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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:

Basis	Unity of Command	Unity of Direction
Meaning	One subordinate should receive orders from and should be responsible to only one superior	Each group of activities having same objectives must have one head and one plan.
Aim	It prevents dual subordination.	It prevents overlapping of activities.
Implications	It affects an individual employee	It affects the entire organization.

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 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 :

Internal Trade	International Trade
1. Refers to the trade within the country.	1. Refers to trade with other countries.
2. Does not involve any exchange of currencies.	2. Involves exchange of currencies.
3. There will be no restrictions.	3. Subjected to many restrictions.
4. There is scope for operation of demand and supply forces.	4. The scope for operation of demand and supply forces is restricted.
5. Transport costs and risks are less.	5. Transport costs and risks are more.
6. It facilities movement of goods from points of production to areas whre they are consumed in the home country, the globe.	6. It facilitates countries to specialize in manufacturing a particular line of products which enable them to sell those products across.
7. It helps to derive the benefits of specialization within country.	7. It helps all trading countries derive the benefits of specialization.
8. The movement of goods depends upon the development of internal transport system, especially road and rail.	8. The movement of goods take usually by road, rail, air and water transport.
9. The volume of trade depends upon the size of poplation, volume of production, development of banking and other supporting facilities.	9. There are restrictions imposed on free entry of goods and duties and taxes are to be paid. The volume of trade depends on this factor.

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:

Internal trade	International trade
1) Refers to the trade within the country.	1) Refers to trade with other countries.
2) There will be no restrictions.	2) Subjected to many restrictions.
3) Does not involve any exchange of currencies.	3) Involves exchange of currencies.
4) There is scope for operation of demand and supply forces.	4) The scope for operation of demand and supply forces is restricted.
5) Transport costs and risks are less.	5) Transport costs one more and risks are more.
6) The movement of goods depends upon the development of internal transport systems, especially road and rail.	6) The movement of goods takes usually by road, rail, air and water transport.

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 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 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.

Entrepreneur	Entrepreneurship
1) He is a person.	1) It is a plan of action.
2) He is an administrator.	2) It is an administration.
3) He is a risk bearer.	3) It is a risk bearing activity.
4) He is an innovator.	4) It is a process of innovation.
5) He combines factors of production.	5) It is the process of use of factors of production.
6) He is an initiator.	6) It is taking an initiative.
7) He is a leader.	7) It is nothing but leadership.

 

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 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”.

Principles of Insurance

Utmost Good Faith

Insurabhle Interest

Indemnity

Subrogation

Contribution

Mitigation of lose

causa proxima

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.

Insurance	Assurance
1. Insurance is a contract for paying compensation for any damage or loss that may o r may not occur	1. Assurance is a contract under which the sum assured is bound to be payable.
2. Insurance amount is paid when damage or loss is occur if there is no such loss, the claim does not arise.	2. The amount assured by a life policy becomes payable on death of the policy holder, if the policy holder survives, he will get the sum assured along with bonus and other benefits.

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 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 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:

Name of Stock Broker	Number of Active Clients	% Share
1. Zerodha Broking Limited	15,98,948	14.28
2. ICICI Securities Limited	10,81,960	9.66
3. HDFC Securities Ltd.	7,26,197	6.48
4. RKSV Securities India Private Limited	6,75,551	6.03
5. ANGEL Broking Limited	6,29,260	5.62
6. Kotak Securities Ltd.	5,83,482	5.21
7. Sharekhan Ltd.	5,47,950	4.89
8. Paisa Capital Limied	4,89,661	4.37
9. Motial Oswal Financial Services Limited	3,85,535	3.44
10. Axis securities Limited	2,71,990	2.45

 

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 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 :

Concept	Money Market	Capital Market
1. Nature	It deals with the short term credit instruments not exceeding one year.	It deals with long term finance more than one year.
2. Participants.	The major players are Commercial Banks, RBI, LIC, GIC and UTI etc.	The major players are merchant bankers, financial institutions, foreign investors and individual investors.
3. Dealing Instrument	It deals with the credit instruments like Treasury bills, Commercial papers, Call money etc.	It deals with shares, debentures,, bonds and Government securities.
4. Object	It is engaged in the supply of working capital requirement for short period.	It is engaged on the supply of fixed capital requirements of business and Government.
5. Liquidity	Its instruments enjoy high liquidity.	Its instruments enjoy low liquidity when compared to the money market.
6. Risk level	Its instruments are much safer and the risk level is low.	Its instruments are not safe with regard to returns and repayment of principal amount.
7. Returns	Investor cannot expect higher returns.	Investors can have higher returns in the form of dividends.
8. Value of instruments	Instruments are of high value.	The face value of securities may be low.
9. Location of Transactions	Transactions will take place over phone, internet etc.	Initial and secondary issues are done through a market.
10. Regulator	RBI regulates the market.	SEBI regulates the market.

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:

Concept	Indigenous Bankers	Money Lenders
1. Meaning	Indigenous bankers are part of unorganised money market in rural area.	Money lender is also part of unorganised money market spread through out the country.
2. Financing	Indigenous bankers finance the trade and commerce.	Money lenders are finance for consumption rather than trade.
3. Interest rate	Indigenous bankers charge interest rate lower than money lenders.	Money lender charge interest rate more than indigenous bankers.
4. Security	Indigenous bankers require security for giving loans.	Money lenders donot insist on securities for giving loans.

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:

Concept	Primary Market	Secondary Market
1. Nature	It is concerned with issue of new shares.	It is concerned with marketing of existing shares.
2. Sale of Securities	It enables the company to sell securities to the investors directly or through intermediaries.	It helps the holders of securities to exchange their securities.
3. Capital formation	It is directly connected with the promotion of capital formation.	It is indirectly connected with the promotion of capital formation.
4. Securities dealing	It deals with the buying of securities.	It enables both buying and selling of securities.
5. Value of securities	It enables the management of the company to decide the value of the securities.	It enables the demand and supply to determine the price of securities.
6. Location	It has no fixed geographical location.	It is located at specific places.

