. ‘RTGS’ or Real Time Gross Settlement is a fund transfer method through which money is sent in ‘real time’ basis without any delays.
2. RTGS is typically meant for larger value transactions and the minimum amount that can be sent via this mode is Rs. 2 lakh.
3. Money can be sent using RTGS through net banking. To inititate such a transaction, it is important to collect some details from the payee such as account number, bank name, IFSC code, and account holder name.

4. Immediate Payment Service (IMPS) :

1. Immediate Payment Service (IMPS) is a real-time electronic fund transfer method through which money is credited immediately to the payee/beneficiary account.
2. IMPS transfers can be done at any time on a 24/7 basis and on all 365 days in a year, including on Sundays and other bank holidays.
3. Through IMPS, interbank transfers can be inititate through multiple channels such as mobile banking, internet banking, SMS, ATMs, etc.
4. The IMPS services are managed by the National Payments Corporation of India (NPCI) and cone under the purview of the Reserve Bank of India.

5. Payment Wallets :

1. A waller is a small software program used for online purchase transactions. E-wallet is a type of electronic card which is used for transactions made online through a computer or a smartphone.
2. In E-wallet needs to be linked with the individual’s bank account to make paymets. E-wallet is a type of pre-paid account in which a user can store his money for any future online transaction. An E-wallet is protected with a password.
3. Some of the popular Mobile Wallet companies in India are : PayTM, Google Pay, BHIM Axis Pay, PhonePey, Mobikwik, SBI’s Yono, Citi MasterPass, ICICI Pockets, HDFC PayZapp, Amazon Pay, etc.

Question 9.
What are the various types of Retail loans? Explain.
Answer:
Retail Loans :
1. Meaning :
Retail Loans are the loans acquired to buy an asset or property. Retail loans are offered by financial institutions in wide variety of forms. They are Home Loan, Car Loan, Education Loan, Personal Loan and Credit Card.

2. Types :
a) Home Loans :

1. Housing being one of the fundamental needs of life. Housing Loans are provided by the financial institutions for the purpose of construction or purchase of a new home.
2. National, Housing Bank (NHB) was set up with the support of RBI for coordinating and development of housing finance schemes. Housing Loans are provided by LIC, SBI, UTI and other financial Institutions.
3. The Central Government has taken steps towards “Housing for All”, in this connection it has startd The Pradhan Mantri Awas Yojana (PMAY). This scheme covers housing for weaker sections and middle-imcome section people.

b) Car Loans

1. Car Loan or Vehicle loan is the f ;nity provided by the banks to the customers allowing them to pay the value of the car in instalments.
2. The payment of instalments includes interst amount determined by the abnk officials from time to time.
3. These loans are granted to the salaried employees and self-employed individuals after providing necessary documents.

c) Education Loan :

1. Education loan is a student friendly designed loan. These loans are given to the students who are unable to continue higher education in India and abroad due to lack of cash.
2. These loans aim at providing financial support to meritorious students for pursuing higher education, such as Graduation, Post-Graduation, Professional Courses.
3. Financial support is granted to the extent of Rs. 10 lakhs for studies in India and Rs. 25 lakhs for studies in abroad respectively.

d) Perosnal Loans :

1. Personal loan is an unsecured loan granted by the banks to meet personal needs.
2. Personal loans can also be granted for the purpose fo house repairs, renovations,wedding, on the basis of loan eligibility with a minimal document on the prevailing rages of interest.
3. Personal loans are provided with a term between 1 to 3 years repayment period.

e) Credit Card :

1. Credit Card is a magnetic Strip Card issued by the bank authorizing the customer to purchase the items now and pay the amount with in the prescribed period.
2. Credit cards can be domestic cards and International cards. These cards are issued to individual customers and business firms operating an acccount in the banks.
3. Credit Cards are generally issued based upon the individual’s credit worthiness.

Question 10.
What is E-Banking? What are its advantages and limitations.
Answer:
E-Banking :
E-Banking is a system 6f banking which is carried out with the use of elec-tronic tolls and facilitated through electronic delivery channels.

Advantages of E-Banking :

1. Round the clock services will be available to the customer for all 7 days a week i.e, 24 x 7.
2. Fastness and flexibility in the transactions.
3. Lower operating cost for banks.
4. A higher degree of personalization.
5. Increased speed and accuracy of information exchange.
6. Bank account can be easily accessed from anywhere and at any time.
7. Leads of greater customer satisfaction.
8. Internet banking help banks in reducing the workload of their branches, such as generation of statement, balance enquiry etc.
9. NRI’S can monitor their bank accounts in the bank in India from wherever they are stationed. They can operate their accounts in anywhere in the world.

Disadvantages or limitations of E-Banking :

1. Problems may crop up regarding security and reliability.
2. Imparting training to banking staff is a big challenge.
3. Non – availability of internet connection with highspeed band width in the rural areas.
4. High illiteracy rate in India, is a hindrance to E-banking..
5. Resistance to paperless transaction by the customer, as they may prefer evidence for their transactions on paper.
6. The technology is advancing, our legal environment is not in a position to keep pace with the technology.

Short Answer Type Questions

Question 1.
What is Cash Credit?
Answer:

1. Under cash credit the bank gives loans to the borrowers against certain security.
2. The entire loan is not given at one particular time. He will be allowed to withdraw small sums of money according to his requiremetns through cheques, but he can not exceed the credit limit allowed to him.
3. The borrower is required to pay interest only on the amount of credit availed by him.

Question 2.
What is fixed deposit?
Answer:

1. These deposits are also know as time deposits.
2. These deposits can not be withdrawn before the expiry of the period for which they are deposited.
3. Fixed deposits are liked by depositors both for their safety and as well as for interest which is higher.
4. In India, they are accepted between seven days to five years.
5. The present rates of interest offered by SBI ranges between 4.5% and 6.10% p.a.

Question 3.
What is Credit Card?
Answer:
Credit Card :

1. Credit Card is a magnetic Strip’ Card issued by the bank authorizing the customer to purchase the items now and pay the amount with in the prescribed period.
2. Credit cards can be domestic cards and International cards. These cards are issued to individual customers and business firms operating an acccount in the banks.
3. Credit Cards are generally issued based upon the individual’s credit worthiness.

Question 4.
What is any where banking?
Answer:

1. The banking services to the customer of a bank have undergone a change with the further advancement of technology.
2. A customer can operate his account from any branch of his bank situated in India. This is called “Core Banking’.
3. The various services provided under anywhere banking are
   A) Telebanking
   B) Internet Banking
   C) Real Time Gross Settlement (RTGS)
   D) Electronic Clearance Service (ECS)
   E) Mobile banking
   F) E-cheque and
   G) National Electronic Fund Transfer (NEFT)

Question 5.
What do you know abot ATM service in Banking?
Answer:
Automatic Teller Machine (ATM) :

1. ATM is one of the methods of electronic fund transfer. It have removed the time limitations of customer services.
2. ATM is an unattended or unmanned device usually located on or off the bank premises.
3. The operation mechanism begins when the card is inserted into ATM, the terminal reads and transmits the tape data to processor, which activates the account.
4. It works for 24 hours a day, 7 days a week (24 x 7).
5. ATM’s were used only for withdrawal, electronic transfer of funds etc. But now they are used for recharging cell phones, bill payments etc.

Question 6.
What services are offered by banker under Internet Banking?
Answer:

1. Internet Banking is one of the popular modes of E-Banking.
2. It enables to obtain general purpose information by a customer through banks websites, Electronic Fund Transfer (EFT), Electronic payment such as E-cheque, E-Card based payments.
3. The various internet banking services ae given below :
   a) Real Time Gross Settlement (RTGS),
   b) Electronic Clearance Service (ECS)
   c) Natinal Electronic Fund Transfer (NEFT)
   d) Mobile Banking
   e) E-cheque.

Very Short Answer Type Questions

Question 1.
Money at call.
Answer:
Money at Call:
Bank also grant loans for a very short period, generally not exceeding 7 days to the borrowers, usually dealers or brokers in stock exchange markets against collateral securities like stock or equity shares, debentures, etc., offered by them. Such advances are repayable immediately at short notice. Hence, They are described as money at call or call money.

Question 2.
Recurring Deposit.
Answer:

1. This type of deposit allows the account holder to deposit a fixed amount once a month for a certain period.
2. The total deposit along with interest is payable on maturity.
3. The present rates of interest offered by SBI ranges between 5.8% and 6.25% p.a.

Question 3.
Cash credit.
Answer:

1. It is an arrangement between a bank and its customer where by the bank agrees to lend money to the borrower upto a certain limit.
2. The borrower is required to pay interest only on the amount of credit availed by him.

Question 4.
Car loan.
Answer:

1. Car Loan or Vehicle loan is the facility provided by the banks to the customers allowing them to pay the value of the car in instalments.
2. The payment of instalments includes interst amount determined by the abnk officials from time to time.
3. These loans are granted to the salaried employees and self-employed individuals after providing necessary documents.

Question 5.
Credit card.
Answer:

1. Credit Card is a magnetic Strip Card issued by the bank authorizing the customer to purchase the items now and pay the amount with in the prescribed period.
2. Credit cards can be domestic cards and International cards. These cards are issued to individual customers and business firm operating an acccount in the banks.
3. Credit Cards are generally issued based upon the individual’s credit worthiness.

Question 6.
Savings account.
Answer:

1. This is meant mainly for professional men and middle-class people to help them deposit their small sayings.
2. There is a restriction on the amount that can be withdrawn at a particular time or during a week.
3. Interest is allowed on the credit balance of this account. The rate of interest is less than that on fixed deposit. The present rate of interest offered by SBI is 2.75% p.a.

Question 7.
Fixed Deposit.
Answer:

1. These deposits are also known as time deposits. These deposits cannnot be withdrawn before the expiry of he period for which they are deposited.
2. Fixed deposits are liked by depositors both for their safety and as well as for their interest they which is higher.
3. The present rates of interest offered by SBI ranges between 4.5% and 6.10% p.a.

Question 8.
Foreign Bank.
Answer:

1. Foreign Bank are the banks that were registered outside India and had originated in a foreign country.
2. At pesent there are 45 foreign banks in India.

Question 9.
Term loan.
Answer:

1. It is the loan required for long term needs for acquiring fixed assets.
2. Term loans ae granged for moe than one year.

Question 10.
Demand loan.
Answer:

1. Demand loan is a loan which is repayable on demand.
2. These loans are repayable at short notice. .

Question 11.
Over draft.
Answer:

1. It is an arrangement where in the account holders is allowed to draw an amount in excess of the balance held is the account.
2. This overdraft is allowed to current account holidays only.

Question 12.
Scheduled Bank.
Answer:
1) Scheduled Banks ae banks which are included in the Second Schedule of the Banking Regulation Act, 1965. According to this schedule, a scheduled Bank :
i) Must have paid-up capital and reserve of not less than Rs. 5,00,000.
ii) Must also satisfy the RBI that its affairs are not conducted in a manner detrimental to the interests of is depositors.

2) scheduled banks include all commercial banks like nationalised, foreign, development, co-operative and regional rural banks. There are 202 scheduled banks as on 8^th October 2018)

Question 13.
Non-scheduled Bank.
Answer:

1. These are banks which are not included in the Second Schedule of the Banking Regulation Act, 1965. It means they do not satisfy the conditions laid down by that schedule.
2. These banks are not allowed to borrow money from RBI for regular banking purposes. Periodic returns need not be submitted with RBI and cannnot become memeber of clearing hose.

Question 14.
ATM
Answer:
ATM (Automatic Teller Machine) is an unattended or unmanned device usually located on or off the bank premises. The operation mechanism beings when the card is inserted into ATM, the terminal reads and transmits the tape data to a processor, which activates the account. It works for 24 hours a day, 7 days a week (24 x 7).

