Sources Of Business Finance(11th Grade > Business Studies ) Questions and Answers

Question 1.


The directors of a famous I.T company have decided to set up a new firm in Pune, with an estimated cost of rupees of eight crores. Which of the following sources of finance would be most suitable?


  1.     Public deposits, Short-term loans from commercial banks, Trade credit 
  2.     Equity shares, Preference shares, Debentures 
  3.     Trade credit, Factoring, Banks
  4.     Commercial papers, Debentures, Equity shares
Explanation:-
Answer: Option B. -> Equity shares, Preference shares, Debentures 
:
B

Setting up of a plant means funds are required for investment in long-term assets. There are various sources of long-term finance, such as equity shares, preference shares, and debentures.


Question 2.


Retained earnings are called self-financing.


  1.     True
  2.     False
  3.     Trade credit, Factoring, Banks
  4.     Commercial papers, Debentures, Equity shares
Explanation:-
Answer: Option A. -> True
:
A

True: Retained earnings are called self-financing, because the firm itself generates the funds.


Question 3.


What are the two important sources from where the owner's funds can be obtained? 


  1.     Retained earnings and issue of equity shares
  2.     Retained earnings and issue of preference shares 
  3.     Retained earnings and debentures 
  4.     None of the above 
Explanation:-
Answer: Option A. -> Retained earnings and issue of equity shares
:
A

Owner's funds are the funds that are provided by the owners of an enterprise, which may have sole trader or partner or shareholder of a company. The owner's capital is invested for a long period of time. Such capital forms the basis on which owners acquire their right of control of management. An issue of equity shares and retained earnings are the two important sources where owner's funds can be obtained. 


Question 4.


The difference between non-recourse as opposed to recourse factoring is that the company has no liability with any uncollected invoices. 


  1.     True
  2.     False
  3.     Fluctuating Capital
  4.     Moving Capital
Explanation:-
Answer: Option A. -> True
:
A

True. The difference between non-recourse as opposed to recourse factoring is that the company has no liability with any uncollected invoices. The factor absorbs all the risk.


Question 5.


Items such as trolleys and cabinets are an example of _______.


  1.     Fixed Capital
  2.     Working Capital
  3.     Fluctuating Capital
  4.     Moving Capital
Explanation:-
Answer: Option A. -> Fixed Capital
:
A

Items such as trolleys and cabinets are required for long-term use in the business and are an example of fixed capital. 


Question 6.


Financial institutions may not have their nominees on the Board of Directors of the borrowing company. 


  1.     True
  2.     False
  3.     Equity Shares
  4.     Trade Credit
Explanation:-
Answer: Option B. -> False
:
B

False. Financial institutions may have their nominees on the Board of Directors of the borrowing company, thereby restricting the powers of the company. 


Question 7.


Depositary receipts that are traded in an international market other than the United States are referred to as


  1.     Global Depositary Receipts
  2.     International Depositary Receipts
  3.     Open market depositary receipts
  4.     None of the above
Explanation:-
Answer: Option A. -> Global Depositary Receipts
:
A

Depositary receipts that are traded in an international market other than the United States are referred to as Global Depositary Receipts.


Question 8.


NBFCs do not have a banking license. 


  1.     True
  2.     False
  3.     Fluctuating Capital
  4.     Moving Capital
Explanation:-
Answer: Option A. -> True
:
A

True. Non-banking financial companies (NBFCs) are financial institutions that offer various banking services, but do not have a banking license.


Question 9.


Which of the sources of finance is expensive when the invoices are numerous and smaller in amount?


  1.     Retained Earning
  2.     Factoring
  3.     Equity Shares
  4.     Trade Credit
Explanation:-
Answer: Option B. -> Factoring
:
B

Factoring: It is an expense when the invoices are numerous and smaller in amount. The factor (the funding source) buys the right to collect on that invoice by agreeing to pay the invoice's face value less a discount--typically 2 to 6 percent. The factor pays 75 percent to 80 percent of the face value immediately and forwards the remainder (less the discount) when the customer pays.


Question 10.


A Global Depository Receipt is a bank certificate that is basically issued in more than one country for shares in a foreign company. 


  1.     True
  2.     False
  3.     Open market depositary receipts
  4.     None of the above
Explanation:-
Answer: Option A. -> True
:
A

True. A Global Depository Receipt is a bank certificate that is basically issued in more than one country for shares in a foreign company. These shares are held by a foreign branch of an international bank. These shares trade like domestic shares, but these are offered for sale globally through various branches of the banks.


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