Financial Services
Question : Case Study: PQR Enterprises - Funding Strategies for Diversification
PQR Enterprises is a well-established conglomerate planning to diversify its business operations. The company is evaluating various sources of business finance to support its diversification plans.
Questions : Different Sources of Finance
In the context of financing, what are debentures?
Option 1: Equity shares with voting rights
Option 2: Short-term borrowing from banks
Option 3: Long-term debt securities
Option 4: Government-issued bonds
Correct Answer: Long-term debt securities
Solution : The correct answer is (c) Long-term debt securities
Debentures are long-term debt instruments issued by companies or institutions to raise funds. Debenture holders are creditors to the company or institution and are entitled to receive periodic interest payments at a specified rate. The principal amount is repaid to debenture holders at maturity. Unlike equity shares debentures do not represent ownership in the company. They are a form of borrowing by the issuing entity. Additionally, debentures are not short-term borrowing or government-issued bonds .
Question : Case Study: XYZ Ltd. - Raising Finance for Expansion
XYZ Ltd. is a growing company that manufactures electronic gadgets. The company has been successful in the market and is planning to expand its operations. To finance this expansion, XYZ Ltd. is considering various sources of business finance.
Questions : Different Sources of Business Finance
XYZ Ltd. is considering borrowing funds by issuing long-term debt securities. What are these securities called?
Option 1: Equity shares
Option 2: Preference shares
Option 3: Debentures
Option 4: ADRs
Correct Answer: Debentures
Solution : The correct answer is (c) Debentures
Debentures are long-term debt instruments issued by companies to raise funds from the public or institutional investors. Holders of debentures are creditors of the company and are promised a fixed rate of interest and repayment of the principal amount at maturity. Unlike equity shares, debenture holders do not have ownership rights in the company.
Question : Case Study: ABC Corporation - Financing Growth Strategies
ABC Corporation, a leading manufacturing company, is looking to finance its growth strategies. The company is exploring various sources of business finance to achieve its expansion goals.
Questions : Equity Shares and Preference Shares
If ABC Corporation issues non-cumulative preference shares, what does this mean?
Option 1: Dividends on these shares must be paid before equity shareholders
Option 2: The company cannot issue any more preference shares
Option 3: Dividends on these shares can be postponed
Option 4: Shareholders have no voting rights
Correct Answer: Dividends on these shares can be postponed
Solution : The correct answer is (c) Dividends on these shares can be postponed
Non-cumulative preference shares do not carry the right to accumulate unpaid dividends. If the company is unable to pay dividends in a particular period, the shareholders of non-cumulative preference shares do not have the right to claim those unpaid dividends in the future. This is in contrast to cumulative preference shares, where any unpaid dividends accumulate and must be paid in future periods before any dividends are distributed to equity shareholders.
Question : Which of the following institutions is responsible for regulating and supervising the functioning of housing finance companies in India?
Option 1: Securities and Exchange Board of India (SEBI)
Option 2: National Housing Bank (NHB)
Option 3: Reserve Bank of India (RBI)
Option 4: None of the above
Correct Answer: National Housing Bank (NHB)
Solution : The correct answer is (b). National Housing Bank (NHB)
The National Housing Bank (NHB) is an apex financial institution in India that specializes in housing finance. It was established by the Indian government to promote and regulate the housing finance sector in the country. NHB has the authority to oversee and regulate housing finance companies, ensuring compliance with regulatory guidelines and promoting stability in the housing finance market.
Question : Case Study 3:
MNO Inc. is a well-known conglomerate that is planning to diversify its business operations by acquiring other companies.
Question :
To finance its acquisition plans, MNO Inc. is considering issuing bonds. What type of market activity does this represent?
Option 1: Primary market
Option 2: Secondary market
Option 3: Money market
Option 4: Capital market
Correct Answer: Primary market
Solution : The correct answer is (a) Primary market
If MNO Inc. is considering issuing bonds to finance its acquisition plans, it represents a primary market activity. The primary market is where new securities, such as bonds and stocks, are issued for the first time and sold directly by the issuing company to investors. In this case, MNO Inc. would issue bonds to raise funds for its acquisition plans. Investors would purchase these newly issued bonds directly from MNO Inc., and the company would receive the proceeds from the sale of these bonds. This infusion of capital from the sale of bonds would then be used to finance the acquisition of other companies, helping MNO Inc. diversify its business operations.
