Term-End Examination: December, 2013
Note: Attempt both section - A and section - B.
SECTION-A
1. Attempt any four of the following: 5+5+5+5
(a) Distinguish between economic and non-economic activities.
Ans: Economic and non-economic activities are undertaken with a different object and purpose and they are different from each other in the following ways:
1. Objective: Economic activities are performed to earn money. Non- economic activities are performed out of love and affection or out of duty. The purpose of undertaking these activities is to get some satisfaction.
2. Scope: Economic activities may take place between employers and employees or between producers and consumers. Non-economic activities may be among members of a family, social worker and those being served etc.
3. Money Measurement: Economic activities are measured in money or money’s worth while non-economic activities have no money value.
4. Philosophy: Economic activities are backed by pragmatic philosophy of earning something out of them. Non-economic activities are performed with idealistic philosophy of attaching more importance to human values and less to money. The feeling here is to do something for others and have one’s own satisfaction.
5. Expectation: The expectation of performing economic activities is to earn income or profit. Non-economic activities are performed to get mental satisfaction.
(b) Explain entrepreneurship and its main characteristics.
Ans: Entrepreneurship: Entrepreneurship can be described as a process of action an entrepreneur undertakes to establish his enterprise. It is a creative activity. It is the ability to create and build something from practically nothing. It is a knack of sensing opportunity where others see chaos, contradiction and confusion. Entrepreneurship is the attitude of mind to seek opportunities, take calculated risks and derive benefits by setting up a venture. It comprises of numerous activities involved in conception, creation and running an enterprise.
Characteristics of Entrepreneurship: Entrepreneurship is characterized by the following features:
1. Economic and dynamic activity: Entrepreneurship is an economic activity because it involves the creation and operation of an enterprise with a view to creating value or wealth by ensuring optimum utilisation of scarce resources.
2. Related to innovation: Entrepreneurship involves a continuous search for new ideas. Entrepreneurship compels an individual to continuously evaluate the existing modes of business operations so that more efficient and effective systems can be evolved and adopted.
3. Profit potential: “Profit potential is the likely level of return or compensation to the entrepreneur for taking on the risk of developing an idea into an actual business venture.” Without profit potential, the efforts of entrepreneurs would remain only an abstract and a theoretical leisure activity.
4. Risk bearing: The essence of entrepreneurship is the ‘willingness to assume risk’ arising out of the creation and implementation of new ideas.
(c) What do you mean by public deposits? State the conditions to be satisfied if a small scale unit wants to exceed the limits.
Ans: Public Deposit: The public deposits refer to the deposits that are attained by the numerous large and small firms from the public. The public deposits are generally solicited by the firms in order to finance the working capital requirements of the firm. The companies offer interest to the investors over public deposits.
Small-scale enterprises are exempted from the restrictions of the maximum limit of public deposits if they satisfy the following conditions:
- The amount of deposit does not exceed Rs. 8 lakhs or the amount of paid up capital whichever is less.
- The paid up capital does not exceed Rs. 12 lakhs.
- The number of depositors is not more than 50%.
- There is no invitation to the public for deposits.
(d) What is meant by margin trading? Explain with an example.
Ans: Margin trading is buying stocks without having the entire money to do it. The exchanges have an institutionalised method of buying stocks without having the capital through the futures market.
For example, if an investor were to buy 2000 shares of say Company A, which trades at Rs 300, he will need about Rs 6 lakh. But if he buy a future contract of that company, which comprises 2000 shares, he only need to pay a margin of 15 per cent. So by putting Rs 90,000, he can get an exposure of Rs 6 lakh. The same operation can also be executed through margin trading. Here, the trader will buy 2,000 shares, which are partly funded by the broker, and the rest by the trader.
(e) Explain publicity and its different forms.
Ans: Refer advertising and its various forms. Both advertising and publicity are same.
(f) State the services of wholesalers to the retailers.
Ans: The important services offered by manufacturers to the retailers are listed as below:
(i) Availability of goods: The wholesalers make the products of various manufacturers readily available to the retailers. This relieves the retailers of the work of collecting goods from several producers and keeping big inventory of the same.
(ii) Marketing support: The wholesalers perform various marketing functions and provide support to the retailers.
(iii) Grant of credit: The wholesalers generally extend credit facilities to their regular customers. This enables the retailers to manage their business with relatively small amount of working capital.
(iv) Specialised knowledge: The wholesalers specialise in one line of products and know the pulse of the market. They pass on the benefit of their specialised knowledge to the retailers. They inform the retailers about the new products, their uses, quality, prices, etc.
(v) Risk sharing: The wholesalers purchase in bulk and sell in relatively small quantities to the retailers. Being able to manage with purchase of merchandise in smaller quantities, retailers are in a position to avoid the risk of storage.
(g) What do you mean by mortgage? Explain its importance in business.
Ans: A mortgage is an agreement that allows a lender to seize property when a borrower fails to pay.
Importance: Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front. Over a period of many years, the borrower repays the loan, plus interest, until he/she eventually owns the property free and clear. Mortgages are also known as "liens against property" or "claims on property." If the borrower stops paying the mortgage, the bank can foreclose.