Question 15.
Tele Banking
Answer:
“Tele banking refers to banking on telephone”. The customer can dial the branch’s designated telephone number which is connected to computer, by dialing his identification number, the software provided in the machine will become interactive with customer asking him to dial the code number of the service required by him and gives suitable answer. The customer can enquire about his balance, previous transactions or fund transfer between the accounts.

Question 16.
RTGS.
Answer:

1. RTGS means Real Time Gross Settlement.
2. RTGS is a fund transfer method through which money is sent in “real time” basis without any delays.
3. This electronic fund transfer system allows the money sent by the remittens to immediately reacy the payee when the money transfer transaction is initiated.

Question 17.
ECS.
Answer:

1. ECS means Electronic clearance Service.
2. This scheme provides an alternative method of effecting bulk payent transactions peridically.
3. At present, this service is available in the department of posts at 15 RBI locations and 21 SBI locations.

Question 18.
NEFT
Answer:

1. NEFT means National Electronic Fund Transfer.
2. NEFT is a country wide electronic fund transfer system for sending money from one bank to another in safe and hassle free manner.
3. There is no ceiling on the minimum or maximum, that can be transfered through NEFT.

Question 19.
Mobile Banking.
Answer:

1. The delivery of Banking services to a customer through mobile phone is called “Mobile Banking”.
2. This service is provided free of Cost to all customers of the bank, irrespective of their mobile service network provider and make of the hand set owned by the customer.
3. Customer to know his account balance and debit, crdit transactions of his account etc., through alerts.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 8th Lesson International Trade Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 8th Lesson International Trade

Long Answer Type Questions

Question 1.
What is International Trade? How it differs from Internal Trade.
Answer:

1. International Trade refers to buying and selling of goods and services between nationals of different countries.
2. International Trade is also called as “Foreign Trade” or “External Trade”. .
3. How International Trade is different from internal Trade is explained below :

Question 2.
Explain the scope and importance of International Trade.
Answer:
Scope :
International Trade has a very wide scope.

The following aspects fall under the scope of International trade

1. International economics and trade theories.
2. Quantitative techniques for foreign trade.
3. Global business communication and public relatins.
4. Computer application in foreign trade.
5. Insurance and risk management is foreign trade.
6. International business loans.
7. Export and Import finance.
8. Foreign exchange and exchange control.
9. Export incentives.
10. Export pricing.

Importance of International Trade :

1. No country in the world is self sufficient, no country can produce all the goods it requires. This situation where one country is dependent on another country has created the need for international trade.
2. Nature endows each country with different types of natural resources. Therefore one country has to depend on some other country for natureal resources which result in need of foreign trade.
3. some countries are more suitabe placed to produce certain goods in large numbers more economically due to availability of raw material, labour, etc,. In such case foreign trade is needed to export its surplus prodction to other countries.
4. International trade is the back bone of our modem commercial world. International
   trade promotes increased international understanding, exchange of ideas, cultures, and world peace.
5. International trade has lowers the prices of goods and services all over the world.
6. Globalisation and liberalization policies of the governments across the globe with specific reference to international trade have made it possible.

Thus all the countries in the world have to depend upon another for meeting all their requirements it created the need for international trade.

Question 3.
Discuss the benefits of International trade.
Answer:
The benefits of international trade are discussed below :

1. It leads to better use of available resources.
2. It reduces wastage of resource. .
3. It equalizes the prices of goods throughout the world.
4. It helps countries to sell those goods which they have in surplus, and buy goods which are in short supply.
5. It create healthy competition.
6. It creates cordial relation ship between the people of different countries and leads to cultural advancement and International peace.
7. It brings about international division of labour and specialization.
8. It increase employment opportunities.
9. It increase foreign exchange reserves.

Question 4.
Explain the procedure to be followed in export trade.
Answer:
As per the Export Control Rules which ae in force in India, an export transaction has to pass through the following stages.
1. Enquiries and Qauotations :

1. The export trade starts with the receipt of enquiry from the buyers. An enquiry is a written request from him seeking information regarding the price and other services.
2. Quotations are a reply to such an enquiry. In quotations, all the details asked for in enquiries are to be furnished. Price, time, method of delivery, method of packing are indicated in them.

2. Orders or Indents :

1. If the buyer is satisfied with regard to the details supplied in quotations, he places an indent. An indent is an offer made by a foreign buyer to buy goods.
2. If that is accepted by the exporter, then it becomes an order. The indent contains all the details in respect of the goods required as well as various other instructions with regard to shipping, packing etc.

3. Securing the Licence :

1. Export of goods from India is controlled under the Import and Export Control Act, Goods covered by controls cannot be exported without an export licence.
2. Certain commodities are kept on the Open General License (OGL) List. The exporters are permitted to export these commodities freely during a definite period. If the goods do not fall under OGL, then he has to apply for an export license to an appropriate authority by paying the prescribed fees.
3. Along with the export licence, a quota permit should also to be obtained by the exporter n the case of commodities which are short supply.

4. Fulfulling Exchange Regulations :
Under the Foreign Exchange Regulations Act, the exporter has to submit a declaration that he will surrender foreign exchange to the Reserve Bank of India within the prescribed time in the prescribed forms and submit them in the customs office and also with the foreign exchange bank.

5. Letter of Credit:

1. before sending the goods, the exporter must be satisfied with the credit worthiness of the importer.
2. In some cases, only a bank reference may be considered sufficient. In the case of new buyers, the deposit of full price in advance may be demanded by the exporter.

6. Shipping Order :

1. After satisfying with the credit worthiness of the importer, the exporter enters into an agreement with a shipping company for hiring space in a ship for sending the goods to the port of the importers choice.
2. The shipping company issues shipping order giving instructions to the captain of the ship to receive on board the vessel, the specified quantity of goods from the exporter.

7. Exchange Rate :

1. The rate at which the currency of one country is exchanged for currency of another country is known as exchange rate.
2. The exporter must fix with his bank the rate at which importer’s payment will be converted into the currrency of the exporting country with a view to avoid losses arising on account of fluctuations in foreign Exchange rates.

8. Packing and Forwarding :

1. Packing should be done in such a way that it ensures safety as well as economy.
2. Special instructions given by the importer, should be followed in this regard.
3. After the goods are packed, distinctive marks showing the name of the importer and the port of destination should be printed on each bundle for the purpose of easy identification.

9. Customs Formalities :
exporter has to observe certain customs formalities; the exporter has to fill the Shipoing Bill in triplicae. The other forms are to be attached to the shipping bill.

10. Mate’s Receipt :
When the goods ae directly handed over to the captain of the ship or his assisant called Mate, he issues a mate’s receipt.

11. Bill of Lading :

1. Tile Bill of Lading is art official receipt of the shipping company acknowledging the receipt Of the goods oh board.
2. It is a document of title as to goods. The importer cannot take delivery of the goods without producing the Bill of Lading.

12. Insurance of Goods :

1. As goods entering into the international trade are exposed to perils of sea, they should be properly insured.
2. This has to be done by purchasing a marine insurance policy form an insurance company. The policy has to be sent to the importer along with Bill of Lading and other documents.

13. Certificate of Origin :

1. This certificate is the declaration testifying the origin of exports.
2. This certificate is issued by an authorized Chamber of Commerce of Trade Council.
3. In order to enable the importer to get the benefit of lower tariff, Certificate of Origin has to be sent to him.

14. Consular Invoice :
To avoid this delay the exporter gets a consular invoice which enables the importer to obtain prompt clearance of goods after they reach the port of destination.

15. Preparation of Invoice :
After all the formalities are compiled with, the exporter hs to prepare an invoice. This irivoice is prepared in triplicate and must be based on the price and terms previously agreed upon.

16. Securing Payment :

1. The final step in the export procedure is to secure payment in settlement of the transaction.
2. The exporter can receive the payment in three different ways :
   A) Drawing a bill on the importer: This bill of exchange is to be sent to the importer along with other documents.
   B) If the exporter wants to receive the amount iinmdiately, he can discount the bill drawn on the importer with his bank.
   C) A Letter of Credit is issued in favour of exporter by the importer’s bank. Strength of this Letter of Credit, the exporter draws a bill and gets the payment from the bank issuing the Letter of Credit.

Question 5.
What procedure and foimalities are adhered in import Trade? Explain.
Answer:
When goods are purchased from a foreign country; and brought down to fhe country of the buyers, it is Import Trade. There is a procedure for importing goods from a foreign country.

1. Procurement of Licence :

1. An importer is not free to import whatever he wants. No goods can be imported into our couiltry withoug vallid licence.
2. An importer can import goods under a general licence or an individual licence. General licence is one which is used for imports from any country whereas individual licence applies to specific countries.
3. For obtaining an import Licence, the importer has to make an application in the prescribed from. A quota certificate is also issued be licensing authority on the basis of applicants past imports.

2. Obtaining Exchange :

1. After obtaining the import Licence Control authorities to release the necessary foreign exchange.
2. The application has to be endorsed by a foreign exchange bank. ‘

3. Indent or Order :

1. The importer places an order for the goods that he requires. This order is called Indent.
2. The indent contains instructions to the exporter with regard to the quality and quantity of goods, the method of forwarding of goods, nature of packing, method of payment, grage I price etc.

4. Letter of Credit:

1. The importer has to prove has creditworthiness to the exporer. For this, he has to send a letter of Credit to the exporter.
2. A letter of Credit is issued by the bank in the importer’s country in favour of the exporter. The bank gives an undertaking that the bills of exchange drawn bn importer by the exporter will be honoured.

5. Procuring Shipping Documents :

1. After the goods are shipped by the exporter, he sends an advice notice to the importer.
2. The exporter also drawsa a bill of exchange on the importer. Other documents such as invoice, insurance policy, bill of loading, consular invoice are attached to the bill of exchange. Therefore, this is called Documentary Bill and it is forwarded to the importer through the exporter’s bank.

6. Clearing of goods :
After taking possession of shipping documents, the importer can take delivery of goods after complying with the following formalities :

1. First the importer has to obtain the Delivery Order from the shipping company.
2. After obtaining the delivery order the importer has to submit three copies of Bill of Entry.
3. When the importer has not received particulares of the goods in order to fill up the bill of entry, he ahs to fill a document called Bill of Sight.
4. Then he has to pay certain dock dues etc., to the Port Trust Office. Then they issue . Port Trust Dues Receipt.

7. Delivery of goods :

1. After examining the bill of entry the custoks office permits the importer to take possession of imported goods.
2. If any duties are levied, the importer is required to pay duty as calculated by the customs authorities.

8. Warehouse :

1. For the convenience of the mporters who do not has own godowns, port authorities maintain large warehouses. They charge a reasonable rent!
2. If the importer is not in immediate need of goods or wants to re – export them or pending payment of the customs of excise duties, he can store the goods in the warehouses. Such a warehouse is described as a “Bonded Warehouse”.
3. In this case, he importer is required to execute a bond, wherin he undertakes to pay the duty on goods on taking delivery.

Question 6.
Explain the features and advantages of EPZ’s.
Answer:
Features : Features of the EPZ’s are as follows :

1. The activities that are carried out in the EPZs are not liable to be licensed.
2. The units setup in the EPZ can select their desired locations by following certain parameters as prescribed by the State Government.
3. The EPZ’s rigorously follow the active export import policy.
4. The units in EPZ are totally custom bonded.
5. The proposals for starting up units in EPZ’s in India are entitled to follow the automatic route for approval as enforced by the State Governments.

Advantages of EPZ’s are as follows :

1. EPZ’s have given a major boost to the economic growth and industrialization of the country.
2. The EPZs are specialized areas in the country where quotas and tariffs are eliminated.
3. EPZ’s are the production centres where large number of workers is employed.
4. The EPZ units involve the import of raw materials and the export of finished goods with a view to increase foreign exchange earnings and exports.
5. Various incentives such as income-tax holidays are introduced and exemptions are provided in respect of VAT, Import duty and also other taxes.
6. 100% Foreign Direct Investment (FDI) are allowed for all the manufacturing activities in EPZ’s.