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.)

Telangana TSBIE TS Inter 2nd Year Political Science Study Material 11th Lesson India and the World Textbook Questions and Answers.

TS Inter 2nd Year Political Science Study Material 11th Lesson India and the World

Short Answer Questions

Question 1
Explain any two features of Indian Foreign policy.
Answer:
Opposes Colonialism and Imperialism India’s foreign policy mainly opposes colonialism and imperialism. India expresed her solidarity with the people living in the colonies of Africa and Latin America. It strongly condemned the policy of suppression of the people in colonies. It rendered all types of asistance-political, diplomatic, and economic for achieving independence of these colonies. It also opposed the imperialist, strategy adopted by the super powers.

Opposes Racial Discrimination :
India since a long time has opposed all kinds of discrimination based on race, culture etc. It has aptly highlighted the problem of racial discrimination at international level. It has severely criticized the policy of racial segregation of the Governments of South Africa and Rhodesia (now Zimbabew).

Question 2.
Write a note on the role of Non-Aligned Movement
Answer:
NAM can be explained as a policy of not aligning with any power bloc particularly the western or the communist bloc. Pandit Jawaharlal Nehru, M. Tito, K. Sukarno, K. Nkrumah and G. Abdul Nasser were the founding statesmen of this movement.

Objectives of NAM:

• Peace and disarmament.
• Right to Self-determination of all colonial people.
• Racial Equality as a Right for everyone.
• Attaining Economic Equality.
• Opposing cultural domination or cultural imperialism.
• Support to Internationalism.

NAM Summits :
The NAM group commands the largest membership next to the United Nation Organization. India advocated idealism by refusing to join either of two camps during the Cold War. As on today it has 120 member States. The first NAM Summit was held in 1961 at Belgrade and was attended by 25 member States. The recent 16^th NAM Summit that was concluded at Teheran in 2012 saw a huge participation by 120 Countries. The upcoming 17^th NAM Summit will be held on 2015 at Carcass. Venezuela.

Role of NAM :
The Non-aligned movement (NAM) made significant contributions during the course of its several decades functioning. Firstly, NAM demanded the total and unconditional abolition of colonialism and supported the people fighting for the right to national self determination and independence. This resulted in decolonization. Secondly, the proliferation of NAM helped ending cold war and bipolarism with mobilization of nations of Asia, Africa and Latin America against super power rivariy. Thirdly, the NAM made the world aware of the dangerous implications of arms race (both conventional and nuclear arms race) and contributed towards achieving disarmament. Fourthly, many underdeveloped countries who are members of NAM could able to receive economic aid and assistance from both the superpowers for their development.

Fifthly, the NAM brought the principles of equality and justice in the international system and helped democratization from Euro-centric international relations. Sixthly, NAM has successfully demanded for the establishment of a New International Economic Order (NIEO) based on Political and Economic equality among nations. It has initiated the process of dialogue between developed nations and developing nations (North-South Dialogue) and cooperation among developing nations (South-South Co-operation). NAM has also made efforts for the achievement of New World Information and Communication order (NWICO), Thus the NAM played a positive role in International relations and made itself relevant to International Relations.

Question 3.
What is SAARC? Explain.
Answer:
SAARC is an acronym that stands for South Asian Association for Regional Co-operation. President Zia-ur-Rehman of Bangladesh played an important role in creating the SAARC grouping. SAARC was formally launched on 8th December. 1985 by Bangladesh, Bhutan, Indian Maldives, Nepal, Pakistan and Sri Lanka, Afghanistan became a member State on 3rd April 2007. A present the SAARC club consists of eight member States.

SAARC Objectives:

1. To promote the welfare of South Asian region population by improving their quality of life.
2. Strengthen collective self reliance among the countries of South Asia.
3. Accelerate economic growth, social progress and cultural development
4. Appreciation of each other’s problems and creating mutual trust.
5. Collaboration for promoting mutual assistance in the economic, social cultural, technical and scientific fields.

SAARC Million Developmental Goals :
They are Education, Connectivity, Food Security, En-ergy Security, Terrorism and Global Climate Change.

18th SAARC Summit (Nepal – 2014):
The Prime Minister of India Mr. Narendra Modi empha-sized on co-operation in every area. It means contacts between our people and all through seamless connectivity. India visualised Trade, Investment, Assistance, Co-operation in every area through the SAARC. The Kathmandu Declaration issued on November 27^th, 2014 describes the need to intensity regional co-operation on connectivity. To renew their commitment to a South Asian Economic Union, strengthen the Social Window of the SAARC Development Fund, and reiterate their commitment to free South Asia from poverty.

The first SAARC Summit was held at Dhaka in 1985, India hosted 2^nd, 8^th and 14^th Summits in the years 1986, 1995, and 2007 respectively.

SAARC emerged as an important association towards the realization of developmental goals. One of the greatest achievements was the continuation of the organizational work. Criticism about the future was raised to the political differences of the member states. In future, a better regional integration may be realized.

Question 4.
Describe the powers and functions of General Assembly.
Answer:
General Assembly is the principal Legislative and deliberative organ of the United Nations Organization. It is called “meeting venue of the world towns”. At present it consists of 194 member States. Each member State can send five delegates, but enjoys the right of one vote on resolutions.

Functions :
General Assembly acts as a deliberate body on international affairs. It can discuss, investigate, review, supervise, recommend and criticize on the overall working of the united nations. Organizations. It performs the following functions.

• To discuss and recommend on all matters relating to the international peace and security.
• Directing and supervising the matters concerning the international social and economic co-operation.
• It considers the reports and information on the administration of non-self governing territories.
• It approves the annual budget and exercise exclusive control over the finances of the United Nations Organization.
• It elects 10 non-permanent members of the Security Council, 54 members of the Economic, and social Council, 15 Judges of the International Court of Justice, and the Secretary General of the United Nations Organization.
• It adopts all the international conventions.
• General Assembly can make the necessary Amendments, if any to the charter of the UNO.
• Takes steps to admit the states or to suspend or expel the existing member States.

