Class 12 AHSEC 2020 Business Studies Question Paper Solved English Medium

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Class 12 AHSEC 2020 Business Studies Question Paper Solved English Medium

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BUSINESS STUDIES

2020

BUSINESS STUDIES OLD QUESTION PAPER SOLVED

1. Answer the following questions: 

(a) Write one important objective of management.                   

Ans: Obtaining maximum output with minimum input: A successful management must achieve the objectives of the business by making optimum utilization of available resources effectively.

(b) What is a trade mark?                      

Ans: Trademark simply means mark of a trade carried on by an identified entity. It is usually a sign mark or a symbol, word or words.

(c) In which year Govt. of India announced the New Industrial Policy?           

Ans: The Government of India announced a new industrial policy in July 1991.

(d) Write True or False:

(1) Training is a systematic learning process.                   

Ans: True.

(2) Setting the standard of performance is the first step in the control process.     

Ans: True.

(3) Services can be stored.

Ans: False.

(4) Convenience products have a regular and continuous demand.     

Ans: True.

(5) ISI mark signifies Quality assurance on electrical goods.         

Ans: True.

2. What is meant by recruitment?

Ans: It is a process of inducing or attracting the people to apply for the vacant jobs in the organisation. Simply, it means search for candidates who can perform the vacant roles and induce them to apply.

3. What is meant by ratio analysis?                     

Ans: Ratio analysis is referred to as the study or analysis of the line items present in the financial statements of the company. It can be used to check various factors of a business such as profitability, liquidity, solvency and efficiency of the company or the business.

4. Write two features of Capital market.                              

Ans: Features of Indian Capital Market                

(a) Dealing in Securities: It deals in long-term marketable securities and non-marketable securities.

(b) Segments: It included both primary and secondary market. Primary market is meant for issue of fresh shares and secondary market facilitates buying and selling of second hand securities.

5. Write two differences between authority and responsibility.                         

Ans: Difference Between Authority and Responsibility

6. State two importance of supervision.                               

Ans: Importance of Supervision:

(a) Planning the work: The supervisor has to determine work schedule for even and steady flow of work. If work is not properly arranged and assigned among subordinates, it may cause frustration among the subordinates.

(b) Issuing orders: The supervisor issues orders and instructions to the workers for achieving coordination. In the absence of supervision, the subordinate may not understand his duties properly.

7. What do you mean by management by exception?                    

Ans: Management by exception is an important principle of management control based on the belief that an attempt to control everything results in controlling nothing. Thus, only significant deviations which go beyond the permissible limit should be brought to the notice of management.

8. Outline three leading features of a good control system.            

Ans: The following are the essentials or basic requirements of an effectively control system:

(1) Suitable: The control system must be suitable for the kind of activity intended to serve. Apart from differences in the systems of control in different business, they also vary from department to department and from one level in the organization to the other.

(2) Understandable: The system must be understandable, i.e., the control information supplied should be capable of being understood by those who use it. A control system that a manager cannot understand is bound to remain ineffective.

(3) Economical: The system must be economical in operation, i.e., the cost of a control system should not exceed the possible savings from its use. The extent of control necessary should be decided by the standard of accuracy or quality required. A very high degree or standard of accuracy or quality may not really be-necessary.

(4) Flexible: The system of control must be flexible, i.e. workable even if the plans have to be changed. A good control system would be sufficiently flexible to permit the changes so necessitated.

(5) Forward Looking: The control system must be forward looking, as the manager cannot control the past. In fact, the control system should be so designed so as to anticipate possible deviations, or problems. Thus deviations can be forecast so that corrections can be incorporated even before the problem occurs.

(6) Suggestive Of Corrective Action: An adequate control system should not only detect failures must also disclose where they are occurring, who is responsible for them and what should be done to correct them. Overall summary information can cover up certain fault areas.

9. Discuss three objectives of financial planning.                             

Ans: Objectives of financial management:                         

Efficient financial management requires existence of some objectives or goals because judgment as to whether or not a financial decision is efficient is to be made in light of some objective. The two main objectives of financial management are:

(1) Profit Maximisation: It is traditionally being argued, that the objective of a company is to earn profit, hence the objective of financial management is profit maximisation. Each alternative is to be seen by the finance manager from the view point of profit maximisation. Profit maximization causes the efficient allocation of resources in competitive market condition and profit is considered as the most important measure of firm performance.