(h) Enumerate the salient features of the public enterprises.
Ans: Features of Public enterprises
1. State Ownership: A public enterprise is wholly owned by the Central Government or State Government(s) or local authority or jointly owned by two or more of them.
2. State Control: The ultimate control of a public enterprise lies with the Government which appoints its Board of Directors and the Chief Executive.
3. Government financing: The whole or a major portion of the capital of a public enterprise is provided by the Government.
4. Service Motive: The primary aim of a public enterprise is to render service to the society at large. However, public enterprises are expected to generate surplus in course of time.
5. Public Accountability: Public enterprises are financed out of public money. Therefore, they are accountable for their results to the elected representatives of the public. Committees of the Parliament or the State Legislature.
SECTION-B
Attempt any three of the following questions:
2. What is meant by trade? Describe briefly different aids to trade. 2+8
Ans: Aids to Trade are the activities which are necessary for smooth flow of goods from producers to consumers. These activities facilitate trade by removing various barriers in the buying and selling of goods.
The main aids to trade are given below:
1. Transport: Transport refers to the conveyance of goods and passengers from one place to another. It facilitates trade by assembling and distributing goods. Goods are produced at one place and consumed at another place. Transport brings the goods from the place of production to all the far and distant places of consumption. It helps the consumers in getting a wide variety of goods at reasonable prices. It promotes specialisation of business activities. Trade overcomes the barrier of distance and creates place utility. Transport widens the market and helps to equalize prices at different places. It results in the equitable distribution of goods among far flung areas.
2. Warehousing: Now-a-days goods are produced in anticipation of demand. It is, therefore, necessary to store the goods until they are sold. Many products such as wheat, sugar, rice, etc. are produced in a particular season but they are needed throughout the year. Proper storage arrangements must be made in order to make the goods available throughout the year. Besides, it is necessary to store commodities such as woollen garments and umbrellas to meet the desired seasonal demand. Warehousing removes the hindrance of time and thereby creates time utility.
3. Insurance: Business involves several types of risk e.g. risks arising from price fluctuation, dishonesty of employees, bad debts, exchange rate fluctuations, loss of goods in transit, fire, floods, etc. Insurance removes the hindrance of risk. With the help of insurance, a businessman can protect himself from several types of risks. Insurance is based on the "principle of pooling of risks".
4. Banking and finance: There is usually a time gap between production or purchase and sale of goods. It takes time to collect money after sale of goods on credit. During this period, businessmen need finance to carry on their business activities. Banks and other financial institutions provide funds and credit to businessmen. Production and distribution of goods and services on a large scale requires a huge amount of money at low rates of interest.
5. Advertising: Advertising brings goods and services to the knowledge of prospective buyers. It helps to highlight the distinctive features and utility of different products. With the help of such knowledge, consumers can obtain better value for their money. Marketing research helps to know and understand the requirements of consumers.
6. Communication: Quick and reliable means of communication are essential for efficient operation of commercials acclivities ; Posts and Telegraph, Telephone Nigams, Fax, E-mail, Internet, etc. provide vital means of communication for commerce and industry.
3. Explain the cooperative form of business organisation and state its merits and limitations. 2+4+4
Ans: A co-operative society is a voluntary association started with the aim of service of its members. It is a form of business where individuals belonging to the same class join their hands for the promotion of their common goals. A Co-operative Society is established by group ten or more persons who voluntary come together for mutual benefit. It is based on the principles of collective effort, mutual self-help, equality and freedom.
Salient features of cooperative societies
- Voluntary organization
- Suited for relatively economical weaker sections
- Objective is mutual help and service motive
- Common interest of members
- Open membership
- Democratic set-up: One person-one vote principle
- Separate legislative entity: Registration is required
Advantages of Cooperative Society
- Easy to form: The formation of a cooperative society is very simple as compared to the formation of any other form of business organisations.
- No obstruction for membership: Nobody is obstructed to join on the basis of religion, caste, colour etc.
- Limited liability: In most cases, the liabilities of the members of the society are limited to the extent of capital contributed by them.
- Service motive: In Cooperative society members are provided with better good and services at reasonable prices.
- Democratic management: Every member has equal rights through its single vote but can take active part in' the formulation of the policies of the society.
Disadvantages or the limitations of a co-operative organisation:
- Limited Capital: Co-operative societies are generally formed by the weaker section of the society. The members can invest only a limited capital.
- Lack of Competent Management: Co-operative societies are managed by the elected representatives of the members who generally possess neither the experience, nor the technical and professional qualification to run a business organisation.
- Lack of Secrecy: The affairs of a co-operative society are openly discussed in the meetings of the members. This makes it very difficult for the societies to keep their secrets closely guarded.
- Non-cooperation and Infighting: The members of a society generally belong to the same locality or occupation; they have their own personal prejudices and professional jealousies against each other.
- Lack of Motivation: Laws governing the co-operatives prescribe a ceiling on the vote of return. This may dampen initiative and efforts on the part of members.