Question 7.
What is EPZ? Explain the reasons for their setup in India.
Answer:

1. EPZ means export processing zones.
2. EPZ’s are teh zones, which have minimum bureaucratic setup.
3. They are set up in underdeveloped parts of a host counting, aiming to reduce poverty and unemployment and stimulate the area’s economy.

The reasons for EPZ’s setup in India :

1. Ensuring better infrastructural facilities in industrial units that were set up in the EPZ’s.
2. Introducing the privilege of tax holidays.
3. Establishing 100 percent export-oriented system in the EPZ.
4. EPZ’s are entirely devoid of all kinds of duties levies and taxes.
5. The units in EPZ’s follow the automatic route set by the Government of India which offers 100% foreign direct investment in the zone.

Short Answer Type Questions

Question 1.
What is the significance of international trade?
Answer:
Scope : International Trade has a very wide scope.

The following aspecs fall under the scope of International trade :

1. International economics and trade theories.
2. Quantitative techniques for foreign trade.
3. Global business communication and public relatins.
4. Computer application in foreign trade.
5. Insurance and risk management is foreign trade.
6. International business loans.
7. Export and Import finance.
8. Foreign exchange and exchange control.
9. Export incentives.
10. Export pricing.

Importance of International Trade :

1. No country in the world is self sufficient, no country can produce all the goods it requires. This situation where one country is dependent on another country hads created the need for international trade.
2. Nature endows each country with different types of natural resources. Therefore one country has to depend on some other country for natureal resources which result in need of foreign trade.
3. some countries are more suitable placed to produce certain goods in large numbers more economically due to availability of raw material, labour, etc,. In such case foreign trade is needed to export its surplus prodction to other countries.
4. International trade is the back bone of our modem commercial world. International trade promotes increased international understanding, exchange of ideas, cultures, and world peace.
5. International trade has lowers the prices of goods and services all over the world.
6. Globalisation and liberalization policies of the governments across the globe with specific reference to international trade have made it possible.

Thus all the countries in the world have to depend upon another for meeting all their requirements it created the need for international trade.

Question 2.
How internal Trade and international trade differ?
Answer:

Question 3.
What are the four important benefits of International Trade.
Answer:
The benefits of international trade are discussed below :

1. It leads to better use of available resources.
2. It reduces wastage of resource.
3. It equalizes the prices of goods throughout the world.
4. It helps countries to sell those goods which they have in surplus.
5. It create healthy competition.
6. It brings about international division of labour and specialization.
7. It increase employment opportunities.
8. It increase foreign exchange reserves.

Question 4.
What is shipping order?
Answer:

1. After satisfying with credit worthiness of the importer, the exporter enters into an agreement with a shipping company for hiring space in a ship for sending the goods to the port of the importers choice.
2. The shipping company issues shipping order giving instructions to the captain of the ship receive on board the vessel, the specified quantity of goods from the exporter.
3. If the entire space of a ship is hired by an exporter, the agreement reached to this effect between the exporter and ship owner is known as charter party agreement. This charter party agreement which binds the captain of the ship to receive on board the vessel, a specified quantity of goods from the exporter.
4. Charter party is an agreement which binds the ship owner to transport the goods to a particular place. The person whose goods are carried under such an agreement is known as charter. Charter party may be a voyage charter party or a time charter party.

Question 5.
What is packing and forwarding in international trade?
Answer:

1. packing is the perparation of a product for storage or transportation.
2. For export the goods, packing should be compact and should be such cargo which occupies minimum space in the ship to save foreight charges.
3. Packing should be done in such a way that it ensures safety as well as economy. Special instructions given by the importer should be followed.
4. After the goods are packed, distinctive marks showing the name of the importer, and part of destination should be printed an each bundle for easy identification.

Question 6.
How licence is procured in import trade?
Answer:
Procurement of licence :

1. An importer can import goods under a general licence or on individual licence.
2. An importer is not free to import whatever he wants. No goods can be imported into our country without valid licence.
3. External licence is which is used for import from any country where as individual licence applies to specific countries.
4. For obtaining an import licence, the importer has to make an application in the prescribed form.
5. A quota certificate also issued by licencing authority on the basis of applicants past imports.

Question 7.
Why EPZ’s are setup?
Answer:

1. EPZ means export processing zones.
2. EPZ’s are teh zones, which have minimum bureaucratic setup.
3. They are set up in underdeveloped parts of a host counting, aiming to reduce poverty and unemployment and stimulate the area’s economy.

The reasons for EPZ’s setup in India :

1. Ensuring better infrastructural facilities in industrial units that were set up in the EPZ’s.
2. Introducing the privilege of tax holidays.
3. Establishing 100 percent export-oriented system in the EPZ.
4. EPZ’s are entirely devoid of all kinds of duties levies and taxes.
5. The units in EPZ’s follow the automatic route set by the Government of India which offers 100% foreign direct investment in the zone.

Question 8.
What is the scope of International trade?
Answer:
The following aspects fall under the scope of international trade.

1. International economic and trade theories.
2. Quantitative techniques for foreign trade.
3. Computer application in foreign trade.
4. Export and import finance.
5. Foreign exchange and exchange control.
6. Export incentives.
7. Export pricing.
8. International business law.

Question 9.
What are the features of EPZ’s in India?
Answer:
Features of the EPZ’s are as follows :

1. The activities that are carried out in the EPZs are not liable to be licensed.
2. The units set up in the EPZ can select their desired locations by following certain parameters as prescribed by the State Government.
3. The EPZ’s rigorously follow the active export import policy.
4. The units in EPZ are totally custom bonded.
5. The proposals for starting up units in EPZ’s in India are entitled to follow the automatic route for approval as enforced by the State Governments.

Very Short Answer Type Questions

Question 1.
Quotations and enquiries.
Answer:

1. The quotations are a reply to such an enquiry. In quotations, all the details asked for in enquiries are to be finished.
2. An enquiry is a written request from him seeking information regarding the price and other service.

Question 2.
Letter of credit.
Answer:

1. It is a letter which is obtained by an exporter to satisfy himself about the credit worthiness of an importer.
2. Letter of credit is issued by the banking imports country in the favers of the exports.

Question 3.
Bill of loading.
Answer:

1. The Bill of Lading is an official receipt of the shipping company acknowledging the receipt of the goods on board.
2. It is a document of title as to goods. The importer cannot take delivery of the goods without producing the Bill of Lading.

Question 4.
Bill of Entry.
Answer:

1. The bill of entry is a statement declaring and describing the goods that are imported.
2. The importer has to submit 3 copies of bill of entry to the customs authories.

Question 5.
Closed Indent.
Answer:

1. The importer places an order for the goods he required, this order is called indent.
2. When the indent specifies the details of goods required, it is called “closed Indent”.

Question 6.
Four stages of EPZ policy in India.
Answer:
Following are the four stages of EPZ policy in India.

1. Initial phase (1964 – 1985)
2. The expansionary phase (1985 – 1991).
3. The consolidating phase (1991 – 2000)
4. The emergence phase (2000 on wards)

Question 7.
Rounded warehouses.
Answer:

1. if the importer is not in immediate need of goods or wants to re – export them or pending payment of the customs or excise duties, he can store the goods in the warehouse called “Bonded warehouse”.
2. The importer is required to execute a bond, where in he undertakes to pay the duty on goods an taking delivery.

Question 8.
Exchange rate.
Answer:

1. The rate at which the currency of one country is exchanged for currency of another country is known as exchange rate.
2. The exporter must fix with his bank the rate at which importer’s payment will be converted into the currrency of the exporting country with a view to avoid losses arising on account of fluctuations in foreign Exchange rates.

Question 9.
Certificate or origin.
Answer:

1. This certificate is the declaration testifying the origin of exports.
2. This certificate is issued by an authorized Chamber of Commerce of Trade Council.
3. In order to enable the importer to get the benefit of lower tariff, Certificate of Origin has to be sent to him.

Question 10.
Consualr invoice.
Answer:
To avoid this delay the exporter gets a consular invoice which enables the importer to obtain prompt clearance of goods after they reach the port of destination.

Question 11.
Warehouse.
Answer:

1. Ware house refers to a facility created for the storage of goods.
2. For the convenience of the importers who do not have own godowns, the port authorities maintain large warehouses. They charege reasonable rent.

Question 12.
Therory of Comparative cost advantage.
Answer:
The theory that explains the basis of foreign trade is called “Theory of comparative cost advantage”. The resources like land, raw materials, minerals, water, labour skills determine the capacity of a country to produce. Country which has more resources, their cost will be less than the other countries. The country has cost advantage in production of those goods which use more of these resources. Therefore country can be able to export these goods and import those goods which will cost more to produce.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 2nd Lesson Stock Exchange Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 2nd Lesson Stock Exchange

Long Answer Type Questions

Question 1.
What is stock exchange? Explain its functions.
Answer:
Introduction :
Stock exchange is an organized secondary market, where the listed secu-rities are bought and sold by the investors.

Definition :
“Stock exchange is an association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities”. – The Securities Contracts Act 1956

“Security exchanges are market places where securities that have been listed thereon may be bought and sold either for investment or speculation”. – “Pyle”

Functions of Stock Exchange :
1) Provides infrastructure for trading :
In the stock exchange, instantaneously trading gets executed. It draws investment by providing ready and continuous market for securities.

2) Provides information regarding prices :
It gives sensible information through reliable sources and publishers to investors about the prices of securities. The proposed investor knows the quotation and the investor knows the price of his holdings.

3) Protects investors wealth :
It protect the interests and wealth of investors through the enforcement of its rules and regulations.

4) Clearing House :
Without clearing house one will find lot of trades mismatched. It act on behalf of both buyer and seller and helps in trading of securities.

5) Provides liquidity :
The holder of securities can easily encash the securities by selling them to the buyer whenever he wants.

6) Helps to raise new capital :
The requirement of additional capital of an existing company can be raised by issuing the rights shares, through stock exchange.

7) Acts as a Barometer :
An efficient stock exchange acts as a Barometer of business conditions in the country.

8) Increases credit worthiness of company :
A company which got its shares to be listed in the stock exchange enjoys good reputation.

9) Minimises the dangers of speculation :
By following rules and regulations of the Acts, it minimises the dangers of speculative dealings and price manipulations.

10) Facilitates speculation :
Stock exchange facilitates speculation thereby businessman can speculate and earn profits from fluctuations in security prices.

Question 2.
Explain he significance of stock exchange.
Answer:
Introduction :
The stock exchange is a market for the purchase and sale of second hand securities. It is the central place where industrial and financial securities are brought and sold. It is the place where a buyer of a security can find a seller or a seller can find a buyer.

Significance of Stock Exchange :
The importance and need of stock exchange can be identified through its benefits to the investors, company and society.

A) To the Investors :

1. Helps the investor in finding an opportunity to invest surplus funds in a reputed company.
2. Reduces the risk of investro by providing continuous information market with correct evaluation of securities.
3. Investors can change their investments to different companies according to their gaining.
4. Continuously available for the conversion of securities thereby providing liquidity to the securities.
5. Safeguards the interests of investors by the strict enforcement of rules and regulations.
6. The holdlers of securities can use them as collateral securities for procuring loans.
7. Investors able to know the activities of company and its credit worthiness.
8. Investors earn not only good returns but they know the security prices from time to time and this promotes saving, investing and risk-taking among them.