(2) Wealth maximisation: The second objective of financial management is wealth maximization. The concept of wealth in the context of wealth maximization objective refers to the shareholders’ wealth as reflected by the price of their shares in the share market. Therefore, wealth maximization means maximization of the market price of the equity shares of the company. The objective of wealth maximization implies long-run survival and growth of the firm.

In addition to the above, there are some other objectives of financial management which are stated below:

(a) Financial management helps in ensuring the regular supply of funds to the related concern.

(b) Financial management ensures the optimum utilization of funds.

(c) It helps in investing in safe areas, so that the great R.O.I. can be achieved.

(d) Financial management helps in planning a good Financial Structure. There should be maintained a fair balance between the debt and Equity Capital.

Or

State the three decisions involved in financial management.              

Ans: Decisions involved in financial management:

1. Investment Decisions: Investment Decision relates to the determination of the total amount of assets to be held in the firm, the composition of these assets, and the business risk complexions of the firm as perceived by its investors. It is the most important financial decision. Since funds involve cost and are available in a limited quantity, their proper utilization is very necessary to achieve the goal of wealth maximization.

2. Financing Decisions: Once the firm has taken the investment decision and committed itself to new investment, it must decide the best means of financing these commitments. Since firms regularly make new investments; the needs for financing and financial decisions are ongoing.

3. Dividend Decision: The third major financial decision relates to the disbursement of profits back to investors who supplied capital to the firm. The term dividend refers to that part of the profits of a company that is distributed by it among its shareholders.

10. What are the legal protections offered to consumers under The Consumers Protection Act, 1986?

Ans: Remedies/Protection Under The ACT

In case it is proved that there exists a defect in the goods or that the services rendered were deficient in nature the following remedies against the seller are available to the Consumer.

(i) To remove the defect pointed out by the appropriate laboratory from the goods in question or.

(ii) Replace the goods with new goods of similar description, which shall be free from any defect.

(iii) Return to the complainant the price of the goods or the charges for the services rendered and / or.

Or

Who is an entrepreneur? Mention the functions of an entrepreneur.              

Ans: An entrepreneur is an individual who creates and grows a business through their creative ideas. Entrepreneurs play key roles besides generating income as they grow their businesses.

An entrepreneur identifies a commercial need in their community, crafts a business idea and takes the lead role to start their business.

The functions of an entrepreneur:              

Initiates Business Enterprises: The foremost function of an entrepreneur is that he in initiates the business enterprise. For this purpose, he performs the following:

• Generates ideas to set up a business unit.

• Plans for the setting up of business unit.

• Organises the factors of production- land, labour, and capital.

Risk Bearing: The entrepreneur assumes the risks of his business. A person who can take risk can become an entrepreneur. Risk taking is the heart of entrepreneurship. Those who are not inclined (of a mind) to take risk cannot become entrepreneurs. It is to be noted that successful businessman take calculated risks.

Decision Making: An entrepreneur is required to take several decisions. The decisions in respect of

• Location of the business unit, Selection of employees, Obtaining of funds, Production Decisions.

• Marketing and distribution decisions.

Coordination: An entrepreneur performs the functions of coordination. He coordinates the working of the business enterprise. He has to coordinate the various functional departments such as production, marketing, finance, etc.

Combines the factors of production: The entrepreneur has to combine the factors of production in such a way that he gets maximum return on investment. Therefore, there should be a maximum return on investment. Therefore, the should be a proper mix of land, labour and capital to get highest possible returns.

Innovation: The entrepreneur should be imaginative and innovative. He should be dynamic in nature. Therefore, a successful entrepreneur is always on the book out for New ideas, new products, new processes or methods, etc.

Maintain Relations: An entrepreneur has to maintain good relations with several parties such as:

• Employees.

• Government authorities.

• Customers, Suppliers.

• Other relevant section of the society.

11. Explain any three rights ensured to consumers in India.              

Ans: Rights of Consumers:                          

(a) The right to safety: It refers to the right to be protected against products which are hazardous to health or life.