Question 5.
What is the composition of the security council? Describe any TWO powers and func-tions.
Answer:
Security Council is the principal executive organ of the United Nations Organization. It consists of 15 members. Five members are known as big powers or they enjoy permanent status and veto Assembly. Of the 10 non-permanent members are elected for every two years by the General Assembly. Of the 10 non-permanent members, 5 belong to Afro-Asian Nations, I belong to East-Europe, 2 belong to Latin America and West Europe and the remaining 2 belong to other Nations.

Besides, any member State or non-member State who is party to a dispute or who is invited by the Security Council may also participate in its discussions. The Presidency of the council rotates among the member States according to their alphabetical order for a term of two months. The Security Council is assisted by three standing committees.

Powers and Functions :
Security Council enjoys considerable powers in the maintenance of international peace and security. Its powers and functions are mentioned here under:

1. It strives to settle the international disputes peaceably.
2. It takes preventive steps and enforces action to maintain international peace and security.
3. It renders advice to the General Assembly for admitting new member States or expelling the existing member States.
4. It elects the Judges of the International Court of justice and the Secretary General along with the General Assembly.
5. It makes recommendations to the General Assembly on the amendment of the Charter as and when necessary.

Question 6.
Briefly describe the Powers and Functions of the Secretary General.
Answer:
The Secretary-General is the Chief Administrative Officer of the United Nations Organisation UNO. The secretary General who is appointed for a term of fine year by the General Assembly on the recommendations of the Security Council. Its main function is to execute the decisions of the main organs and specialized agencies of the United Nations Organization. The Secretariat has a staff of about 8,900 under the budget drawn from some 170 countries.

Functions of the Secretary General :The Secretary General performs many function of the United Nations Organization within the ambit of the Charter.

1. He brings to the attention of the General Assembly and Security Council all the maters which threaten the international peace and security.
2. He prepares the annual budget and also annual report on the working of the United Nations ” Organizations.
3. He summons the special sessions of the General Assembly on the request of Security.
4. He acts as the registering authority of all treaties and international agreements.
5. He supervises the operations of various peace keeping forces created by the United Nations Organization on different occasions.

Very Short Answer Questions

Question 1.
What is BIMSTEC?
Answer:
The Bay of Bengal Initiative for Multi sectoral Technical and Economic Co-operation (BIMSTEC) is an organisation set up in 1997 with some of the nations of South Asia and South East Asia. The members of this organisation are India, Bangladesh, Nepal, Bhutan, Srilanka Myanmar and Thailand. The Head Quarters of BIMSTEC are located at Bangladesh (Dhaka) and the first summit meeting was held in 2004. BIMSTEC seeks to identity core areas of co-operation among the members countries.

Among them six core priority areas which cover Trade and Investment, Transport and Communication, Energy, Tourism, Technology and Fisheries identified during the ministerial conference in 1998. Later in the 8th Ministerial meeting a number of new areas of cooperation emerged which include agriculture Public Health, Poverty Alleviation, Counter Terrorism and Transnational Crime. Environment and Natural Disaster Management, Culture people to people contact and climate change.

Question 2.
Explain the 18th SAARC Summit
Answer:
The Prime Minister of India Mr. Narendra Modi emphasized on cooperation in every area. It means contacts between our people and all through seamless connectivity. India visualised Trade, Investment, Assistance, Cooperation in every area through the SAARC. The Kathmandu declaration issued on November 27^th, 2014 describes the need to intensity regional co-operation on connectivity. To renew their commitment to a South Asian Economic Union, Strengthen the social window of the SAARC development fund and reiterate the commitment to free South Asia from poverty.

Question 3.
How many Countries took membership in the UN General Assembly.
Answer:
So far 194 Countries took membership in the UN General Assembly.

Question 4.
Who are the members of SAARC?
Answer:
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka, and Afganistan are the members of SAARC.

Question 5.
List the main organs of UNO.
Answer:
The United Nations Organization functions through six principal organs They are :

1. General Assembly
2. Security Council
3. Economic and Social Council
4. Trusteeship Council
5. International Court of Justice, and
6. Secretariate.

Question 6.
Who is the present Secretary General of UNO?
Answer:
Banki – moon is the present (8^th) Secretary General of UNO.

Question 7.
Who are the members of BRICS?
Answer:
Brazil, Russia, India, China, and South Africa are members in BRICS.

Question 8.
What is Panchasheei?
Answer:
Panchasheei is the most important feature of India’s foreign policy. India adopted this feature on 29^th May 1954 through an alliance with China. Panchasheei means five principles of conduct. These Principles include :
a) Mutual respect for the territorial integrity and sovereignty of the States.
b) Non-aggression.
c) Non-interference in the internal affairs of other States
d) Equality and mutual benefits, and
e) Peaceful co-existence.

Panchasheei became very popular in several States of the World. It was considered the greatest contribution made by India to international relations.

Telangana TSBIE TS Inter 2nd Year Political Science Study Material 10th Lesson Smart Governance Textbook Questions and Answers.

TS Inter 2nd Year Political Science Study Material 10th Lesson Smart Governance

Short Answer Questions

Question 1.
What is E-Governance? Explain its merits.
Answer:
E-Governance means Electronic Governance. It can be also called as Paperless Governance. Under this, the government functions on the basis of utilization of Information Technology. This will enhance efficiency and effectiveness of services. Internet and other web-based telecommunication technologies are used. Speed & accuracy are the other additional features. Groups, institutions & citizens enjoy quality and continuous services.

E-Governance secures, Transparency, Efficiency, and Accountability. It is practiced in the state of Chhattisgarh. By 2017 it will move towards a Paperless administration.

Definition :
According to the former President of India. Late Dr. A.RJ. Abdul Kalam. E-Gover-nance in the Indian context means.

A transparent Smart E-Governance with seamless access, secure and authentic flow of information crossing the inter-departmental barrier and providing a fair and unbiased service to the citizen.

Further, the UNESCO started, that “E-Governance is the public sector’s use of information and communication technologies with the aim of improving information and service delivery, encouraging citizen participation in the decision-making process and making government more accountable, transparent and effecitve”.