B) To the company :

1. The stock exchange provieds an opportunity to the companies to raise capital by sale of shares. So, the rapid progress of companies is largely facilitated by stock exchanges. The listing facilities provided by the stock exchange make the securities .attractive. The listing of securities gives an impression that the company is sound.
2. A listed company generally enjoys better reputation and credit.
3. As a listed company furnishes its financial statements, it wins the faith of investor and proves itself to be sound company.
4. Stock exchange promotes the primary market for new issues as it engages ready and continuous market of securities.
5. A well-organised stock exchange minimises price fluctuations and maintains steadiness of prices of securities.
6. It will have wider market for its scurities.
7. It can have maximum funds for expansion and modernisation sthrough ‘Rights Issue’.

C) To the society :

1. By pooling up all the interested investors towards investment, it contributes to the economic developed of the nation.
2. It provides opportunities to utilize the scarce financial resources to its maximum.
3. It enables the government to establish successful companies for the progress of nation. A good company can keep up its status by trading its securities in stock exchange.
4. It develops savings habit among the public and these savings are turned into capital for the growth of industries.
5. The stock exchange acts as a mirror of society’s economy.

Question 3.
What is the procedure of listing securities?
Answer:
Introduction :
A company with minimum issued capital of ₹ 3 crores of which at least ₹ 1.8 crore (60%) is offered to the public can apply for listing in the prescribed preforma along with the following documents.

1. Copies of Memorandum of Association and Articles of Association, Prospectus, Directors Reports, Balance sheets and agreements with underwriters and brokers etc.
2. Specimen copies of shares and debentures certificates, letters of allotments, acceptance renunciation etc.
3. Particulars regarding capital structure.
4. A statement showing the distribution of shares.
5. Particulars of dividends and bonus declared and or paid during the last 10 years.
6. Particulars of shares of debentures for which permission to deal is applied for.
7. Brief report on company’s activities since its incorporation,
8. Listing agreement with required initial and annual listing fee.

A new company may not able to submit some of the above documents and it will not be an objecion for enlisting.

After submission of application along with the above documents by the company, the stock exchange scrutinizes the application, if stock exchange is statisfied with the particulars field, it may inform the company to execute a listing agreement. The agreement contains the obligations and restrictions which listing entail.

The central iisting authority has been set up in the year 2003 by’SBI for ensuring unifrom and standard practices for listing the securities in all India stock exchanges. It will have a check on the operators in small stock exchanges that have lenient listing norms.

Question 4.
What is SEBI? What are its functions and powers?
Answer:
SEBI means securities and Exchanges Board of India. SEBI come into existence through the SEBI Act, 1992 by the Indian Parliament and was given statutory powers, to overcome the undesivable practices in the stock exchange. In the year 1995, SEBI was given additional statutory powers by Government of India through an amendment to SEBI Actg 1992.

SEBI is managed by its members which consists of
a) The chairman who is nominated by Government of India.
b) Two members i.e. officers from Union Finance Ministry.
c) One member from the RBI.
d) The remaining 5 members (nominatged by Union Government of India.

Functtions of SEBI:
SEBI has three functions rolled into one body i.e.,

1. quasi legislative
2. quasi judicial and
3. quasi executive

It drafts regulations in its legislative capacity (quasi legislative), it conducts investigation and enforcement action in its executive function (quasi judicial) and it passes rulings and orders in its judicial capacity (quasi executive). These functions may be summarised as :

1. Educate investors and imparting training to the intermediaries of securities.
2. Controls the working of stock exchanges.
3. Register and regulate the working of intermediaries such as stock brokers, merchant bankers, underwriters etc. ,
4. Regulate working of collective investment schemes including mutual funds.
5. Conducts audits and inspections
6. Restrocts insider trading of securities.

Powers :
For the discharging of its functions efficienctly, SEBI is vested with the following powers.

1. to approve and amend the by-laws of stock exchange.
2. to inspec the books of accounts of financial intermediaries.
3. to inspect the books of accounts and call for periodical returns from recognised stock exchanges.
4. to mandate the companies to list their shares in one or more stock exchanges.

Question 5.
Explain the various types of stock exchange speculators.
Answer:
A) Stock Exchange Speculators :
Persons who make profits by trading securities for short term purpose are known as stock exchange speculators. They accept high risk and do not take or give delivery of securities. The difference between buying and selling is their profit.

Types of speculators :
Depending upon the nature of speculation, the speculators may be called as bulls, bears, stag and lameduck.

1. Bull :

1. A bull is a speculator who expects a rise in the price of certain security in future. He buys that security to sell it at the expected higher price.
2. A bull in general throws its vicitm upwards. As the speculator expects a rise in the price of securities, his tendency is compared to that of bull.
3. In technical terms he is said to be “on the long side of the market.” He is also known as tejiwala.

2. Bear :

1. He is also known as mondiwala. A bear is a speculator, who expecs a fall in the price of certain securities and agrees to sell the securities at a fixed date in future, which he may or may not possess.
2. If the price of that security falls before the date of sale, he purchases the security at a lower rate and sells it for higher rate as agreed earlier.
3. The different between the purchase price and selling price is the profit earned by him.
4. A bear usually presses its victim down to the ground. As the pessimistic tendency of the speculator, he expects a fall in price of security and therefore, he is named after bear.

3. Stag :

1. A stag is a cautious speculator. He neither buys nor sells the shares. He, applies for the shares of a new company for face value and he expects they are sold at a premium i.e., more than its face valued.
2. The difference between the price paid by him and the selling price is his profit.

4. Lameduck :

1. When the expectations of bear does not become true and the price of security does not fall, he cannnot fulfil his commitment, and he is said to be lameduck.
2. Bear may agree to sell certain security on a certain date and may not be able to deliver the security as it may not be available in the market.
3. On the agreed date if the other party does not agree to oblige him, he suffers like a lameduck.

Question 6.
Explain the features of BSE and NSE.
Answer:
The Bombay Stock Exchange (BSE) is formerly known as “Native Stock and Share Bro-kers Association”, which was established in the year 1877. The aim of association was to support and protect the character and status of brokers, to promote fair practices and to discourage malpractices.

Features of BSE :

1. It has online trading system introduced in 1995, which is called BOLT(BSE online trading). This helps in active trading and safeguards market integrity.
2. It provides other services like risk management, clearing, settlement, market, data and education to capital market participants.
3. It provides a trading platform for equities of small and medium enterprises.
4. It conforms international standards.
5. It provides on efficient and transparent market for trading in equity, debt instruments and mutual funds.
6. It has global reach helping customers around the world.

The National Stock Exchange (NSE) was incorporated in November, 1992. It is a “country wide screen based online trading system” and has international standards.

Features of NSE :

1. It is a computerized national wide stock exchange where NSE members all over India are linked via statellite and cable system.
2. The automated quotation system makes it convenient to the brokers to buy and sell electronically and need not shout in the trading ring about prices.
3. It deals with the wholesale debt market like government securities, units by UTI etc.
4. Price data will be broadcasted by the Press Trust of India (RT.I)
5. It improves the settlement system, arid minimizes the risk therein. NSE has setup a subsidiary national securities clearing corporation, which guarantees the settlement of trade executed.
6. It operates dealings in the corporate equity and debt instruments.

Question 7.
Who is a stock broker? Explain the role played by him in the financial market?
Answer:
Stock Broker – Meaning :

1. A Stock Broker is a professional who executes buy and sell orders for stocks and other securities on behalf of clients.
2. A stock broker may also be known as a registered representative, investment adviser or simply, Broker.
3. Stock Brokers are usually associated with a brokerage firm and handle transactions for retail and institutional customers alike Stock Brokers often receive commissions for their services.

Role played by stock brokers in financial markets :

I. Buying :

1. One of the most basic reponsibilities of a Stock Broker is to buy stock on behalf of his client; he may do this in different ways, depending on the type of account the client has.
2. In a discretionary account, he Stock Broker buys stock for a client based on some prearranged guidelines.
3. An advisory account, however, the stockbroker only advises a client on what stock to buy, while in an execution account, the Stock Broker only buys stock that the client hs specifically indicated.

2. Selling :

1. The other responsibility a Stock Broker has is selling stock on behalf of a client.
2. The Stock Broker can only sell stocks of a client based on the account that a client signed up for.
3. If a client has an execution only account, the Stock Broker can only sell a client’s stock when asked to do so. If a client has an advisory account, a Stock Broker can only advise the client to sell his stocks, while if a client has a discretionary account, a Stock Broker has some leeway on selling the stocks based on a prearranged guideline.

3. Research and Adivce :

1. Most of the broking house have set up in-house research team that scans companies and stocks as well as analyze the macro-economic scenario that impactgs the stock market.
2. With the inputs from the research team, brokerage house puts buy or sell recommendation on stocks.
3. Brokers also conduct investor education programmes to help improve their clients’ knowledge about investing in the markets.

4. Personalized Service :

1. Most Broking Houses assign a relationship manager to interact with the client who would act as an advisor.
2. Relationship managers advise their clients about when to make transactions and guide them about what to look for in the market dealings.
3. They monitor client’s portfolio and provide timely advices to them.

5. Margin Financing :

1. Stock exchanges monitor the extent to which brokers are lending in line with their net worth. As a result, many large Broking Houses provide financing facilities to clients who are looking to take leverage positions.
2. Clients are allowed to take a position in the market after paying the margin amount. In most cases, investors are allowed to trade with a 50% margin.

6. Invest in other Asset Class :
A part from investing in stocks, Brokers also help the investors to invest in other assets classes like commodities, gold exchange traded fuds (ETFs) and mutual fund products. They also help their clients in investment in initial public offerings (IPO) of companies.

7. Marketing :
A Stock Broker finds prospective clients and builds a customer base. He may do this by writing articles in newspapers and magazines, hosting radio and television or taking time to clal prospective clients. A Stock Broker can also receive new clients through referrals from other individuals and organizations or by.attending social events where he can market his services.

Question 8.
Discuss the need for services of stock broker in the financial market.
Answer:
For a common man, it’s not possible to buy the stocks directly from the exchange. They need middlemen to execute the trade; such middlemen are known as ‘Stock Brokers’.

The Stock Broker services are needed to facilitate the buying and selling of stocks at the stock markets, on behalf of irivesors. A part from facilitating the buying selling of stocks from the stock market, Stock Brokers also offer a gamut of services to their clients such as :

1. To Provide Advisory Services :
Stock Market Brokers possess expertise related to the working of stock market, performance of stocks, market trends, and so on. Besides, they have access to the data base and research findings of Brokerage Firms that they are associated with. Hence, they can provide excellent investment advice to their clients.

2. To Offer Limited Banking Services :
Stock Market Brokers are authorized to provide limited banking services such as interest-bearing accounts, electronic deposits, and withdrawals. The clients can avail such banking-related services from the stock brokers by paying them a nominal brokerage charge.

3. To Support Other Investment Services :
A part from stokes, many stock brokers also deal in other securities such as mutual funds, bonds, exchange tradded funds, futures, options and commodity trading. They also provide investment advice related to all these products, to their clients.

4. To maintain Email Support Services :
Replying of email within a few hours during business time is considered reasonable in this matter. It’s depending on the severity of the incident.

5. To communicate through Phone/Toll Free Numbers :
Broker can provide excellent customer care through phone and toll free number.

6. To Offer Live Chat Support :
As far as live chat goes, the response should be immediae but is only possible during working days and for certain time.

7. To Leave a Message on their Website :
This can also help a clien in getting assisted fast and directed to the specific representative.

8. To Educate through Discussion forums :
This is a new and popular concept these days wher you can ask questions directly to the Broker related to any particular topic or issue.

9. To Offer Knowledge Base and. Video Tutorials :
Quick presentation of recurring issue in the knowledge base is one of the effective ways for he online community. Training and features about the tools are best to demonstrate in video tutorials to reduce traffic on ohter support features.

Thus, the services of stock broker are quite essential in trading the stock of joint stock companies.

Short Answer Type Questions

Question 1.
What do you know about NSE?
Answer:
The National Stock Exchange (NSE) was incorporated in November, 1992. It is a “country wide screen based online trading system” and has international standards.