(b) The right to be informed: Consumers have a right to be informed about the quality, quantity and price of goods or services so that they can make the right decision.

(c) The right of choice: The consumer has the right to be assured of a choice of various goods and services of satisfactory quality and competitive price.

Or

What do you understand by entrepreneurial attitude?                                 

Ans: An entrepreneurial attitude means that processes and products can always be improved; you just have to “think different.”

Good entrepreneurs know the value of being open and flexible, but not when it comes to their core values.

Here are five key attitudes of entrepreneur:

1. Passion: Entrepreneurs should be passionate about their ideas, goals and, of course, their companies. This passion is what drives them to do what they do.

2. Bravery: Entrepreneurs, like everyone else, feel fear. They are fearful that they won’t succeed or fearful a well-conceived idea cannot be executed. They do not, however, let these fears of failure define them. They are brave. They learn from failure.

3. Flexibility: Entrepreneurs experience setbacks. There are hurdles to overcome on any journey. not everyone handles change or disappointment well. 

4. Strong Work Ethic: It is not easy to start from the ground up and become a successful business owner. Many hours of hard work, frustration, creativity and supervision are poured into a new venture. If you are not willing to get up and work hard every day, probably seven days a week, then how can you expect success? No successful business is created quickly, easily or without strife.

Entrepreneurs must be able to show others they are truthful and honest. Regardless of the type of business they hope to establish, colleagues, vendors, customers and investors must trust them. There is no way around this– entrepreneurs must be trusted, and trust must be earned.

12. Discuss five principles of Management developed by Henry Fayol.         

Ans: Fayol suggested the following 5 principles:

1. Division of work: According to this principle the whole work must be divided into small tasks instead of assigning the whole task to one person. Division of work is important for reducing work burden of an employee and improves his skills. This helps an individual to get specialization in his area of expertise and thereby improves the productivity of an individual.

2. Authority and Responsibility: Authority is the right to issue command and make decisions. Responsibility is obligation towards organization and decisions made. According to this principle, There must be balance in authority and responsibility. If there is no authority, he cannot fulfill his responsibility and if an individual has an authority he must have equal responsibility.

3. Discipline: Discipline is important for the success of an organization. According to this principle, there must be rules and regulations for systematic working in the organisation and both subordinate and superior must follow these rules. There must be good employee- employer relationship. Employees must obey orders and employer must provide good leadership.

4. Unity of command: According to this principle of Fayol, every employee should receive orders and instructions from one boss and he should be responsible and accountable to him only. This principle will be violated if an employee is asked to receive orders from more than on superior.                    

5. Unity of Direction: According to this principle “One unit means objective and one plan. There must be one plan for an organization at a time and should be directed by one manager using the same plan. This principle leads to good coordination in the organisation.             

13. Why co-ordination is considered as the essence of management?      

Ans: Coordination is considered as the essence of management because of the following reasons:

1. Coordination is needed to perform all the functions of management:

(i) In planning, coordination is required between the objectives and available resources.

(ii) Organising is ineffective if there is a lack of coordination between different departments and divisions.

(iii) In staffing, coordination is required between the required skills and abilities of an individual who is selected to perform a job.

(iv) Directing is impossible and of no worth, if there is a lack of coordination between superiors and subordinates.

(v) In controlling, coordination helps in ensuring that actual results are fruitful.

2. Coordination is needed at all levels of management:

(i) Top level: The top level coordinates the activities of the whole organisation keeping in view the desired goals.

(ii) Middle level: The middle-level managers coordinate the activities of different departments.

(iii) Lower level: The lower level coordinates the activities of the workers for achieving goals.

Thus, we can say, coordination is not a separate function of management. It is the essence of management.

Or

Explain the techniques of scientific management.                          

Ans: Taylors has suggested the following techniques of scientific management:

1. Scientific Task Setting: The first technique of scientific management is the scientific task setting. The work should be designed by the management is such a way that an average worker can be able to do the work within a given period of time. It should not be higher than the average capacity of the worker nor lower than his capacity.