The above definitions & interpretations enlighten us about the elimination of the age old paperwork. Technology will connect and act as an interface between Citizen and Government. Hence, transparency can be seen. Presently, in India, National E-Governance Plan has been implemented (NEGP).

Merits of E-Governance :

1. Informing & consulting the citizen
2. Reforming the process of Governance
3. Access to Information
4. To improve quality services for citizens
5. Simple rule
6. Efficiency
7. Accountability
8. Transparency
9. Quality service for more citizens

Question 2.
Discuss the merits and demerits of E-Governance.
Answer:
E-Governance means Electronic Governance. It can also be called as Paperless Governance. Under this, the government functions on the basis of utilization of Information Technology.

Definition :
According to the former President of India, Late Dr. A.RJ. Abdul Kalam, E-Gover-nance in the Indian context means, “A transparent Smart E-Governance with seamless access, secure and authentic flow of information crossing the inter-departmental barrier and providing a fair and unbiased service to the citizen”.

Merits of E-Governance :

1. Informing consulting the citizen.
2. Reforming the process of Governance.
3. Access to information.
4. To improve quality services for citizens.
5. Simple rules.
6. Efficiency.
7. Accountability.
8. Transparency.
9. Quality service for more citizens.

Demerits of E-Governance :

1. High cost of implementation and maintenance.
2. Lack of integrated services.
3. Poor infrastructure.
4. A weak legal framework and poor laws.
5. Need to reform legal, administrative, Police and Judiciary.
6. Difficulty in understanding the citizen’s needs and linguistic barriers.
7. Poor Public Financial Management System.
8. Denial of role and participation by the civil society in public decision making.

Question 3.
What is Right to Information Act?
Answer:
The study of Right to Information Act is basic to relate the Citizen’ role in the modern administration.

1. Can the citizens take part in Governance?
2. How can the citizens gather information on public schemes?
3. Is the government acting in a fair manner?
4. Should the information be made open to the public?

The above raised issues need to be answered.

The Right to Information Act-2005 received the Presidential assent on 15^th June 2005 and became fully operational by October 2005. The Act applies to all States and Union Territories except the State of Jammu & Kashmir which is dealt separately. Every citizen has a Right to Access Information. Since all information held by government ultimately belongs to the public, this Act recognizes the sharing of information by government with citizens as healthy and beneficial to the functioning of democracy. Lastly information leads to new awareness and empowerment.

Provisions :
The Right to Information is a fundamental human right. It includes rights as well as responsibilities.

They are explained below :

1. Every person’s right to request information from the government and even the private bodies.
2. The duty of the government is to provide the requested information unless exempted for special reasons.
3. To disclose the information pro-actively by the government.
4. Information belongs to the people and not the public body that holds it
5. Within a period of 30 days the government should respond to the query.
6. Computerization & Digitalization of Records for the dissemination of information.
7. Information in the form of printouts, floppies, videocassettes or any other electronic form. Under the Act 2(f) all the above can be treated as information.

Appointment of PIO’s :
This Act recommends for the appointment of Public Information Officer for all the bodie/authorities/governmental departments etc. The PIO is responsible for providing information to all the citizens as requested. The RTI recommends for the appointment of Assistant Public Infirmation Officers (APIO’s) to receive RTI appeals. The request can be made through an online application form.

Merits of RTI:

1. Citizens empowerment through Right to Information.
2. To curtail corruption, inefficiency and misuse of power.
3. The right to know about government & governance.
4. The concerned officer can be punished or penalized if the information is not provided.
5. It leads to transparency and improvement of services.
6. Role of civil society groups in bringing the issues to the core.
7. A report or complaint or demand of status of the details of the time delays by the public.
8. It helps in the evaluation of the impact of public polices through Social Audit.
9. Right to Information Act as an enforceable Act.

Question 4.
Explain the provisions of the Right to Information Act.
Answer:
The Right to Information Act came into operation from 12^th October, 2005.

Provisions :
The Right to Information is a fundamental human right. It includes rights as well as responsibilities.

They are explained below :

1. Every Person’s Right to request information from the government and even the private bodies.
2. The duty of the government is to provide the requested information unless exempted for special reasons.
3. The disclose the information proactively by the government.
4. Information belongs to the people and not the public body that holds it.
5. Within a period of 30 days the government should respond to the query.
6. Computerization and Digitalization of Records for the dissemination of information.
7. Information in the form of printout, floppies, video cassettes or any other electronic form. Under the Act 2(f) all the above can be treated as Information.

Question 5.
What is SMART Governance?
Answer:
SMART stands for Simple, Moral, Accountable, Responsive and Transparent Components of Smart Governance :

1. To improve the performance of the administration.
2. Enhance accountability and transparency.
3. To do away with petty politics.
4. Successful implementation (Administration) of the public policy.
5. Greater efficiency.
6. Role of the Community Leadership.
7. Future role and Innovation in Public Services.
8. Focus on planning and decision making.
9. Use of a wide range of services like internet, Mobile and other Web-based services.
10. E-Governance.

The following institutions throw some light on the Governance process in India. To suggest ways and means for the enhancement of SMART Governance, the below institutions of excellence were created.

• The National Institute for Smart Government (NISG), Hyderabad, India.
• The Centre for Good Governance, Hyderabad, India.
• The Centre for Law and Governance, New Delhi.
• The Centre for Public Policy and Governance, New Delhi.

Question 6.
Explain the powers and functions of Lokpal.
Answer:
Powers and function of Lokpal :
The lokpal has the power to enquire into any matter connected with allegations of corruption against (a) Prime Minister (b) Minister of the Union (c) any Member of either House of Parliament (d) and Group A’, Group ‘B’ officers (e) Any group ‘C or group ‘D’ official of the Union (f) Any chair person or member of any corporation (g) Any society or trust or body that receives foreign contribution above 10 lakhs.

Present Lokpal :
The President of Indian appointed Justice Pinaki Chandra Bhose as the first Lokpal chairperson and Eight other members on 19^th March 2019.