Features of NSE :

1. It is a computerized national wide stock exchange where NSE members all over India are linked via satellite and cable system.
2. The automated quotation system makes it convenient to the brokers to buy and sell electronically and need not shout in the trading ring about prices.
3. It deals with the wholesale debt market like government securities, units by UTI etc.
4. Price data will be broadcasted by the Press Trust of India (P.T.I)
5. It improves the settlement system and minimizes the risk therein. NSE has setup a subsidiary national securities clearing corporation, which guarantees the settlement of trade executed.
6. It operates dealings in the corporate equity and debt instruments. .

Question 2.
What is BSE?
Answer:
The Bombay Stock Exchange (BSE) is formerly known as “Native Stock and Share Brokers Association”, which was established in the year 1877. The aim of association was to support and protect the character and status of brokers, to promote fair practices and to discourage malpractices.

Features of BSE :

1. It has on-line trading system introduced in 1995, which is called BOLT(BSE on line trading). This helps in active trading and safeguards market integrity.
2. It provides other services like risk management, clearing, settlement, market, data and education to capital market participants.
3. It provides a trading platform for equities of small and medium enterprises.
4. It conforms international standards.
5. It provides on efficient and transparent market for trading in equity, debt instruments and mutual funds.
6. It has global reach helping customers around the world.

Question 3.
What do you mean by Bulls and Bears?
Answer:
Bull :
A Bull or Tejawalla is an operator who expects a rise in prices of securities in the future. In anticipation of price rise he makes purchases of shares and debentures with the intention to sell at higher prices in future. He being a speculator has no intention of taking delivery of securities but deals only in difference of prices. Such a speculator is called ‘Bull’ because of resemblance of his behaviour with bulb A bull tends to throw his victims up in the air. Similarly, a bull speculator tries to raise the prices of securities by placing big purchase orders.

Bears :
Bear or Mandiwala speculator expects prices to fall in future and sells securities at present with a view to purchase them at lower prices in future. A bear does not have securities at present but sells them at higher prices in anticipation that he will supply them by purchasing at lower prices in future. If the prices move down as per expectations of the bear, he will earn profits out of these transactions. A bear does not take the delivery of securities but takes the * difference if prices fall down, In case the prices are not falling as expected by the bears then they may start speculator rumours to pressurise price downwards, it is known as ‘bear said’.

Question 4.
What are the aims of listing securities?
Answer:
Listing of securities means the inclusion of securities in the official list of stock exchange for the purpose of trading.

Aims of listing the securities :

1. To have control over the dealings of securities and to have proper supervision.
2. To decentralise the economic power.
3. To safe guard the interests *}# promoters.
4. To protect the interests of investors and shareholders.

Question 5.
What is Demutualisation?
Answer:
The concept of demutualisation of stock exchange had originated in India, where two exchanges called OTCEI in 1990 and NSE in 1992 adopted a pure demutualisation structure from their birth. Demutualised stock exchanges are generally ‘for profit’ and tax paying entities.

In a demutualised stock exchange, three separate sets of people own the exchange, manage it and use its services, The owners usually appoint Board of Directors to manage the exchange, by professionals. The brokers or members are totally different from ownership and management. The ownership rights are freely transferable. Trading rights are acquired surrendered transparently.

Under this organisation structure, membership cards do not exist. Demutualisation of exchanges means segregating the ownership from management. This move was necessitated by the fact that brokers in the management of the stock exchange were misusing their position for personal gains.

Question 6.
What are the top ten stock broking firms in India?
Answer:

Very Short Answer Type Questions

Question 1.
Stock Exchange.
Answer:
It is an association, organization or body of Individuals, whether incorporated or not, established for the purpose of assisting, regulating, and controlling business in buying, selling and dealing in securities.

Question 2.
Listing of securites.
Answer:
The inclusion of securities in the official list of stock exchange for the purpose of trading.

Question 3.
Lameduck.
Answer:
He is a speculator when the expectations of Bear does not become true and the price of security does not fall, he cannot fulfil his commitment, and he is said to be lameduck.

Question 4.
Stag.
Answer:
A stag is a cautious speculator. He applies for the shares of a new company at face value and he expects they are sold at a premium.

Question 5.
Jobber.
Answer:
He is a speculator who deals with securities independently and purchases and sells the securities in his own name.

Question 6.
Stock Broker.
Answer:
Broker is a link between a Jobber and general public who deals with a large variety of securities and works for commission. He contracts the Jabbr to buyer sell the securities an behalf of the general public. ’

Question 7.
SEBI.
Answer:
Securities and Exchanges Board of India(SEBI) helps to over come the undesirable practices in the stock exchange. It is controller of capital issues. Its head quarters is located in Mumbai.

Question 8.
Permitted securities.
Answer:
A stock exchange sometimes permits trading in certain securities, which are not listed at the stock exchange but are actively traded in other stock exchanges. Such securities are known as permitted securities.

Question 9.
Stock Exchange Speculators.
Answer:
The persons who make profits by trading securities for shorterm purpose, are known as stock exchange speculators.

Question 10.
Stock Exchange operators.
Answer:

1. Stock Exchange operators are the participants in stock exchange market.
2. Business transactions in a stock exchange are allowed only by a member of the exchange.
3. There are two categories of members who transact, the business on stock exchange. They are A) Jobbers B) Broker.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 7th Lesson Internal Trade Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 7th Lesson Internal Trade

Long Answer Type Questions

Question 1.
Define trade and explain its features.
Answer:

• Trade means buying and selling of goods and services for money or money’s worth.
• It involves exchange or transfer of goods & services.

Features :

1. Trade os a branch of commerce. It connects with buying and selling activities.
2. Trade creates possession utility.
3. Trade involves sales or transfer of the ownership of goods and services from producer to the consumer.
4. Trade includes home trade and foreign trade.
5. Trading activities ae performed in market place.
6. Trade involved low risk and limited capial investment.

Question 2.
Explain the services of wholesaler to manufactures.
Answer:
Wholesale trade involves purchasing goods in large quantities from producers or manu-facturers and selling in smaller lots to retailers.

Services to Manufactures :

1. Enabling large scale production, by purchasing large quantities.
2. Sharing / transfer of risk.
3. Financial assistance in the form of advance payments.
4. Advice regarding the market conditions.
5. Removing the place barrier.
6. Facilitating continuous production.
7. Discharging the distribution function and thereby allowing the manufacturer to concentrate on production.
8. Reducing the burden of storing the goods in a warehouse.

Question 3.
Explain the services of a retailer to manufacturer.
Answer:
Retailer purchase goods from the wholesale and selling them in very small qauantitite sto the customers.
Services of Retailer to Manufacturer :

1. Preparing a ready market for goods.
2. Providing useful information to the market researchers and the producer.
3. Risk bearing and risk sharing.
4. Distribution of goods to different segments of the market and at different places.

Question 4.
Explain the objective of SEZ’s.
Answer:
SEZ means special Economic Zone.

SEZ’s are areas that offer incentives to resident busines. SEZ concept is introduced with a view to attract foreign investment and adapt latest technology.

Objectives of SEZ :
The following are the main objectives of SEZs.

1. Generation of additional economic activity.
2. Promotion of exports of goods and services.
3. Promotion of investment from domestic and foreign sources.
4. Creation of employment opportunities.
5. Development of infrastructure facilities.
   i) SEZ the exim policy 2000 envisaged that units would be able to import capital goods and raw materials duty free.
   ii) SEZ units should be deemed to foreign territory for the purpose of trade operations < and tariffs. Question

Question 5.
Explain the advantages of SEZ’s.
Answer:
The following are the major benefits of SEZs.
i) Employment generation :
SEZs are viewed as highly effective tools for job creation.

ii) Economic development :
SEZs are viewed as the engines for economic development.

iii) Growth of labour-intensive manufacturing industry :
Establishment of SEZs would lead to fast growth of labour intensive manufacturing and service industries in the country.

iv) Balanced regional development :
SEZs are beautiful crafted initiatives for achieving the balanced regional development. v) Capacity building : SEZs are important for stronger capacity building.

vi) Export performance :
SEZ s create dynamism in the export performance if a country by eliminating false resulting from tariffs, other trade barriers and Corporate tax system.

Question 6.
Discuss the adyjzfipages and disadvantages of departmental stores.
Answer:
Advantages :

1. It is established in a central location.
2. It sells different types of products under a single roof in a specialised manner. It is thus convenient for the buyer.
3. It facilitates economies of large scale distribution.
4. It helps in eliminating middle men.

Disadvantages :

1. The operating costs of departmental stores are high.
2. As the size of the stores is large, it may at times be difficult for the departments to draw personal attention.
3. The prices are usually high due to the large establishment costs and large working, capital requirements.
4. It requires huge capital.
5. Usually departmental stores are not situated in far off posh locaities which may cause difficulty for those living in middle segment residential localities in reaching the stores.

Question 7.
Discuss the advantages and disadvantages of multiple shops.
Answer:
Multiple shops are identical shops which sell standardised products in different parts of a particular place or city or town.
For example :
Baskin Robins, Bombay dyeing. The multiple shops have the following advantages and disadvantages.

Advantages :

1. They are in the reach of one and all.
2. They sell standardised products.
3. Customers repose lot of confidence in these establishments as these. Identical establishments are seen everywhere.
4. They help in eliminating middlemen.
5. They help in division of work and specialisation.

Disadvantages :

1. The operating costs are high.
2. They sell limited variety of products.
3. They lack storage facilities.
4. They require huge capital.

Question 8.
Explain the merits and demerits of mail order business.
Answer:
In mail order business, the trader sends a mail to the prospective buyer regarding the product. If the consumer is statisfied he will place the order by mail. The seller on receipt of the required of the required sum from the buyer, shall send the product by mail or post.

Advantages :

1. The capital required is relatively less.
2. There is convenience, both in buying and selling.
3. The goods are reasonably priced.
4. Operating costes are less.
5. Middlemen are eliminated.

Disadvantages :

1. It is very difficult to convince the buyer as the buyer will be able to check the goods. only after buying the goods.
2. They lack efficient management.
3. The lack storage facility.
4. E-tailing, which is a form of e-commerce overtook mail order retail business.

Short Answer Type Questions

Question 1.
What services are offered by wholesaler to retailer?
Answer:
Wholesaler purchase goods in large quantities from products and selling them in smaller lots to retailers.

Services to Retailer :

1. Wholesaler making the goods available to retailers as time.
2. Wholesaler gives marketing support to the relailers.
3. He also gives credit facilities to retailers.
4. sharing of specialised knowledge.
5. Risk bearing and risk sharing.

Question 2.
How do you classify the trade?
Answer:

1. Trade means buying and selling of goods and services for money or money’s worth.
2. Depending upon the geographical limits with in which trade is carried on, the trade in classify into two types.
   a) Home trade / Internal trade / Domestic Trade.
   b) External Trade / Foreign trade / International trade.
3. Internal trade is take place with in the geographicla boundaries of a particular country Internal trade is further divided into.
   A) whole sale Trade
   B) Retail Tsade.
4. External trade is take place between the countries. External trade is further divided into
   a) Export trade
   b) Import trade
   c) Entrepet trade

Question 3.
What services are refers by retailer to the, consumers?
Answer:
Retailer purchase goods from the wholesaler in bulk quantities and sell them in very small quantities to the consumers for their personal consumption or use

Services of Retailer to consumers :

1. Retailer provides wide variety of goods available to consumers.
2. Retailer supply goods quickly and timely.
3. Retailer, provides expert guidance and demonstrations of the product to the customers.
4. He provides after sales service to customers for their purchases.
5. Sometimes retailers provides home delivery service.
6. Retailers provides credit facilities for consumer.
7. Retailors make available goods to consumers convenient location.