2. Work study: Work study is the detailed analysis of an activity with an objective to remove inefficiency and find out the best way to perform the work. work study includes the following techniques:

(a) Fatigue study: It refers to the duration and frequency of rest intervals to complete a particular job. The rest refreshes the workers. They work again with full energy and stamina. Long working hours, poor working conditions, unsuitable work can also be the causes of fatigue. It should be reduced.                                              

(b) Method study: It refers to identify the most suitable, economical way of doing a particular activity. To conduct this study, process chart, operation research technique can be used. The main objective is to minimize the cost of production and maximize the quality of the work. 

(c) Motion Study: Motion study is designed to eliminate unnecessary motions and to reinforce necessary motions. It is a close observation of analyzing the body movements of the worker performing the job. This study helps in analyzing that if any element of the job can be eliminated or not.                                

(d) Time study: This study helps in determining the time required by an average skill worker to efficiently perform a particular job. Time study helps in determining the standard time for the job. This standard time is then fixed for the workers for performing the job. So, time study is used to measure precisely the time required in doing every element of a job with the purpose of deciding the fair day’s work.

(3) Mental Revolution: Taylor emphasized the mutual cooperation between the workers and the management as the human element comprising of worker and management is essentially a very sensitive factor of production. The basic idea behind the mental revolution is to change the mental attitude of the workers and the management towards each other. Mental revolution requires that there should be perfect cooperation and coordination between the efforts of labour and the management.

(4) Functional foremanship: In this technique Taylor suggested the division of factory in two departments: planning department and production department as Taylor felt that workers must be free from the burden of planning and they must concentrate on work and production. To develop specialisation in the productivity, Taylor suggested four functional experts for each department supervise, guide and instruct the worker.

Four functional experts suggested for planning department are: Route Clerk, Instruction Card Clerk, Time and Cost Clerk and Disciplinarian.

Four functional experts suggested for production department are: Gang Boss, Speed Boss, Repair Boss and Inspector.

(5) Differential wage system: The scientific technique of differential wage rate system emphasises on paying different rate of wage for efficient and inefficient employees. To conduct differential wage rate system Taylor suggested that the company must fix a standard rate of wage for workers producing standard output. The workers who produce more than the standard target must be paid with a higher rate of wages as compared to those who are producing less than standard.

14. How globalisation has affected business in India? Explain.       

Ans: Liberalisation and Globalisation of Indian economy through industrial policy change in 1991 have created both challenges and opportunities for the Indian business. Impact of Government Policy Changes on Business and Industry (Significance of liberalisation and globalisation) can be studied under the following heads:

(i) Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines.

(ii) More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.

(iii) Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services.

(iv) Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

(v) Threat from MNC: Massive entry of multi-nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners.

15. Distinguish between functional structure and divisional structure.      

Difference between Functional Structure and Divisional Structure

16. State five disadvantages of internal sources of recruitment. 

Ans: Disadvantages of Internal Source of Recruitment:                                  

(i) Discourages new ideas: Recruitment of internals leads to inbreeding and discourages new blood with new ideas from entering into the organization.

(ii) Lack of suitable employee: It is possible that internal sources ultimately dry up and hence it may be difficult to find suitable persons from within the organization.

(iii) Management Bias: As promotion is based on seniority, the danger is that really capable hands may not be chosen. The likes and dislikes of the management may also play an important role in the selection of personnel.

(iv) Lack of innovation: Since the learner does not know more than the lecturer, no innovations worth the name can be made. Therefore, on jobs which require original thinking, this practice is not followed.

(v) Generally for middle level managers internal source is rarely used, however for promoting blue collar workers to white collar jobs internal source is more desirable.

17. State five functions of Stock Exchange in India.                          

Ans: Functions of stock exchange:                         

1. Economic Barometer: A stock exchange is a reliable barometer to measure the economic condition of a country.Every major change in country and economy is reflected in the prices of shares. The rise or fall in the share prices indicates the boom or recession cycle of the economy. Stock exchange is also known as a pulse of economy or economic mirror which reflects the economic conditions of a country.

2. Pricing of Securities: The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors, government and creditors. The investors can know the value of their investment, the creditors can value the creditworthiness and government can impose taxes on value of securities.

3. Safety of Transactions: In stock market only the listed securities are traded and stock exchange authorities include the companies names in the trade list only after verifying the soundness of company. The companies which are listed they also have to operate within the strict rules and regulations. This ensures safety of dealing through stock exchange.