Based on the report made by the search committee under leadership of Justice Ranjana Desai, Prime Minister Narendra Modi and other committee members unanimously recommended names of the Chair Person and other members of the Lokpal system in India. Lokpal as a peoples friend is an anticorruption authority of body of Cmbudsman who represents the public interest in India. Minimum age of Lokpal (Chairperson or member). Should not be less than 45 years.

Lokayukta :
Based on the recommendations of the 1^st Administrative Reforms Commission, many State Governments enacted legislations to constitute the Lokayukta to investigate allegations or grievances arising out of the conduct of public servants in utilising their power and administrative duties. These servants included political executives, legislators, officers of the State Government, local bodies and public enterprises.

Any citizen can file specific allegations with Lokayukta against any public servant for enquiry. It is also open to Lokayukta to initiate self enquiry into the conduct of the public servants. The institution of Lokayukta was established first in Maharashtra in 1971. After the formation Telangana State in 2014, the first Lokayukta of Telangana was formed on 20 December 2019. Telangana has became 27^th state information of Lokayukta and upa-Lokayukta Act. Governor Tamilasai Soundarajan appointed Justice C.V Ramulu as Lokayukta and Niranjan Rao as upa-Lokayukta, Governor was advised by the Committee headed by C.M. K Chandra Sekhar Rao.

Every person appointed to be the Lokayukta or upa-Lokayukta shall hold office for a term of five years from the date on which he or she enters upon his/her office. The Lokayukta or upa lokayukta may be removed from their by the Governor on grounds of misbehavior or incapacity and on no other grounds.

Subject to the provisions of this Act, the Lokayukta may investigate any action taken by state ministers, secretaries, a member of either House of the Legislature, Mayor of the Municipal Corporation, Vice Cancellor or Registrar of a University or any public servants. Following the investigation the Lokayukta communicates the report to the competent authority, without any further delay.

Very Short Answer Questions

Question 1.
What is Accountability?
Answer:
Accountability means the officials (public servants or civil servants) are accountability for their decision and actions to the public. Henceforth, they are subjected to public security. In a wider sense it includes the bodies/civil society organization/stakeholders/organisations as well. Rule of law and transparency can ensure accountability.

Question 2.
Write any two merits of E-Governance.
Answer:
Merits of E-Governance:

1. Informing & consulting the citizen
2. Reforming the process of Governance
3. Access to Information
4. To improve quality services for citizens
5. Simple rules
6. Efficiency
7. Accountability
8. Transparency.

Question 3.
List out the Stake holders In Governance.
Answer:
The following are the Stakeholders (participants or users) in Governance.

• Ececutive
• Legislature
• Judiciary
• Media
• Private Sector
• Social Organizations
• Civil Society
• Political Parties

Question 4.
What is Government to Citizens (G to C) Model?
Answer:
Government to Citizen (G to C):
Through this model an interface between Government and Citizen is created to provide a wide range of services. This will benefit the general public.

Question 5.
Explain Transparency in few words.
Answer:
Transparency refers to a free’ or ‘unfettered’ (unrestrained) access by the public to timely and reliable information on decisions and performance of the government in various sectors. It includes timely accessible and accurate information. The information given is easy to assimilate even by a Good Governance practices. Social Audit ensures transparency in the process of administration and decision making. Transparency improves efficiency in administration by the following methods :

• The streamlining of service delivery system.
• Recommended social audit to reduce corruption, deviation and malpractices.

Question 6.
In which year the RTI was enacted and enforced?
Answer:
The Right to Information Act was enacted and came into force in the year of 2005.

Question 7.
Lokayukta.
Answer:
Any citizen can file specific allegations with Lokayukta against any public servant for enquiry. It is also open to Lokayukta to initiate self enquiry into the conduct of the public servants. The institution of Lokayukta was established first in Maharashtra in 1971. After the formation Telangana State in 2014, the first Lokayukta of Telangana was formed on 20 December 2019. Telangana has became 27^th state in formation of Lokayukta and upa-Lokayukta Act. Governor Tamilasai Soundarajan appointed Justice C.V. Ramulu as Lokayukta and Niranjan Rao as upa-Lokayukta. Governor was advised by the Committee headed by C.M. K. Chandra Sekhar Rao.

Telangana TSBIE TS Inter 2nd Year Political Science Study Material 9th Lesson Emergence of Telangana State Textbook Questions and Answers.

TS Inter 2nd Year Political Science Study Material 9th Lesson Emergence of Telangana State

Long Answer Questions

Question 1.
Explain the various factors which led to the agitation for a separate Telangana State.
Answer:
Separate Telangana Agitation (1969):
The agitation for a separate Telangana State was started at the end of 1958 and continued in 1969. It was first started by the students and .employees as a protest against the injustice done to the Telangana area. Later, various political parties took advantage of the situation and led the agitation.

Causes :

1. Non-implementation of rights and safeguards given to the Telangana region at the time of formation of Andhra Pradesh.
2. Since the formation of Andhra Pradesh in 1956 no Telangana person was elected as the Chief Minister of the State.
3. As stated in the Gentlemen’s Agreement the Deputy Chief Minister post was not given to the Telangana persons by the Andhra Chief Ministers with the exception of p.Sanjeevaiah.
4. Dissatifaction among some Telangana leaders who had not position.
5. A rumour was spread that the Abkari surplus funds of Telangana region were spend in Andhra area. In those days, there was prohibition in Andhra area and no prohibition in Telangana area.
6. Telangana People were in the idea that many Andhra were in jobs in Telangana with false Mulki Certificates.
7. Telangana people were also in the opinion that the Andhra were dominating in all the administrative departments.
8. Unrest among students.
9. Support give by the people of other states who settled in Hyderabad and the other Telangana towns for their selfish ends.