Question 4.
What are the features of Internal Trade?
Answer:

1. The trade which take place within the geographical boundaries of a country is called Internal Trade.
2. Internal trade is also called as “Home trade” (or) “Domestic Trade”.

Features of Internal Trade :
Internal trade has the following features

1. The selling and buying of goods take place within the boundaries of the same country.
2. The payment are made by the purchaser to the seller in the home country in the domestic currency.
3. Only a few formalities are requited to be completed by the trade.
4. Risk is more becaus fo changes in demand from widely spread localised domestic markets.
5. The influence of political, legal social, cultural and economic environment of the country is less when compared with the foreign trade.
6. The goods are manufactured according to the requirements of domestic consumers and no specifications are received from the buyers.
7. For physical flow of goods from manufacturing point to the consumeses point, only domestic transportation system is used, like Railways and roadways.

Question 5.
Who are the It itinerant Retailers?
Answer:

1. Itinerant Retailes are those retailers who do not have a fixed place with sale of goods.
2. For example : Hawkers & pedlars, street stalls, cheap jacks etc.
3. Some of Itinerant Retailers are explained below.

A) Hawkers and pedlars :
The itinerats move from place to place with a view to search their customers. They sell low cost and unbranded products, at doorsteps of the customers.

B) Street stalls :
Street traders display their products on pavements, street comers of different localities in urban area. They usually operate their business near public places like railway sations, bus stands and street corners.

C) Cheap Jacks :
Cheap Jacks operat their business in small hired or rented shops for a specified period. When it is felt that the trade is not going on well at a particular place, they shift to another place.

D) Periodic Itinerants :
The periodic Itinerants deals with products which suit certain occasions like Deepawali, kites during Sankranthi etc. In local language, periodic market is called “Santha” or a “weekly market”.

Question 6.
What are the advantages and disadvantages of consumer co-operatives?
Answer:

1. A consumer cooperative store is defined as “a voluntary association of persons based on co-operative principles for buying in common and selling in common”.
2. Consmer cooperative store has the following advanages and disadvantages.

I. Advantages :

1. The capital required is relatively less.
2. There is convenience, both in buying and selling.
3. The goods are reasonably priced.
4. Operating costa are less.
5. Middlement afe eliminaed.
6. There are economies of large scale distribution.
7. Co-operative societies enjoy certain benefits and incentives from the government.

II. Disadvantages :

1. Capital is limied.
2. They lack efficient management.
3. The lack storage facility.

Question 7.
What are the zones covered by SEZ’s?
Answer:
SEZ means special economic zone. SEZ’s are areas that offer incentive to resident busi-ness. SEZ concept is introduced with a view to attract foreign investment and adopt latest technology.

SEZ implies the following Zones :

1. Free Trade Zones (FTZ)
2. Export Processing Zones (EPZ)
3. Free Zones (FZ)
4. Industrial Parks
5. Free Ports
6. Urban Enterprise Zones

At present there are eight functional SEZs are located at Maharashtra, Kerala, Gujarat, Tamil Nadu, Telangana, Andhra Pradesh, West Bengal and Uttar Pradesh.

Question 8.
What incentives are offered by Telangana government for the SEZ’s?
Answer:
In Telangana state there are 29 SEZs in opetation in fields of Bio – technologys. IT, IT enabled services, Gems, Jewellery, Pharmaceutical, electronic software and handware, etc.

Incentives offered by Telangana government for the SEZ’s :
Some of the incentives offered by Central and State governments for setting up SEZs are as follows :

1. Duty free import and domestic procurement of goods for the development, operation and maintenance of he company.
2. 100% IT exemption on export income for the first 5 years, 50% for next 5 years and . 50% of the export profit reinvested in business for the next five years.
3. Exemption of GST and levies imposed by state government.
4. Single window clearances for all state governments approvals. Thus, the SEZs in Telangana State are being given special treatment for the development of industrial sector in the state.

Additional Questions

Question 1.
What is External Trade and Explain its’ types?
Answer:

1. The trade refers to buying and selling between traders of two or more countries is called “External Trade”,
2. External Trade is also called “Foreign Trade” or “International Trade”.
3. External Trade s divided into 3 types.
   A) Export Trade
   B) Import Trade snf
   C) Intrepot Trade.

A) Export Trade :

1. When a trader of home country sells his goods to traader or customer of another countries, it is called Export Trade.
2. For Eg.: A Trader from India maysells his goods to a customer in Iran.

B) Import Trade :

1. When a trader of home country purchase goods from trader of another country, it is called import trade.
2. For example: A trader from India may purchase goods from a trader from Singapore.

C) Entrepot Trade :

1. When goods are imported from one country and later exported them to another country, it is called entrepot trade. It is also called “Re – export trade”.
2. For Example: An India trader purchase raw material from a Srilankan trader and convert rawmaterial into finished goods and sell them to British trader. Here indian trader involved in Entrepot Trade.

Question 2.
What is Distribution chain, and explain the types of Distribution chain?
Answer:

1. A Distribution chain is a chain of business or intermediaries through which goods or services are passes until it reaches the final buyer or consumer.
2. Distribution chain can include producers, wholesalers, retailers and consuers.
3. On the combination of producer, wholesaler; retailer and consumer, the distribution chain is divided into 3 channels they are
   A) The first channel of distribution
   B) The second channel of distribution and
   C) The third and find channel of distribution.

A) The first channel / chain :
1) The first channel is the longest because it includes producer, wholesaler, retailer and consumer.
2) In this chain, producer sell product to whole saler who sells to a retailer, and then retailer sells to the consumer.
Producer ⇒ Wholesaler ⇒ Retailer ⇒ Consumer

B) The second channel / chain :
1) In this chain producer sells directly to a retailer who sells the product to the consumer.
2) In this channel, there is no wholesaler, only one intermediary i.e. retailer.
Producer ⇒ Wholesaler ⇒ Retailer ⇒ Consumer

C) The third and find channel / chain :
1) In this channel, the producer sells his products directly to the consumers.
2) This is shortest distribution channel, because cutting out both wholesaler and the retailer.
Producer ⇒ Consumer

Very Short Answer Type Questions

Question 1.
Internal Trade.
Answer:
Internal trade :

1. Internal trade is conducted within the political and geographical boundaries of a particular country.
2. It can take place at local or regional or national level.
3. Internal Trade in also called “Domestic Trade or Home track.

Question 2.
Wholesale Trade.
Answer:
Wholesale trade :

1. Wholesale trade involves purchasing goods in large quantities from producers or manufacturers and selling in smaller lots to retailers for resale to ultimate consumers.
2. Wholesaler is importance between producer and retailor.

Question 3.
Retail Trade.
Answer:
Retail trade involves buying goods from the wholesaler and selling them in very small quantities to the consumers for their personal use.

Question 4.
Itinerants.
Answer:

1. Itinerants retailers are those retailers who do not have a fixed place for sale of goods.
2. Hawkers and pedlans, street stalls, cheap jacks are examples of itinerants.

Question 5.
Hawkers and Pedlars.
Answer:
Hawkers and Pedlars These itinerants move from place to place with a view to search their customers.

Features are :

1. They sell low cost products.
2. They usually sell unbranded products.

Question 6.
Periodic Itinerants.
Answer:
Periodic Itinerants :

1. The periodic market traders deal with regular products and products which suit certain occasions.
2. In local language, it is cailed Santha or a weekly market.

Question 7.
Street Stalls.
Answer:

1. Street traders display their products on pavements, street comers of different localities in urban areas.
2. They usually operate their business near public places like Railway station, bus stands, parks etc.

Question 8.
Cheap Jacks.
Answer:
Cheap Jacks :

1. Cheap jacks, the other form of itinerant traders operate their business from small hired shops for a specified period.
2. They keep moving from place to place. When they felt, trade in not going on wells.

Question 9.
Fixed Shop Retailers.
Answer:

1. Fixed shop retailer Fixed shop retailers are those retailers who have a fixed place for sale of goods.
2. Fixed shbp retailers divided into small scale fixed retail shops and large scale fixed retail shows.

Question 10.
General Stores.
Answer:
General stores :

1. These are usually small shops and establishment located in residential area.
2. They usually sell essential commodities on cash or credit basis.

Question 11.
Single Line Stores.
Answer:
Single line stores :
The retailers deal with a single /one line of products such as vegetables, bakery products, plastic goods are spld by single time stones, footwear.

Question 12.
Speciality Stores.
Answer:

1. A speciality store deals in a particular type of product.
2. They selling one type of product only (all brands).

Question 13.
Street Shops.
Answer:

1. These are called street stalls because these types of retailers display their goods on tables or under the tent.
2. These shops are also called “street stalls”.

Question 14.
Second Hand Goods Shops.
Answer:

1. Second – hand goods shop deals in used articles or second hand goods such as old furniture and old books.
2. In these shops goods price is low.

Question 15.
Second’s Shops.
Answer:
Second’s shops :

1. “seconds shops deals in defective goods”.
2. Goods are sold at a discounted rate in seconds shop,

Question 16.
Large Scale Fixed Retail Shops.
Answer:

1. The large scale fixed retailers operate on a large scale and they are established with heavy investment.
2. They deals in a large bulk of goods.

Question 17.
Multiple Shops.
Answer:
Multiple shops are identical shops which sell standardised products in different parts of a particular place or city or town. Eg : Bombay dyeing.

Question 18.
Consumer Co-operative Store.
Answer:

1. A consumer co-operative store is defined as a voluntary association of persons based on co-operative principle for buying in common and selling in common.
2. They sold goods at reasonable price and enjoy benefits and incentives from the government.

Question 19.
SEZ.
Answer:

1. SEZ means special economic zones.
2. SEZ’s are introduced with a view to attract foreign investment and adopt the latest technology.

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 1st Lesson Financial Markets Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 1st Lesson Financial Markets

Long Answer Type Questions

Question 1.
What is money market? Explain it s functions.
Answer:
Meaning :

1. Money market is market for short term funds which deals with monetary assets whoes period of maturity is upto one year.
2. Money market is a credit market, where short term debt instruments, having high liquidity, .unsecured and at low risk are traded between the parties.
3. The sort term funds are raised to manage temporary shortage of cash and obligations, that the savers are to invest on them to earn returns.

Introduction :
Money market is a credit market, where short-term debt instruments, having high liquidity, unsecured and at low risk are being traded actively between the parties. In other words money market supply short-term funds to the industry.

Definitions. :
“The centre for dealing mainly of a short-term character, in monetary assets, it meets the short-term requirements of borrowers and provides liquidity or cash to the. lenders.

Functions of Money Market : (Main functions) :

1. It is an equilibrating mechanism to even out demand for the supply of short-term funds.
2. It provides a focal point for central bank intervention and influencing liquidity and the general level of interest rates in the economy.
3. It enables a reasonable access to providers and users of short-term funds.
4. Money market fulfill providers and users borrowing and investment requirements at an efficient and market clearing price.

Other functions :

1. It provides short-term credit to the business to meet the working capital requirements.
2. It funds the Government by issuing shor-term instruments to the savers.
3. It deals with credit instruments.
4. It enables the savers of the funds and investors to transact with each other.
5. It helps trade and commerce to develop in a better manner, by issue of bills.
6. It helps in promoting the saving habit in the people.
7. It provides valuable and accurate information to the transacting parties to save money time and efforts.

Question 2.
Explain the functions of capial market.
Answer:
Introduction :

1. Capital market means, it is the market where long-term finance is provided to the business firms through the sale of securities.
2. The capital market participants are private sector manufacturing industries, government, specialised financial institutions and individual savers.
3. The capital market is classified as primary market and secondary market.

Functions of Capital Market :
1. Mobilisation of the resources :
It mobilizes the resources from surplus areas to deficit and productive areas, it increasing the productivity and economic growth of the country.

2. Encourages savings :
It encourages savings motive among the people as they get returns in the form of interest, dividends and bohus.

