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Karnataka State Syllabus Class 9 Business Studies Chapter 2 Financial Management
Class 9 Social Science Financial Management Textual Questions and Answers
I. Fill in the blanks with appropriate words in the following statements.
Business enterprise requires two types of finance, they are ____________ and ____________
Short term finance, Long term finance.
‘The suppliers of goods raise credit from the buyers.” It is called ______________
The business concerns raise credit to carry out day to day affairs and are called ________________
short term finance.
For immediate needs, the business institutions get credit from ________________
Indigenous bankers or money lenders.
The capital of joint-stock companies is divided into small units. They are called ___________________
The bank that supplies credit to import and export trade is called __________________
The IFCI was started in the year _____________________
The first share market of India was started at _________________
II. Answer the following questions in two to three sentences each :
What is the meaning of financial management?
The meaning of financial management is the process of raising, providing, and managing the funds in the business.
Which are the two types of finance required by the business concerns? Give examples.
Ans: The two types of finance required by the business are :
- Short term finance,
- Long term finance.
- Short term finance: Trade credit, Bank credit, etc.
- Long term finance: Financial institutions like State Finance Corporation, Co-operative banks, etc.
Mention any four sources of short term credit required by business concerns.
Four sources of short term credit required by business concern are:
- Trade Credit,
- Bank Credit,
- Advance from customers,
- Loans from indigenous bankers.
Why business concerns require short term finance?
Business concerns require short term finance to meet the working capital needs, for example, to purchase raw materials, to pay wages and salaries, to meet the marketing and administrative expenses, to fill the financial gaps between sales and receipt of sale proceeds, sufficient funds are required. Hence there is a need for short term finance.
What do you mean by long term finance?
By long term loan, we mean that for the development programs such as an expansion of the level of production, modernization of production methods, etc. finance is required. This type of finance is required for financing the fixed capital of an undertaking. This means it is raised against securities. The only thing is that long term finance is costlier than short term finance because its rate of interest is high.
Give the names of any three organizations in the field of ‘Mutual funds’.
The names of three organizations in the ‘Mutual Funds’ are
- Unit Trust of India,
- S.B.I. Magnum Equity Fund
- L.I.C. Growth Fund.
III. Answer the following questions, each in about eight to ten sentences:
What is the role and importance of finance to business concerns?
The role and importance of finance in business organizations are :
- Finance is the lifeblood of every business. Without finance no business activity is possible.
- Finance helps to obtain resources that are required in the process of production and marketing of goods and services.
- Finance guides and ’regulates investment decisions and expenditure.
- Finance helps for the modernization, diversification, expansion, and development of an enterprise.
- Finance is essential to undertake research, market survey, advertisement, and publicity for effective marketing of the products.
- Finance is required to develop industries in backward areas.
Explain briefly the purposes for which long term finance is required by business concerns.
There are some business organizations. They require financial assistance to ’ meet the working capital needs, i.e. to purchase raw materials, to pay wages and salaries to meet the marketing and administrative expenses. To fill financial gaps between these two processes namely sales and receipts of sale proceeds, sufficient funds are required. Such organizations need for short term finance.
There are some business organizations. These organizations need long term finance. The purposes of the requirement of long term finance by these organizations are :
- for the development programs,
- for expansion of production,
- for modernization of production methods.
- for exporting and importing goods, etc.
“Issue of shares and debentures play a very important role in long term credit.” What are they? How do they help?
The long term finance is required for the development programs such as an expansion of the level of production, modernization of production methods, etc. The long term finance is raised by Joint Stock Companies through the issue of Shares and Debentures. The issue of shares and debentures plays an important role in long term credit.
Issue of Shares: The capital of a joint-stock company is divided into a small unit called shares. To start a joint-stock company, the promoters issue shares. Also whenever they need additional capital for a long term purpose, the companies raise the funds through the issues of shares to the public.
Debentures: The joint-stock companies are empowered to borrow finance for meeting long term financial requirements through the issues of debentures. Debentures are the debts or loans borrowed by the companies. A company under its common seal acknowledges a debt to some persons containing an undertaking to repay the debt after a specified period. A fixed-rate of interest is paid to the debenture holders at regular intervals.
What is the part played by Industrial Finance Corporation (IFC) and State Finance Corporations (SFS) in financing business?
The Industrial Finance Corporation and the State Finance Corporation play a very important part in financing business for their development, expansion of their level of production as well as modernization of production methods, etc.
- IFCI provides long term financial assistance to industry. It grants loans to public limited companies and co-operative societies. State-owned public limited companies can also borrow funds from it.
- State Finance Corporation Act was passed in 1951 by the Parliament to enable the State Governments to establish State Finance Corporations. This act applies to all states except Jammu and Kashmir. The main objectives of SFC are to provide long term finance to small and medium scale industries in their respective states.
What are long term public deposits and what are their advantages to the public?
Long term public deposits are those in which a company can accept them to meet long term financial needs. The procedure to get these deposits is simple and does not involve many formalities. A company can accept these deposits for a period not exceeding 5 years (60 months). The maximum amount raised under public deposit shall not exceed 25% of the paid-up capital of the company.
The advantage of long term deposits to the public is that they are unsecured and 8% to 10% of interest is allowed. The public can use their money in long term deposits and earn 8% to 10% interest.
What do you mean by the Money market and how is it different from the capital market?
By money market, we mean financial institution which deals with short term funds in the economy. Money market arranges funds for working capital. Funds can be borrowed under the money market for a short period varying from a day, a week, a month, or 3 to 6 months against the different types of instruments, such as trade bills, bank acceptances, bonds, treasury bills, etc. In money market commercial banks and Indigenous bankers play an important role in the money market.
The money market is different from the capital market. Funds from the money market can be borrowed for a short period, whereas in capital market money can be borrowed for the long term. The rate of interest under the money market is high compared to the institutions of the capital market. The rate of the capital market is low. Commercial banks and indigenous bankers play an important role in the money market whereas in the capital market, financial institutions, finance corporations, investment trust, mutual funds, etc. play an important role in the capital market.
Explain in brief the part played by the stock exchange in Financial matters of business.
The stock exchange is one of the constituents of the capital market. A specialized market place that facilitates the exchange of securities that are already in existence is known as the Stock Exchange or Stock Market. The first stock Exchange originated in London in 1773. In India, the first Stock’ Exchange was started in Bombay in 1875. At present there are twenty-four Stock Exchanges in our country. Of them are thirteen are public limited companies and six are limited by guaranty and others are voluntary nonprofit making organizations. Only eight Stock Exchanges are permanent and others have to renew their license every year.
The Stock Exchanges regulate and control business in buying, selling and dealing in securities. They are regulated by the government. They do not engage only in the purchase and sale of securities but provide a place where members can carry out their business on their own account under codes, rules, and regulations. The National Stock Exchange Market was set up in the year 1993 for the purpose of providing a nationwide stock trading facility to investors, so as to bring the Indian financial market in line with the international financial market. Only the agents can operate the business in the stock exchanges. Shareholders have to open a separate account to buy and sell shares. It is called a Demat account. A Demat account provides the security of the shares.
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