The separate Telangana agitation was prolonged in the year 1970 also. In December, 1970 Mrs.Gandhi recommended for the Lok Sabha and for a mid-term pole to the Lok Sabha. The Telangana Praja Samithi contested all the 14 seats from the Telangana region and secured 10 Lok Sabha seats. In September,1971 there were discussions between the Prime Minister Mrs.Gandhi and T.RS leaders. As a result T.RS. was emerged in the Rulling congress. The discussions also led to the proclamation of six point formula. It includes,

1. Contunuation of Mulki Rules.
2. Separate accounts and budget for Telangana.
3. A Separate Congress Committee for Telangana.
4. Resignation of Kasu Brahmananda Reddy in favour of a Chief Minister from Telangana region.
5. To review the situation after 10 years.
6. To provide legal status to the Telangana Regional Committee.

The Separate Telangana agitation failed to achieves it essential goal of separate Telangana State. But it secured assuraces and protections for the Telangana for the first time, a Chief Minister was chose from the Telangana region was the Education Minister RV.Narasimha Rao.

Question 2.
Discuss the Formation of Telangana as the New State in the Indian Union.
Answer:
The emergence of Telangana state in 2014 is the result of long drown struggle. It has a history of sixty years of struggle and movements marked by agitations, negotiations, formation and merger of parties, agreement and violation of agreement.

Constitutional Process -A.P. Re organisation Act, 2014 :
The Parliament is empowered to create a new state by following a certain procedure prescribed under Article 3 of the Indain constitution. The Union Government followed the required steps prescribed by Article 3 of the constitution. The President of India referred the A.R reorganisation Bill, 2014 to the state legislature for its consideration. The A.R state legislature rejected the Bill. However, the Parliament had the power either to accept (or) reject the opinion of the state legislature, finally, the Bill was referred to parliament by President.

Both Rajya Sabha and Lok Sabha passed the Bill and President Pranad Mukerjee had signed the A.R Reorganisation Bill 2014 which become an Act on 1^st March 2014. The Government of India declared that on 2^nd June, 2014 the Act would come into force. By this, the Telangana state was formed on 2^nd June, 2014 as the 29^th State in the Union of India.

Emergence and formation of Telangana State :
The AP Reorganisation Act 2014 has the following sailent features.

A State of telangana:
A new Telangana state with 10 districts has emerged as the 29^th State of the Indian Union.

A State of Andhra Pradesh :
The State of Andhra Pradesh has 13 districts after the division of the state.

Hyderabad as a common capital:
Hyderabad remains as the common capital for the states of Telangana and Andhra Pradesh for a period not exceeding 10 years.

Common Governor:
There shall be a common Governor for both the states of Telangana and Andhra Pradesh. The Governor is vested with same special duties.

Members of Rajya Sabha :
According to the Act there are 17 members from the state of Telangana in Lok Sabha while the state of Andhra Pradesh will have 25 members.

Legislative Assembly :
The following is the composition of members in the State Legislative Assembly.
a) Telangana -119
b) Andhra Pradesh -175

Legislative Council :
According to the Act the Telangana State shall have 40 members and Andhra Pradesh shall have 50 members respectively.

Other provisions :
The AP Reorganisation Act 2014 has provided various other provisions like Separate High Courts, provisions for SC’s and ST’s, distribution of revenues etc.

The long cherished demand for a separate statehood for Telangana was achieved after a long.

Struggle 2^nd June 2014 is a memorable day for the people of Telangana who always maintain self-respect and cultural identity. Several leaders in the post struggled for more than six decades and contributed significantly to the cause. The dynamic role of K. Chandra Sekhar Rao in the Telangana Movement and emergence of Telangana State altered the course of Telanganites. The relentless efforts of Mrs. Sonia Gandhi and the support given by BJP and other Political parties cannot be ignored in this regard.

Let us hope that the newly created Telangana State would become a model state in Indian Federation. May the dream of Telangana people to realise ‘Bangaru Telangana1 become a reality. For this, the people of Telangana have to travel many miles to translate their aim into a reality.

Question 3.
Describe the role of JAC’s in Telangana Movement.
Answe:
There are hundreds of political formation in the form of Joint Action Committees (JACs) that have exhibited the aspirations and spirit of the people of Telangana. These JACs have the potential to nurture various ways to articulate the demand for the formation of Telangana State. Both the formation and operation of these JACs is unprecedented in the history of Indian Politics in general and Telangana in particular.

These are various factors that contribute for the formation of hundreds of Joint Action Committees (JACs). The injustice meted out to Telangana in matters of river waters, employment and education, discrimination with regard to revenue sharing, land grabbing and encroachment in large scale, monopoly over the industrial sector, cultural invasion, disrespecting and belittling the Telangana dialect and so on compounded into major social economic and political problems in the Telangana region. This has motivated the people to undertake collective action with a determined goal of achieving Telangana State and formed as Joint Action Committees.

These JACs have formed as common platform for fighting the common cause, though the basis of their formation differ with caste, religion, profession etc. These Joint Action Committees (JACs) have manifested their collective interest with common desire and aspiration of Telangana with common modes of articulation. Mention may be made about some of JACs who have played a prominent role in sreading the Telangana Movement. These include, the political JAC, studnets JAC, advocates JAC, Kula Sangala JAC, Employees JAC and so on. While some of the JACs have independently taken up the cause and spread the movement, others undertook activities as per the directions of political JAC

Political Joint Action Committee :
The political Joint Action Committee was formed on 24th December 2009. Major political parties such as Telangana Rashtra Samithi (TRS), Bharatiya janata party (BJP), Communist Party of India (CPI), Congress party, Telugu Desam Party, CPI (ML), New Democracy, Employees associations and others associated with political JAC. The political JAC formed as the UPA Government had shown signs of deviation from the December 9, 2009 declaration of initiating the process of Telangana formation.

The political JAC is led by a political science professor from Osmania University m. Kodandarama Reddy popularly known as Kodandaram. The extensively undertook various protest programmes for fighting the cause of Telangana. These programmes include, the Non-cooperation. Million March, maanava haaram, Sakala Janula Samme. Sagara Haram, Jail Bharo, Rail Roko, Vanta Varpu etc.