The secondary market, on the other hand, is where existing securities are bought and sold among investors, and the issuing company does not directly receive proceeds from these transactions. The money market primarily deals with short-term debt securities, and the capital market encompasses both the primary and secondary markets for long-term securities.
Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Business Finance and Its Meaning
Assertion: Financial planning plays a critical role in optimizing the allocation of funds and resources.
Reason: Financial planning focuses solely on allocating funds to marketing activities.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Both assertion and reason are false.
Correct Answer: Assertion is true, but the reason is false.
Solution : The correct answer is (c) Assertion is true, but the reason is false.
The assertion is true. Financial planning involves efficiently allocating funds and resources to various activities within a business, aiming to achieve the company's financial goals and objectives.
The reason is false. Financial planning is a comprehensive process that involves the allocation of funds to various areas within a business based on the organization's goals and priorities. While marketing may be one area where funds are allocated, financial planning covers all aspects of resource allocation, not just marketing.
Question : Which among the following is the sole note-issuing authority in India?
Option 1: Industrial Finance Corporation of India
Option 2: National Payments Corporation of India
Option 3: Reserve Bank of India
Option 4: State Bank of India
Correct Answer: Reserve Bank of India
Solution : The correct answer is the Reserve Bank of India.
As per Section 22 of the Act, the Reserve Bank of India (RBI) has the exclusive authority to issue banknotes in India. Section 25 empowers the central government to approve the design, form and material of banknotes based on recommendations from the Central Board of the RBI.
How can PQR Enterprises use retained earnings as a source of finance for its diversification?
Option 1: By selling company assets
Option 2: By raising funds through IPOs
Option 3: By utilizing accumulated profits
Option 4: By issuing preference shares
Correct Answer: By utilizing accumulated profits
Solution : The correct answer is (c) By utilizing accumulated profits
Retained earnings are the portion of net profits that a company keeps and reinvests in the business rather than distributing them as dividends to shareholders. PQR Enterprises can utilize these accumulated profits or retained earnings to fund its diversification initiatives, such as entering new markets, developing new products, or expanding into different business areas.
Question : Comprehension:
In the following passage some words have been deleted. Fill in the blanks with the help of the alternatives given. Select the most appropriate option for each blank.
Unemployment is a major issue in India that (1)________millions of people across the country. Despite being one of the fastest-growing economies in the world, India has struggled to create (2)________jobs to keep up with its rapidly expanding population. The unemployment rate in India varies widely (3)________ different states and regions. Young people, in particular, face significant challenges in finding employment. Many are highly educated but lack the skills and experience needed to (4)________ in a highly competitive job market. There are many factors contributing to the high levels of unemployment in India. Some of these include a lack of investment in infrastructure, a mismatch between the skills of workers and the needs of employers, and a lack of access to finance for small and medium-sized businesses. The Indian government has launched several initiatives to address the issue of unemployment in the country. These include programs to support small businesses, increase investment in infrastructure and provide vocational training to young people. However, much more needs to be done to create sustainable, long-term employment opportunities for all Indians. Unemployment can have serious social and economic consequences, including poverty, crime and social (5)________.
Select the most appropriate option to fill in blank no. 2.
Option 1: enough
Option 2: few
Option 3: many
Option 4: little
Correct Answer: enough
Solution : The correct choice is the first option.
Explanation: The sentence structure indicates a need for a term that highlights the inadequacy of job creation compared to the expanding population. "Enough" in this context emphasises the lack of sufficient job opportunities despite India being a fast-growing economy.
What are GDRs and ADRs, which ABC Corporation is considering as potential sources of finance?
Option 1: Government Debt Records
Option 2: Equity shares with higher dividends
Option 3: International financial statements
Option 4: Instruments for raising capital in global markets
Correct Answer: Instruments for raising capital in global markets
Solution : The correct answer is (d) Instruments for raising capital in global markets
GDRs (Global Depository Receipts) and ADRs (American Depositary Receipts) are financial instruments that companies can use to raise capital in global markets. GDRs are typically issued outside the United States and ADRs are issued in the United States. Both GDRs and ADRs represent ownership in the issuing company and enable companies to access international investors and raise funds by listing and trading these instruments on international stock exchanges. This facilitates global investment in the company's shares.
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