3. Encourages investments :
It encourages investment by mobilising more capital through financial institutions.

4. Reduces the fluctuation in prices :
It stabilises the prices of securities and reduces the fluctuation in prices to the minimum.

5. Reduce unproductive activities :
It facilitates the reduction in speculation and unproductive activities.

6. Economic development :
It promotes the economic growth and development of the country.

7. Proper allocation of surplus funds :
It helps proper allocation of funds in public and private sectors. Improve the growth of the economy.

Question 3.
What are the differences between money market and capital market?
Answer:
Introduction :
Money Market :
The centre for dealing mainly of a short term character, in monetary assets, it meets the short term requirements of funds.

Capital Market :
It is the market where long term finance is provided to the business firms through the sale of securities.

Differences :

Question 4.
Explain the different money market instrumetns?
Answer:
The various money market instruments ae tresury bill, commercial paper, call money, certificate of deposit and commercial bill.
1. Treasury Bill :

1. A Treasury Bill, or zero-coupon bond, is a promissory note issued by RBI, on behalf of central government, to meet the requirement of short – term funds.
2. Treasury bills are issued at a lower price than their face value and repaid at par. The difference between the purchase price and the amount paid on maturity is the interest earned and called as “discount”.
3. At present the Government of India issues three types of treasury bills thorugh auctions namely 91 days, 182 days and 364 days. Treasury bills are avilable for a minimum amount of rs. 10,000 and in multiples there of. Banks, individuals, HUF, financial institutions and corporations normally participate in the treasury bill market.

2. Commercial paper :

1. Commercial paper is a short-term unsecured promissory note issued by creditworthy companies and are negotiable by endoursement at a discount value.
2. A commercial paper tenure ranges from 1 day to 270 days. Commercial papers are issued for the purpose of financing of accounts receivable, inventory and meeting short-term liabilities.
3. The returns on commercial paper are high when compared to Treasury Bills but less secured.

3. Call Money :

1. Call money is an inter-bank transaction for short-term funds repayable with interest called as call rate to meet their cash reserve requirements on demand.
2. The maturity call money is of 1 day to 14 days.
3. Commercial banks require to maintain minimum cash balance known as Cash Reserve Ratio. The banks with cash reserve below the statutory requirement borow from such banks having surplus cash reserves. For the services rendered by the lending bank, interest is paid which is known as call rate. The call rate varies from day to day and even hour to hour.

4. Certificate of Deposit :

1. Certificate of Deposit is an unsecured promisssory note, negotiable short-term in-strument issued by the commercial banks in the form of a certificate authorising the bearer to receive interest along with the face value.
2. Certificate of Deposits can be issued to individuals, NRI’s corporations and compa-nies.
3. These certificates are available for the term of 3 ,pmtjs to 5 years.

5. Commercial Bill :

1. Commercial Bill is a negotiable instrument drawn by the drawer (seller) on the drawee (buyer) for acceptance to pay the amount of credit sales indebted to him at a future date.
2. Once it is accepted by the drawer it becomes a legal document and it can be discounted with a bank when the drawer is in need of cash.
3. The bank receives the face value from drawee on the due date. These trade bills can be rediscounted by the banks with RBI and can be considered as liquid assets.

Question 5.
What is Derivative? Explain the various products of Derivatgives.
Answer:

1. Derivative is a financial contract whose value is dependent on an underlying asset or group of assets.
2. The commonly used assets are stocks, bonds, currencies commodities and market indices, the value of the underlying asset keeps changing according to market conditions.
3. According to John C.Hall “A derivative can be defined as a financial instrument who value depends on the values of other, mole basic underlying variables”.

Derivative Products :
The most common types of derivatives are given below :
A) Forwards
B) Futures
C) Options and
D) Swaps

A) Forwards contracts :

1. A forward contract is a customized contract (Non standardized contract) between two parties to buy or sell an asset at a specified date in future at a price agreed upon today.
2. Forward contracts are self-regulated and no collecteral is required for the same.

B) Futures contracts :

1. A futures contracts is a standardized contract between two parties to buy or sell an asset at a certain time in the future at a certain price.
2. Futures contracts ae special type of forward contracts which are regulated by the stock exchange and being standard in nature, these contracts can not be modified.

C) Optipm contracts :

1. Option contracs are those contracts that give the right but not the obligation to buy or sell on underlying asset.
2. There are two types of options call and put in call option, the buyer has the right but not the obligation to buy an underlying asset at a price determined while entering the contract.
3. In put option, the buyer has the right but not the obligation to sell an underlying asset at a price determined while entering the contract.

D) Swaps contracts :

1. Swaps contracts are private agreements between two parties to exchange their cash flows in the future according to pre-arranged formula.
2. Swap contracts are risky and they can be regulated as port folios of forward con-tracts.

Question 6.
Discuss the various debt market instruments.
Answer:
The following ae the important debt market instruments that are issued by the Central and State Governments, Municipal Corporations, Government bodies and commercial entities like Financial Institutions, Banks, Public Sector Units and Public Ltd. companies.

1. Debentures :
1) It is a type of Debt instrument which offers a fixed rate of interest for a specified tenure. Companies or governments use debentures to borrow money.

2) Debentures are simply loans taken by he companies and do not provide the ownerwhip in the company.

2. Bonds :

1. Bonds are the fixed-income securities that are issued by corporations and governments to raise capital. The bond issuer borrows capital frim the bondholder and makes fixed payments to them at a fixed interest rate for a specified period.
2. The different types of bonds that are traded in the debt market includes Zero Coupon Bonds, Coupon Bearing Bonds, Government Guaranteed Bonds, Public Sector Units (PSUs) Bonds, Private Sector Bonds, Floating Rate Bonds, etc.

3. Government Securities :
1) Government Securities or G-Secs are issued by the Reserve Bank of India on behalf of the Government of India.
2) These securities have a maturity period of 1 to 30 years. Securitites offer fixed interest rate, where interests are payable semi annually.

4. Treasury Bills :
Treasury Bills or T-Bills, which are issued by the RBI for 91 days, 182 days and 364 days. They are also called zero coupon bonds.

5. Certificate of Deposit :

1. Certificate of Deposits (CDs) is issued by the bank to depositors of funds that remain with the bank for a specified period of time.
2. CDs are similar to the traditional term deposits but are negotiable and tradable in the short-term money market.

6. Commercial Papers :

1. Commercial paper, also called CP. It is a short-term debt instrument issueb by companis to raise funds.
2. It is an unsecured money market instrument issued in the form of a promissory note and was introduced in India for the first time in 1990.

Question 7.
Explain the equity market instruments.
Answer:
The different equity market instruments are common shares, preferred shares, private equity, mutual funds and derivatives.

1. Common shares :

1. Common stock shares respresent ownership capital, and holders of common shares are receive dividends out of the company’s profits.
2. Common shareholders have a residual claim to the company’s income and assets.
3. They are entitled to a claim in the company’s profits only after the preferred shareholdes and bondholders have been paid.

2. Preferred Shares :

1. Preferred shares are a hybrid security because they combine some features of com-mon equity stock and debentures.
2. They are like debentures as they have a fixed rae of dividend, have a claim to the company’s income and assets before equity.
3. They do not have a claim in the company’s residual income, and do not confer voting rights to shareholders.

3. Private Equity :

1. Equity investments made through private placements are known as private equity.
2. Private equity is raised by private limited enterprises and partnerships, as they cannot trade theri shares publicly. Typically, start-up and small/medium-sized companies raise capital through this route from institutional investors and wealthy individuals.

4. Mutual Funds :

1. Mutual funds are an investment tool that pools money from several investors and invests it in company stocks, bonds, government instruments, etc. in order to generate a profit for investors.
2. This profit may be paid out as dividends to investors or reinvested by the fund for capital appreciation.

5. Derivatives :

1. These are financial contracts whose value is dependent on an underlying asset or group of assets.
2. The commonly used assets ae stocks, bonds, currencies, commodities and market indices. The value of the underlying assets keeps changing according to market condidtions.

Question 8.
Define Mutual Fund and explain its objectives.
Answer:
Meanings :
1) A Mutual Fund is a Financial Service Organisation that pools the savings of a number of investors who share a common financial goal. The money collected from investors is then invested by the fund manager in different types of securities; these could range from shares to debentures based upon the scheme’s stated objectives.

2) The income earned through these investments and the capital appreciation realised is shared by its unit holders in proportion to the number of units owned by them.

Objectives of Mutual Fund Investments :
a) Goal-Based Investing :
This is the top investment objective of Mutaul funds. It offers different types of mutual funds in order to suit the needs of the various investors. The fund manager invests according to target asset mix suitable for investors after looking at his/her risk profile and liabilities etc.

b) Investment Growth :
Investors who are looking for aggressive returns can do so by taking some extra risk. Mutual Funds on this objective invest money in fast-growing companies.

c) Tax Savings :
Tax Savings is also one of the important investment objectives of Mutual fund. Mostly wealthy clients, Institutional investors, and corporates have an objective to minimize the tax burdern. Mutual funds offer investors with a variety of funds which will reduce the tax.

Question 9.
What are the different types of mutaul funds? Explain.
Answer:
Mutual Fund schemes may be classified on the basis of its structure and investment objective.

I. Based on Structure :

a) Open – ended Funds :

1. An open-ended fund is one that is available for subscription and repurchase on a continuous basis i.e. throughout the year.
2. These funds do not have a fixed maturity period.
3. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. The key feature of open-end schemes is liquidity.

b) Close-ended Funds :

1. closed-ended funds have a stipulated maturity period which generally ranges from 3-15 years.
2. These funds are open for subscription only during a specified period.
3. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are lised.

c) Internal Funds :
Internal funds combine the features of open-ended and close- ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

II. Based on Investment Objectives :
a) Growth Funds :

1. The funds which are aimed at appreciation in the value of the underlyhing in-vestments through capital appreciation are called growth funds.
2. Grwoth funds invest in growth oriented securities i.e., in shares of companies which can appreciage in long run.
3. Growth funds are also known as Nest Eggs or Long Haul Investments.

b) Income Funds :

1. The aim of income funds is to provide regulare and steady income to investors.
2. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities.
3. Income Funds are ideal for capital stability and regular income.

c) Balanced Funds :

1. The aim of balanced funds is to provide both growth and regular income.
2. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents.

d) Money Market Funds :

1. The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income.
2. These schemes generally invest in safer short term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money.
3. The returns on these schemes may fluctuate depending upon the interest rates prevailing in the market.

III. Others :
a) Tax Savings Funds :
These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws, as the Government offers tax incentives for investment in specified avenues to encourage the investors.

b) Industry Specific Funds :

1. Industry Specific Schemes invest only in the industries specified in the offer document.
2. The investment of these funds is limited to specific industries like Info Tech, Fast Moving Consumer Goods (FMCG), Pharmaceuticals, etc.

c) Index Funds :
Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE.

d) Exchange Traded Funds :
Exchange Traded Funds (EFT) provide investors with combined benefits of a closed-end and open-end mutual fund. Exchange traded funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices.

Short Answer Type Questions

Question 1.
Differentiate between indigeneous bankers and money lenders.
Answer:

Question 2.
What is the role of organised money market?
Answer:
The institutions functioning under this organized money market are regulaed by RBI and other regulating agency like NABARD.

Commercial banks, Indian and foreign, public sector and privae sectors are treated as organized sector. All these institutions participate on the demand side along with central government business entities and individuals.

The role of organised Money market:
Organised money market fulfil the requirement of finance

1. for the government arise because of deficit.
2. For the firms to meet their working capital needs.
3. For the banks to maintain cash reserve ratio.

This money market deals with credit instrument like treasury bills, commercial paper, call money, certificae of deposits, and mutual funds.