Short Answer Questions

Question 1.
Explain the provisions of Gentlemen’s Agreement.
Answer:
In order to clear the doubts among the people of Telangana that the visalandhra may obstruct their interests, the Gentlemen’s Agreement took place on 20^th February, 1956 at Delhi basing on the recommendations of Fazal Ali Commission. It was attended by Sri Bezawada Gopala Reddy the then chief minister of Andhra State, and his Colleagues Sarvasi Neelam, Sanjeeva Reddy, Goiithu lanchana, Alui Satyanarayan Raju from Andhra Region.

Sri Burgula Ramkrishna Rao the then chief minister of Hyderabad state and his colleagues savaging K.V.Ranga Reddy, Mari Channa Reddy, J.V. Narsinga Rao from Telangana Region. They had signed on the Agreement which contains the following aspects.

1. The administrative expenditure of the state shall be contributed in proportion of both Andhra and Telangana should be confined for its development up to five years and it may be extended for another five years at the request of Telangana legislators.
2. The educational opportunities which are in Telangana shall be provided for them only more development is.to be extended. Technical education and seats in Universities shall be allocated up 1/3 for Telangana students.
3. The Vacancies arise in Future shall be allocated to both regions in proportion to their population.
4. 12 Years of Residency is must for Andhra people to get job in Telangana.
5. Regional Development council shall be constituted for over all development of Telangana.
6. In Council of ministers there shall be 60% from Andhra and 40% from Telangana respectively there must be one muslim from Telangana part.
7. If the Chief Minister is belongs to Andhra region, the deputy chief minister must be from Telangana region and vise-versa. At least 2 poof folios must be given to Telangana out of Home, Finance, Revenue, Planning, Development, Commerce and Industry.

Question 2.
Write a note on Telangana Agitation in 1969.
Answer:
Consequent to the violation of Gentlemen’s Agreement by the successive Governments in Andhra Pradesh, particularly the violation of Mulki Rules, cumulatively resulted in the emergence of eruption of separate Telangana agitation in 1969. It was reported that as many as 25,000 Government jobs were occupied by migrant Andhra’s in Telangana a region. Added to it large number of students and employees felt betrayed in view of violation of Mulki Rules. It is against this background that 1969 agitation for separation of Telangana from Andhra received impetus. Originally, the 1969 agitation was started in Khammam District by a student of Ostnania University who undertook fast unto death for the formation of Telangana. Subsequently, it spread all over the region.

The Government employees and opposition members of the State Legislative Assembly came out and threatened “Direct Action” in support of the students. Subsequently, their were protests all over the region, people from all walks of life including employees, teachers, students, intellectuals, women, and general public joined the movement. Even the political leaders like Konda Laxman Bapuji, the then minister, resigned and joined the movement. Prominent student leaders like Madan Mohan, Mallikarjun, V.B.Raju and Puli Veeranna etc., joined the agitation.

The students questioned the violation of Telangana safeguards and demanded the genuine implementation of these safeguards which were guaranteed by the Gentlemen’s Agreement. It was also recorded that as many as 370 students lost lives in police firing during the nine months agitation. As many as 70)000 people were arrested including 7,000 women. The Government led by Kasu Brahmananda Reddy adopted repressive policies through the deployment of police and military.

Question 3.
Explain the provisions of A.P. Reorganisation Act, 2014.
Answer:
The parliament is empowered to create a New State by following a certain procedure prescribed “under Article 3 of the Indian Constitution. The Union Government followed the required steps prescribed by Article 3 of the constitution. The President of India referred the AP.

Recongnisation Bill, 2014 to the state legislature for its consideration. The A.R State Legislature rejected the Bill.

However, the parliament had the power either to accept or reject the opinion of the State Legislature. Finally, the Bill was referred to parliament by th president.

Both, Rajya Sabha and Lok Sabha passed the Bill and president Pranab Mukherjee had signed the A.R Reorganisation Bill, 2014 which became an Act on 1^st March, 2014. The Government of India declared that on 2^nd June, 2014 the Act Would come into force. By this the Telangana State was formed on 2^nd June, 2014 as the 29^th State in the Union of India.

Question 4.
Write a note on the Significance of June 2, 2014.
Answer:
2^nd June, 2014 is a memorable day for the people of Telangana who always maintain self-respect and cultural identity. Several leaders in the past struggled for more than six decades and contributed significantly to the cause.

The dynamic role of K. Chandra Sekhar Rao in the Telangana movement and emergence of Telangana state altered the course of Telanganities. The relentless efforts of Mrs. Sonia Gandhi and the support given by BJP and other political parties cannot be ignored in this regard.

Let us hope that the newly created Telangana State would become a model state in Indian Federation. May the dream of Telangana people to realise ‘Bangaru Telangana’ become a reality. For this, the people of Telangana have to travel many miles to translate their aim into a reality.

Question 5.
Write about Telangana Regional Co-ordination Committees (TRCC).
Answer:
Establishment of Telangana Regional Co-ordination Committee was a commitment made in the Gentlemen’s Agreement between the leaders of Andhra and Telangana. The advice rendered by the Regional Committee was to be accepted by the government and state legislature.

The Telangana Regional Co-ordination Committee was given power to deal :
a) Development and economic planning within the frame work of the general development, plans formulated by the state legislature.
b) Local self-government, that is to say, the constitutional powers of municipal co-operations, improvement trusts, districts boards, and district authorities for the purpose of local self-government or village administration.
c) Public health and sanitation, local hospitals, and dispensaries.
d) Primary and secondary education.
e) Regulation of admission to the educational institutions in the Telangana region.
f) Prohibition.
g) Sale of agricultural lands.
h) Cottage and small scale industries and agriculture, co-operative societies, markets and fairs Unless revised by agreement.

Very Short Answer Questions

Question 1.
Hyderabad State.
Answer:
The erstwhile princely State of Hyderabad was integrated into Indian Union in 1948 as a result of police action. In the ensuring election to the State Assembly, the congress party swept the polls and formed the Government with Burgula Ramakrishna Rao as the Chief Minister. The State of Hyderabad remained as trilingual state with Telugu speaking people forming the major demographic community along with Kannada and Maratha-speaking regions. The State of Hyderabad was an autonomous state with surplus revenues and efficient administration.