4. Contributes to Economic Growth: In stock exchange securities of various companies are bought and sold. This process of disinvestment and reinvestment helps to invest in most productive investment proposal and this leads to capital formation and economic growth.

5. Spreading of Equity Cult: Stock exchange encourages people to invest in ownership securities by regulating new issues, better trading practices and by educating public about investment. exchange reflect the economic climate in the country. One can easily analyse the cause of change in the business climate by the ups and downs on the stock exchange.

18. What is publicity? Distinguish between advertising and publicity.

Ans: The activity of providing information about an entity, i.e. a product, an individual or a company to make it popular is known as Publicity.

Difference between advertising and publicity:

Or

Explain the functions of marketing.           

Ans: Functions of Marketing:

1. Marketing Research: Effective marketing is possible when business takes initiative to identify the needs and wants of the consumers in the market. To identify the needs of the consumers, there is a need to collect information from the consumers and analyse the same is known as Market Research. analysis of the information helps in the assessment of the need in the market. 

2. Market Planning: After assessing the need for marketing, the business needs to chalk out the marketing plan and strategies to achieve the desired objective. Market planning is the process of organizing and defining the marketing objectives of the business and creating strategies to achieve them. It is the comprehensive blueprint that will help to draw outline business’s overall marketing efforts.

3. Product Development: Product development and design play an important role in the selling of the product. There is a need to develop a product that suits the needs of the consumer. Product design includes decision-related to quality, standards, shape, design, packing, colour etc. of the product.

4. Standardisation and Grading: Standardisation means to determine standards related to process, size, quality, design, weight, colour etc. of the product. It helps in ensuring uniformity in the quality of the product. It helps in achieving customers’ loyalty towards the product.

5. Packaging and Labelling: Package and Label create the first impression on the consumer about the product. Attractive package and label can help to make the product successful. Packaging means designing the package for the product. It helps to avoid breakage, damage and destruction of the product.

Packing material includes bottles, container, plastic bags, tin, wooden boxes, jute bags, bubble bags, packing foam etc.

6. Branding: Every businessman wants to have a special identity in the market for his product. Branding is a process of giving special identity to a product through a unique brand name to differentiate it from competitor’s products. In simple words giving of a distinct name to one’s product is called branding. Registered brands are known as Trademarks.

7. Customer Support Service: Customer is the king of the market hence business needs to take necessary steps for the satisfaction of the customer. Business needs to take every possible effort to provide support services to the customer. Timely support services help to gain customer’s loyalty.

19. What do you mean by delegations of authority? What are its elements? Why delegation of authority is considered essential in management?  

Ans: In every organisation managers are assigned lot of work and manager alone cannot perform all the work. So, he divides the work among different individuals working under his according to their qualification and gets the work done from them. After passing the responsibilities the manager also shares some of his authority with his subordinates. To make sure that his subordinates perform all works effectively and efficiently the manager creates accountability and this whole process is known as delegation of authority.

Elements of Delegation of Authority:                   

(a) Responsibility: Responsibility means assigning the work amongst subordinates. The process of delegation begins when manager divides his work among different individuals.

(b) Authority: Authority means power to take decision. To carry on the responsibilities every employee needs to have some authority, so, when managers are passing their responsibilities to the subordinates, they also pass some of the authority to the subordinates.

(c) Accountability: To make sure that his subordinates perform all works effectively and efficiently the manager creates accountability. Accountability means subordinates will be answerable for the non-completion of the task. It is the third and final step of delegation process.

Importance of delegation of authority in management

Delegation of authority is necessary in all types of organizations. Reasons can be seen through the importance. 

The importance of delegation of authority may be outlined as follows:

(a) Reduced workload of managers: Delegation of authority permits a manager to share his workload with his subordinates. By passing on the routine work to the subordinates, the manager is able to concentrate on policy matters and decision-making. This would increase his effectiveness.

(b) Effective management: The manager who delegates’ authority can perform much more than the one who does not. This is because the manager can get some work done by his subordinates and is able to concentrate on policy matters and decision-making. This would increase his effectiveness.