Question 3.
What are the differences between primary market and secondary market.
Answer:

Question 4.
What is Treasury bill?
Answer:

1. A Treasury bill is also called zero coupon bond, it is a promissory note issued by RBI, on behalf of Central Government, for a discount to meet the requirement of short term funds. Treasury bills were first issued by the Government of India in 1917.
2. It is one of the safe money market instruments and the returns are not that attractive. But they are zero risk instruments having assured earnings.
3. Treasury bills are issued at a lower price than their face value and repaid at par (face value). The difference between these two are called as discount.
4. These are circulated in primary market and secondary markets. At present the Government of India issues three type of treasury bills. They are
   a) 91 days treasury bills
   b) 182 days treasury bills
   c) 364 days treasury bills
5. Treasury bills are available for a minimum amount of ₹ 25,000 and in multiples there of. Banks and financial institutions are participate in the treasury bill market.

Question 5.
How financial markets are classified?
Answer:
Financial market is the market in which financial assets are created and transferred. On the basis of tenure of credit needs, the financial markets are classified into money market and capital market.

A) Money market is the market where shorterm debt instruments are traded and money market is divided as organised money market and unorganised money market.
B) Capital market is the market where long term finance is provided to the business firm with new issues of shares.

Capital market is divided into primary market and secondary market.

Question 6.
What do you mean by Certificate of Deposit?
Answer:

1. Certificate of deposit is an “unsecured promissory note”, negotiable short – term instrument issued by the commercial banks in the form of a certificate authorising the bearer to receive interest along with the face value.
2. Certificate of deposits can be issued to individuals, NRI’s, corporations and companies.
3. They are issued during the period of high liquidity when the percentage of deposits are low compared to demand for loans. These certificates are available for the term of 3 months to 5 years.
4. The return on certificate of deposit are higher than the T – Bill as the rate of risk is high.

Question 7.
What is meant by commercial paper?
Answer:

1. Commercial paper is a short – term unsecured promissory note issued by credit worthy companies and are negotiable by endorsement at a discount value.
2. A commercial paper tenure ranges from T day to 270 days. Commercial papers are issued for the purpose of financing of accounts receivable inventory and meeting short-term liabilities.
3. The returns on commercial paper are high when compared to treasury bills but less secured. These securities are actively traded in secondary market also. A non-resident can also invest in commercial paper on non – repartition basis.

Question 8.
What is call money?
Answer:
Call Money :

1. Call money is an inter-bank transaction for short-term funds repayable with interest called as call rate to meet their cash reserve requirements on demand.
2. The maturity of call money is of 1 day to 14 days.
3. Commercial banks require to maintain minimum cash balance known as Cash Reserve Ratio. The banks with cash reserve below the statutory requirement borow from such banks having surplus cash reserves. For the services rendered by the lending bank, interest is paid which is known as call rate. The call rate varies from day to day and even hour to hour.

Question 9.
What is Bond market?
Answer:
Bond Market :

1. The bond market is a market place where investors buy debt securities that are brought to the market by either governmental entitie or publicly-traded corporations.
2. This is also called as Fixed-income Market, or Credit Market.
3. Governments typically issue bonds in order to raise captial to pay down debts or fund infrastructural improvements. Publicly traded companies issue bonds when they need to finance business expansion projecs or maintain on going operations.
4. The general bond market can be segmented into Corporae bonds, Government bonds, Municipal bonds, Mortgaged backed bonds and Emerging market bonds.

Question 10.
What is Debit Market?
Answer:

1. Debit market deals with those securities which yield fixed income. The debt market is any market situation wherer trading of debt instruments takes place.
2. The debit instruments include mortages, promissory notes, bonds, and Certificates of Deposit.
3. A debt market establishes a structured environment where these types, of debt can be traded with case between interested parties.
4. Debt market provides greater funding avenues to both public sector and private sector projects and reduces the pressure on institutional financing.

Question 11.
What is equity market?
Answer:

1. It is the place where buyers and sellers meet to trade in listed companies shares.
2. An Equity Market also known as the Stock Market or Share Market, is a platform for trading in company shares.
3. An equity market is not a physical facility or discrete entity. A stock exchange is a physical entity and a designated place. Two major Indian Stock exchanges BSE (Bomnay Stock Exchange) and NSE (National Stock Exchange) provide real-time trading information on the listed securities.
4. In simple terms, an equity market can be viewed as a market where the buyer and sellet of a stock meet.

Question 12.
What is Forex Market?
Answer:

1. The foreign exchange market or the ‘forex market’ is a system which establishes an international network allowing the buyers and sellers to carry out trade or exchange of currencies of different countries. It simply means buying one currency and selling the other.
2. The objective of forex trader is to make profits from these fluctuations in prices, speculating on which way the foreign exchange rates ae likely to move in the future.
3. The forex market is made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.
4. The forex market is a network of institutions, allowing for trading 24 hours a day, five days per week, with the exception of when all markets are closed because of a holiday.
5. Forex transactions are generally quoted in pairs because when one currency is bought, the other is sold. The first currency is called the ‘base currency’ and the second currency called he ‘quote currency’.

Question 13.
What is close ended fund?
Answer:
Close-ended Funds :

1. closed-ended funds have a stipulatd maturity period which generally ranges from 3-15 years.
2. These funds are open for subscription only during a specified period.
3. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed.

Question 14.
What is convertible bond.
Answer:

1. A convertible bond is a regular corporate bond that has the added feature of being convertible into a fixed number of shares of common stock.
2. Convertible bonds are debt instruments because they pay interest and have a fixed maturity date.
3. The conversion ratio is determined at the time of issuance, and typically can be acted upon by the holder at any time.

Very Short Answer Type Questions

Question 1.
Financial Market.
Answer:

1. Financial market is the market in which financial assets are creaed and transferred.
2. Financial market facilitate the transfer of savings to investment.
3. On the basis of tenure of credit needs, the financial markets are classified into money market and capital market.

Question 2.
Money Market.
Answer:

1. Money market is a market for short term funds which deals with monetary assets whose period of maturity is upto one year.
2. Money market is a credit market, where short-term debt instrument, having high liquidity unsecured and at low risk are traded between the parties.

Question 3.
Capital Market.
Answer:

1. Capital market denotes the market where long-term finance is provided to the business firms through the sale of securities.
2. The capital market participants are private sector manufacturing industries, government, specialized financial institutions, and individual savers.
3. Capital market is divided as primary market and secondary market.

Question 4.
Organised money market?
Answer:

1. Financial institutions functioning under this organized money market are regulated by eithe the RBI or other regulating agency like NABARD.
2. Comercial banks, Indian, foreign, public, private government entities are participate in organised money market.
3. Organised money market deals with creditg instruments like treasury bills, commercial paper, call money etc.

Question 5.
Unganised money market?
Answer:

1. Unorganised money market is not regulated by any specific authority.
2. It is continuing in the country inspite of development of banking system in rural ayeas through indigenous bankes and money lenders.

Question 6.
Primary market.
Answer:

1. Primary market is also known as “new issues market”.
2. The company issuing securities may be new or old in the primary market.

Question 7.
Secondary market.
Answer:

1. Secondary market is also called as stock exchange
2. The listed securities (shares) are bought and sold in the secondary market.

Question 8.
Price in Financial Markets.
Answer:

1. For financial asset or securities, the most recent price at which it was traded is considered as financial market price.
2. In primary market, management decide the price / value of the securities, and in secondary market, the demand and supply determine the price of securities.

Question 9.
Business Finance.
Answer:

1. The requirement of funds to carryout its various activities is called business finance.
2. Finance is needed for the business for fixed capital reqirements and for working capital require.

Question 10.
Instruments of money market.
Answer:
Instruments of money market are

1. Treasury Bill
2. Commercial paper
3. call money
4. certificate of deposit
5. commercial bill

Question 11.
Terms of certificate of Deposit.
Answer:

1. certificate of Deposit is an unsecured promissory note, negotiate short-term instrument issued by the commercial banks in the form of a certificae authorising the bearer to receive interest along with the face value.
2. Certificate of deposits can be issued to individuals, NRIs, corporations and companies
3. These certificates are available for the trm of 3 months to 5 years.

Question 12.
Commercial bill.
Answer:

1. Commercial Bill is negotiable instrument drawn by the drawer (seller) on the drawee (buyer) for acceptance to pay the amount of credit sales indebted to him at a future date.
2. Once it is accepted by the drawer it becomes a legal document and it can be discounted with a bank when the drawer is in need of cash.
3. The bank receives the face value from drawee on the due date. These trade bills can be rediscounted by the banks with RBI and can be considerd as liquid assets.

Question 13.
Discount on T-Bill.
Answer:
Treasury bills are issued at a lowe price than their face value and repaid at par. The difference between the purchase price and maturity value is the interest earned and it is called as discount on T – Bill.

Question 14.
call rate.
Answer:

1. commercial banks require to maintain minimum cash balance the banks with cash reserve below he statutory requirement it borrows from such banks having surplus cash reserve.
2. For the services rendered by the lending bank, interest is paid which is known as “call rate”.

Question 15.
Derivates.
Answer:

1. These ae financial contracts whose is dependent on an underlying asset or group of assets.
2. The commonly used assets are stocks, bonds, currencies, commondities and market indices. The value of the underlying assets keeps changing secording to market conditions.

Question 16.
Forwards.
Answer:

1. A forward contract is a customized contract (Non standardized contract) between two parties to buy or sell an asset at a specified date in future at a price agreed upon today.
2. Forward contracts are self regulated and no collecteral is required for the same.

Question 17.
Features.
Answer:

1. A futures contracts is a standardized contract between two parties to buy or sell an air et at a certain time in the future at a certain price.
2. Futures contracts ae special type of forward contracts which are regulated by the stock exchange and being standard in nature, these contracts can not be modified.

Question 18.
Option.
Answer:

1. Option contracs are those contracts that give the right but not the obligation to buy or sell on underlying asset.
2. There are two types of options call and put in call option, the buyer has the right but , not the obligation to buy an underlying asset at a price determined while entering the contract.
3. In put option, the buyer has the right but not the obligation to sell an underlying asset at a price determined while entering the contract.

Question 19.
Swap.
Answer:

1. Swaps contracts are private agreements between two parties to exchange their cash flows in the future according to pre-arranged formula.
2. Swap contracts are risky and they can be regulated as portfolios of forward contracts.

Question 20.
Structured product
Answer:

1. A standard product is tailored investment solution, using a combination of traditional financial instruments, and derivatives.
2. This combination allows investors to adjust the level of risk to their optimal acceptable leel, while benefiting from movements in the underlier (for example, a stock, an exchange rate, etc.
3. These products are usually long-term in nature requiring a lock-in of at least year and an investment horizon of 2-3 years to gain maximum return.

Question 21.
Mutual fund.
Answer:

1. Mutual funds are an investment tool that pools money from several investors and invests it in company stocks, bonds, government instruments, etc. in order to generate a profit for investor.
2. This profit may be paid out as dividends to investors (dividend plans) or reinvested by the fund for capial appreciation (growth plan).

Question 22.
Open ended fund.
Answer:

1. An open-ended fund is one that is available for subscription and repurchase on a continuous basis i.e. throughout the year.
2. These funds do not have a fixed maturity period.
3. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. The key feature of open-end schemes is liquidity.

Question 23.
Grwoth fund.
Answer:

1. The funds which are aimed at appreciation in the value of the underlying investments through capital appreciation are called growth funds.
2. Growth funds invest in growth-oriented securities i.e., in shares of companies that can appreciate in long run.
3. Growth funds are also known as Nest Eggs or Long Haul Investments.

Question 24.
Industry-specific fund
Answer:

1. Industry Specific Schemes invest only in the industries specified in the offer document.
2. The investment of these funds is limited to specific industries like info Tech, Fast Moving Consumer Goods (FMCG), Pharmaceuticals, etc.)