Question 2.
Mulki Rules,
Answer:
i) The person who gets an employment in the Telangana, He must be a Resident of Telangana for not less than 15 Years.

ii) 80% of Jobs should be allocated for Telangana people in Telangana Region and remaining 20% jobs shall be allocated for Andhra Region people.

Question 3.
Visalandra.
Answer:
After formation of separate Andhra State, a demand was articulated by the political elite in Andhra region that why not merge the Telugu Speaking Telangana region of Hyderabad State with Telugus of Andhra State. In otherwords, the idea of “Visalandra” was advanced and popularised. The national congress leadership also hinted at the idea to the Telangana congressmen. Added to it the CPI had actively compaigned for one state for all Telugu speaking people. This compaigned of C.RI. spread in both regions (i.e), Andhra and Telangana. The popular slogan of C.RI.during this period was “visalandralo Praja Rajyam”. It means the need for formation of popular democratic government in an enlarged visalandra.

Question 4.
Telangana Agitation, 1969.
Answer:
Consequent to the violation of Gentlemen’s agreement by the successive government’s in Andhra Pradesh, particularly the violation of Mulki rules, cummulatively resulted in the emergence or eruption of separate Telangana agitation in 1969. It was reported that as many as 2500 Government jobs were occupied by migrant Andhra’s in Telangana a region. Added to it large number of students and employees felt betrayed in view of violation of Mulki rules. It is against this background that 1969 agitation for separation of Telangana from Andhra received impetus. Originally the 1969 agitation was started in Khammam district by the student of Osmania University who undertook fast into death for the formation of Telangana. Subsequently, it spread all over the region.

Question 5.
Srikrishna Committee report, 2010.
Answer:
The Srikrishna Committee which was appointed by the Government of India on 3^rd February, 2010 has submitted its report on 16^th December 2010. It had given six solutions to the problem.

1. It gave preference to the State United with different Constitutional and Statutory measures for socio-economic development and political empowerment of Telangana Region through the creation of Telangana Regional Council.
2. Maintaining the status quo.
3. Separating the state of Andhra Pradesh into Seemandhra and Telangana regions while Hyderabad to be converted into a Union – Territory.
4. Dividing Andhra Pradesh into two States. One of Rayal Telangana and Second – Coastal Andhra Pradesh.
5. Dividing Andhra Pradesh into Seemandhra and Telangana with enlarged Hyderabad Metropolis as a separate Union Territory; and
6. Bifurcation of the State into Telangana and Seemandhra as per the existing boundaries with Hyderabad as the capital of Telangana and Seemandhra to have a New Capital.

Question 6.
Violation of safeguards on Telangana.
Answer:

1. By amending the domicile rule, the residential qualification for public employment and education was reduced from 15 years to 4 years. With the result it is presumed that more . than 50 thousand Andhras are holding jobs meant for Telangana and this trend curbs the employment and educational opportunities of Telangana people.
2. People below the poverty line are 40.78 percent in Telangana compared to a much less percentage in Andhra according to 1987-88 estimates of A.R State government (Mahabubnagar district account for high percentage of below poverty line families in the state.) But the contribution of Telangana region to the state’s revenues is always more than 40 percent
3. After the Andhra Agitation of 1972, Mulki rules and Telangana Regional Committee were abolished thereby denying institutional mechanisms to check the injustices and backwardness and protect region’s interests.
4. The educational facilities are poor for Telangana people. Telangana region continues to be the lowest in literacy rates at 37 percent. Very few professional colleges in Engineering, Medical streams were established. The number of Universities stand at a very low figure in Telangana region.
5. The plans and designs of two major river valley projects on Krishna namely Nagarjuna Sagar and Srisailam, are catering to the needs of Andhra but not to the Telangana area. In fact, the Nalgonda district of Telangana which has sacrificed much of its areas for Nagarjuna Sagar was denied its rightful share.

Question 7.
Hyderabad as common capital.
Answer:
According to the A.R Reorganization Ac, 2014, Hyderabad remains as the common capital for the states of Telangana and Andhra Pradesh for a period not exceeding 10 years.

Question 8.
Sakala Janula Samme.
Answer:
The Sakala Janula Samme (All people’s strike) is a great highlight in Telangana Agitation. This movement led to the strike of all sections of people supporting “Telangana Statehood”. The government employees stayed out from the work. Lawyers boycotted the courts and many other government employees like members of the teaching community, electricity board etc., participated. This movement led to “Rail Roko and Road Blockade”.

Question 9.
Million March.
Answer:
The Million March Movement was organised by Telangana Joint Action Committee led by Prof. Kodanda Ram in Hyderabad on 10th March, 2011 demanding Separate State of Telangana.

Question 10.
Political JAC.
Answer:
Political Joint Action Committee :
The Political Joint Action Committee was formed on 24 December 2009. Major political parties such as Telangana Rashtra Samithi (TRS), Bharatiya Janata Party (BJP), Communist party of India (CPI), Congress Party, Telugu Desam Party, CPI (ML) New Democracy, Employees associations and others associated with political JAC. The political JAC formed as the UPA Government had shown signs of deviation from the December 9, 2009 declaration of initiating the process of Telangana formation.

The political JAC is led by a political science professor from Osmania University M. Kondandarama Reddy popularly known as Kondandaram. He, extensively undertook various protest programmes for fighting the cause of Telangana. These programmes include, the Non-cooperation, Million March, Maanava Haaram, Sakala Janula Samme, Sagara Haram, Jail Bharo, Rail Roko, Vanta Varpu etc.

Question 11.
Students JAC.
Answer:
Telangana Movement was started and intensified with the active participation of students of different colleges and universities. Students belonging to different organisations with multiple ideological doctrines have come together to form the student joint Action Committees. Prominent among them were the Osmania University Students JAC (OUJAC) and Kakatiya University Students JAC (KUJAC).