4. Describe the methods of raising long-term capital for a company. 10
Ans: Refer above
5. What is the importance of channel of distribution in business? Briefly explain the channels of distribution used for consumer goods. 5+5
Ans: Importance of Channel of distribution
(1) Extending Suggestions Regarding Price-Determination: The middlemen are in the direct contact of the consumers. Therefore, they possess the knowledge that on what price may the consumer accepts the product. Thus, the channel of distribution extends necessary advice to the producers in the price-determination.
(2) Regularizing the Decisions: The channel of distribution regularizes the decisions and the transactions, resulting in the lowering of the costs. If the products are sold off to some such store which has many branches in the city, the producer then doesn't need going to various branches frequently or repeatedly.
(3) Managing the Finance: We find that the agents generally send some advance money along with the order. Very often the product is supplied to the agents through the bank so that the company gets the documents discounted from the bank. Thus the finance is arranged.
(4) Performing the Promotion Activities: By the middlemen, particularly by the retailers, the advertisements, individual sales, and the sales promotion activities are performed. Very often the middlemen themselves plan and implement the promotion activities and sometimes the manufacturers to extend their help in such work. Really, the result or the outcome of the sales, by the producer, very much depends upon the promotion activities undertaken by the middlemen.
(5) Serving the Consumers: Due to the middlemen only, the consumers get their required products. Only in accordance with the needs of the consumers, the retailers arrange to purchase the products from the wholesalers and the manufacturers.
Types of Channels used for consumer goods
A. Zero-level channel (producer to consumer): It is also called as direct marketing or direct selling. This channel consists of the producer who directly sells his products to the ultimate consumers. This is the shortest, simplest, & cheapest form of distribution. Producers are benefited by increased profit, whereas consumers are benefited by reduced price. This is possible because it eliminates the middleman completely. With the development of sophisticated & efficient retailing like supermarkets, chain-stores, automatic selling machine is financially sound follow this channel of distribution. For products like jewelry & industrial goods like machinery, this is the best channel.
B. One-Level Channel (Producers Retailers Consumers or producers Wholesalers Consumers): This is a short channel where the manufacturer may himself perform some of the wholesaler. This is considered to be the best channel as it eliminates some of the marketing intermediaries & at the same time gets advantages of inclusion of retailers. In case of perishable goods, this is the best channel. When there is large scale promotion, inelastic demand & when manufactures are financially sound this channel is preferred.
C. Two-Level Channel (Manufactures Wholesalers Retailers Consumers): This is the traditional channel. It is more useful in the case of buyers, sellers, & manufactures who operate in small scale. The manufacturer sells his products in large quantities to a wholesaler who in turn sells in small quantities to retailers & finally retailers sell to ultimate consumers. Products which have low unit value & which are purchased frequently may be distributed through this channel.
D. Three Level Channel (Manufactures Wholesalers Agents Retailers Consumers): In this method manufactures appoint agent such as consignees to sell their products. It is preferable for exporters or MNCs.
6. How does foreign trade help economic development of a country? State its inherent problems. 5+5
Ans: Foreign trade is nothing but trade between the different countries of the world. It is also called as International trade, External trade or Inter-Regional trade. It consists of imports, exports and entrepot. The inflow of goods in a country is called import trade whereas outflow of goods from a country is called export trade. Foreign trade basically takes place for mutual satisfaction of wants and utilities of resources. Foreign trade plays an important role in the economic development of any country. Some of its significance are given below:
- Division of labour and specialisation: Foreign trade leads to division of labour and specialisation at the world level. Some countries have abundant natural resources. They should export raw materials and import finished goods from countries which are advanced in skilled manpower. This gives benefits to all the countries and thereby leading to division of labour and specialisation.
- Optimum allocation and utilisation of resources: Due to specialisation, unproductive lines can be eliminated and wastage of resources avoided. In other words, resources are channelised for the production of only those goods which would give highest returns. Thus there is rational allocation and utilization of resources at the international level due to foreign trade.
- Generate employment opportunities: Foreign trade helps in generating employment opportunities, by increasing the mobility of labour and resources. It generates direct employment in import sector and indirect employment in other sector of the economy. Such as Industry, Service Sector (insurance, banking, transport, communication), etc.
- Facilitate economic development: Imports facilitate economic development of a nation. This is because with the import of capital goods and technology, a country can generate growth in all sectors of the economy, i.e. agriculture, industry and service sector.
- Maintains balance of payment position: Every country has to maintain its balance of payment position. Since, every country has to import, which results in outflow of foreign exchange, it also deals in export for the inflow of foreign exchange.
Foreign trade is not free from difficulties. The following are some of the important difficulties of foreign trade:
- It is a long distance trade and as such it becomes difficult to maintain close relationship between the buyer and the seller.
- Each country has its own language. As foreign trade involves trade between two or more countries, there is diversity of languages. This difference in language creates problem in foreign trade.
- Foreign trade involves preparation of a number of documents which also creates difficulties in the way of foreign trade.
- Some restrictions are imposed on export and import of commodities. These restrictions stands on the progress of foreign trade.
- Foreign trade involves a great deal of risks because trade takes place over a long distance. Though the risks are covered through insurance, it involves extra cost of production because insurance cost is added to cost.
7. Describe the various steps involved in risk management in business. 10
Ans: Refer above