(c) Motivation of employees: Delegation implies grant of authority to the subordinates along with responsibility for work. As a result, subordinates have a sense of recognition. They are motivated to work for higher performance.

(e) Reduce the work load of managers: Managers can reduce their workload by sharing their responsibilities and work with the subordinates.

Or

What are the steps in the process of Organising? State four points explaining the importance of Organising.

Ans: Steps in Organising:                                                            

(a) Identification and Division of Work: The first step in the process of organizing involves identifying and dividing the total work to be done into specific activities (called jobs) in accordance with previously determined plans. Such division of work into jobs is necessary because one individual cannot perform the entire work. While identifying the activities it should be borne in mind that no activity has escaped, there is no duplication of activities and various activities are performed in a co-ordinated way.

(b) Grouping jobs and Departmentalisation: The second step in organizing is to combine or group similar/related jobs into larger units called departments, divisions or sections. This grouping process is called “Departmentalisation”. Departmentation can be done in two ways – functional departmentation and divisional departmentation. Under functional departmentation jobs related to common functions are grouped for example production department, sales department etc. Under divisional departmentation jobs relating to one product are grouped together for example sale and marketing of cosmetics.

(c) Assignment of Duties: It is necessary to allocate work to various employees. Once departments have been formed, each of them is placed under the charge of an individual, called departmental head. Jobs are then allocated to the members of each department according to their skills and competencies.

(d) Delegation of Authority: Since so many individuals work in the same organization, it is the responsibility of management to lay down structure of relationship in the organization. Everybody should clearly know to whom he is accountable and authority is delegated to the subordinates to enable them to show work performance. This will help in the smooth working of the enterprise by facilitating delegation of responsibility and authority.

Importance of Organising: 

Organising is the fundamental activity of management.  The importance of organisation may be explained as follows:

(a) Efficiency of Management: A Good organisation helps in making optimum use of available resources for achieving organisational objectives, increasing efficiency of management.

(b) Facilities Administration: A properly designed and balanced organisation facilitates both management and operation of the enterprise.

(c) Facilitates growth and diversification: On account of sound organisational structure growth and diversification can be successfully achieved for improving competitive strength of the organisation.

20. What is training? Explain any six off-the-job training methods followed by the organisations.

Ans: Training is the action of informing or instructing your employees on a certain task in order to help them improve their performance or knowledge.  If people are to perform their job to the highest possible standard, they must be effectively and efficiently trained.

Methods of Job Training:

(i) Conferences/class room lectures: It is a highly structured way to convey a message or specific information with the help of audio-visual aids formal classroom sessions of training can be made more interesting.

(ii) Vestibule School: Vestibule school means duplicate model of organization. Generally when the expensive and delicate machineries are involved then employers avoid using on-the-job methods of training. A dummy model of machinery is prepared and instead of using original machinery employees are trained on dummy model.

(iii) Films: Showing films is also a very effective method in certain cases. Films can give important information on various techniques through demonstrative skill.

(iv) Case Study: Under this method managers discuss real problems that they have faced and trainees are asked to give their suggestions and alternatives to solve that problem. Case study helps the trainees to decision under real work situation.

(v) Computer Modeling: Under this method a computer is programmed to show real problems of job and how to overcome such problems. In this method the employees can learn a lot without incurring much cost.

(vi) Programmed instructions: Under this method a learning package s prepared to give general instructions and specific skills. This information is broken into sequence of meaningful units.

Or

Explain the importance of staffing. Distinguish between recruitment and selection. 

Ans: Need and Importance of Staffing: 

1. Obtaining competent personnel: Proper staffing helps in discovering and obtaining competent personnel for various jobs.

2. Higher performance: Proper staffing ensures higher performance by putting right person on the right job.

3. Continuous survival and growth: Proper staffing ensures continuous survival and growth of the enterprise, research & development, innovation.

4. Optimum utilization of human resources: Proper staffing helps to ensure optimum utilization of human resources. It prevents underutilisation of personnel and high labour costs. At the same time, it avoids disruption of work.

5. Improve job satisfaction: Proper staffing improves job satisfaction and morale of employee through objective assessment and fair rewarding of their contribution.

Differentiate between Recruitment and Selection.                       

