Financial Services
Question : Case Study 32
UVW Inc. is a technology startup aiming to raise funds for its innovative projects. The company's management is considering different methods of raising capital from the capital market.
Question:
If UVW Inc. chooses to issue new shares to the public, what is this process called?
Option 1: IPO (Initial Public Offering)
Option 2: Follow-on Public Offering (FPO)
Option 3: Private Placement
Option 4: Rights Issue
Correct Answer: IPO (Initial Public Offering)
Solution : The correct answer is (a) IPO (Initial Public Offering)
An IPO is the first sale of a company's shares to the public, allowing the company to raise capital by selling ownership stakes to a wide range of investors. It's a significant event for a company, as it transitions from being privately held to becoming a publicly traded entity.
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. 1.
Option 1: compromises
Option 2: effects
Option 3: controls
Option 4: affects
Correct Answer: affects
Solution : The correct answer is the fourth option.
This word fits the context best because it signifies the impact or influence of unemployment on millions of people across India. "Affects" means it brings about a change or causes an impact on something or someone.
Question : Which feature of money market is highlighted in the given statement? Statement: The discount finance house of India has been established for this purpose.
Option 1: More liquidity
Option 2: Low transaction cost
Option 3: Speedy transactions
Option 4: Consists of many sub markets
Correct Answer: More liquidity
Solution : One important feature of the money market is more liquidity in the transaction of securities in this market there is a formal arrangement of creating liquidity. The discount finance house of India has been established for this purpose it is always ready to provider ready market for money market instruments.
Hence option A is correct.
Question : Choose which of the following statements is true.
Option 1: Debentures Redemption Reserve is set aside by all the companies except All India Financial Institutions regulated by RBI and Banking Companies.
Option 2: Amount is set aside to Debentures Redemption Reserve by Unlisted Companies which are not Non-Banking Finance Companies (NBFCs) or Housing Finance Companies (HFCs).
Option 3: Amount is set aside to Debentures Redemption Reserve by all Unlisted Companies.
Option 4: Debentures Redemption Investment is made by the companies required to set aside amount to Debentures Redemption Reserve.
Correct Answer: Amount is set aside to Debentures Redemption Reserve by Unlisted Companies which are not Non-Banking Finance Companies (NBFCs) or Housing Finance Companies (HFCs).
Solution : Answer = amount is set aside to Debentures Redemption Reserve by Unlisted Companies which are not Non-Banking Finance Companies (NBFCs) or Housing Finance Companies (HFCs).
The amount is set aside for Debentures Redemption Reserve by Unlisted Companies which are not Non-Banking Finance Companies (NBFCs) or Housing Finance Companies (HFCs) only. Unlisted companies, excluding NBFCs and HFCs, are required to set aside an amount to the Debentures Redemption Reserve as per regulatory requirements. Hence, the correct option is 2.
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 : Debentures and Financial Instruments
PQR Enterprises is considering issuing IDR. What purpose does an IDR serve?
Option 1: It raises funds in the domestic market
Option 2: It allows foreign companies to invest in India
Option 3: It enables Indian companies to raise funds abroad
Option 4: It ensures dividend payments to preference shareholders
Correct Answer: It enables Indian companies to raise funds abroad
Solution : The correct answer is (c) It enables Indian companies to raise funds abroad
IDR stands for Indian Depository Receipts. An IDR is a financial instrument denominated in Indian Rupees and issued by a domestic depository in India. It allows Indian companies to raise funds from international investors in the form of depository receipts. This mechanism enables Indian companies to tap into international capital markets without directly listing their shares on foreign exchanges.
Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Business Finance and Its Meaning
Assertion: Business finance is not required for decision-making and achieving company objectives.
Reason: Financial decisions have no impact on business operations and profitability.
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: Both assertion and reason are false.
Solution : The correct answer is (d) Both assertion and reason are false.
The assertion is false. Business finance is crucial for decision-making and achieving company objectives. Financial decisions regarding investments, capital structure, cash flow management, and financial planning directly impact a company's ability to reach its goals and objectives effectively.
The reason is false. Financial decisions have a substantial impact on business operations and profitability. Proper financial decisions can optimize operations, allocate resources efficiently, and contribute to the overall profitability and success of a business. Financial decisions are integral to the functioning and success of a company.
Question : Which of the following comes under the part IX of the Indian constitution?
Option 1: Relations between the Union and the States.
Option 2: The Scheduled and Tribal Areas.
Option 3: The Panchayats
Option 4: Finance, Property, Contracts and Suits
Correct Answer: The Panchayats
Solution : The correct option is The Panchayats.
The Panchayats, as referred to in Part IX of the Indian Constitution, are local self-government institutions in rural areas. The term "Panchayat" literally means a council of five elders, and these institutions are designed to promote local self-governance and grassroots democracy. The objective of Part IX is to decentralise power and empower local communities.
Question : Questions : Business Finance and Its Meaning
Statement 1: Financial planning plays a vital role in allocating funds optimally.
Statement 2: Financial planning focuses solely on marketing and sales strategies.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer: Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.
Statement 1 is true. Financial planning plays a vital role in allocating funds optimally across various activities and departments within a business. It involves budgeting, investment decisions, risk management, and financial resource allocation to achieve organizational goals efficiently.
Statement 2 is false. Financial planning is not solely focused on marketing and sales strategies. While financial planning may encompass aspects related to marketing and sales budgeting, its scope is much broader, covering all financial aspects of a business, including budgeting for operations, investments, expansion, risk management, and more.
Questions : Business Finance and Diversification
What is the primary objective of financial planning for PQR Enterprises?
Option 1: Maximizing market share
Option 2: Achieving diversification
Option 3: Achieving long-term financial goals
Option 4: Meeting short-term operational needs
Correct Answer: Achieving long-term financial goals
Solution : The correct answer is (c) Achieving long-term financial goals
Financial planning involves formulating strategies to manage finances effectively to attain long-term financial objectives. It encompasses various aspects such as budgeting, forecasting, investment planning, risk management, and aligning financial activities with the company's strategic goals. By focusing on long-term financial goals, PQR Enterprises aims to ensure sustainable growth, profitability, and financial stability over an extended period.
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