21. Discuss four internal and external factors affecting capital structure decision of a company. 

Ans: Following Internal and External factors are to be considered before determining capital structure.

Internal Factors

(i) Cash flow position: If cash flow position of the company is sound, then debt can be raised and if cash flow is not sound debt should be avoided and it must employ more of equity in its capital.

(ii) Interest coverage ratio: It is the ratio that expresses the number of times the Net profit before interest and tax covers the interest liabilities. Higher the ratio better is the position of the firm to raise debt.

(iii) Control: Issue of Equity shares dilutes the control of the existing shareholders, whereas issue of debt does not as the debenture holders do not participate in the management. Thus if control is to be retained, equity should be avoided.

(iv) Cost of debt: If firm can arrange borrowed fund at low rate of interest then it will prefer more of debt as compared to equity.

External Factors

(v) Stock market conditions: If the stock market is bullish, the investors are adventurous and are ready to invest in risky securities. In this case, equity can be issued even at a premium. Whereas in the Bearish phase, when the investors become cautious, debt should be issued as there is a demand for fixed cost security.

(vi) Regulatory framework: Before determining the capital structure of a company, the guidelines of SEBI and concerned regulatory authority is to be considered.

(vii) Flexibility: Excess of debt may restrict the firm’s capacity to borrow further. To maintain flexibility it must maintain some borrowing power to take care of unforeseen circumstances.

(viii) Tax rate: As interest on debt is treated as an expense, it is tax deductable. Dividend on equity is the distribution of profit so is not tax deductable. Thus if the tax rates are high, issue of debt is an attractive means as it is economical in nature.

Or

What are the aspects of dividend decision? Explain six factors affecting dividend decision of a company.           

Ans: Dividend Decision: This decision is concerned with distribution of surplus funds. The profit of the firm is distributed among various parties such as creditors, employees, shareholders, debenture holders etc. Under this decision the finance manager decided how much to be distributed in the form of dividend and how much to keep aside as retained earnings.

Factors affecting dividend decision: A firm’s dividend policy is influenced by the large numbers of factors. Some factors affect the amount of dividend and some factors affect types of dividend. The following are the some major factors which influence the dividend policy of the firm.

1. Legal requirements: There is no legal compulsion on the part of a company to distribute dividend. However, there certain condition imposed by law regarding the way dividend is distributed.

2. Firm’s liquidity position: Dividend payout is also affected by firm’s liquidity position. In spite of sufficient retained earnings, the firm may not be able to pay cash dividend if the earnings are not held in cash.

3. Repayment need: A firm uses several forms of debt financing to meet its investment needs. These debts must be repaid at the maturity. If the firm has to retain its profits for the purpose of repaying debt, the dividend payment capacity reduces.

4. Expected rate of return: If a firm has relatively higher expected rate of return on the new investment, the firm prefers to retain the earnings for reinvestment rather than distributing cash dividend.

5. Stability of earning: If a firm has relatively stable earnings, it is more likely to pay relatively larger dividend than a firm with relatively fluctuating earnings.

6. Access to the capital market: If a firm has easy access to capital markets in raising additional financing, it does not require more retained earnings. So a firm’s dividend payment capacity becomes high.

22. What is SEBI? Discuss its functions.                  

Ans: The Securities and Exchange Board of India (SEBI) is a regulatory body under the government of India that regulates the securities market. Ans: It was established in 1988 but was given statutory status in 1992. Its head office is located in Mumbai.

Functions of SEBI are divided into three categories:

A. Regulatory Functions of SEBI:

(a) To check unfair trade practices such as to supply misleading statement to the public, price rigging.

(b) To check insider trading in securities. Insider trading means the buying and selling of the securities by those persons (Directors, promoters) who have some secret information of the company and wish to take advantage of it. It hurts the interest of the common man.

(c) To provide education to the investors so as to protect them from being exploited by unfair means: or unhealthy activities of the intermediaries.

(d) To promote code of conduct relating to the security market (for the companies, stock exchange and intermediaries)

(e) To regulate takeover bids of companies.

B. Development functions of SEBI: These functions are performed by the SEBI to promote and develop activities in stock exchange and increase the business in stock exchange. Under developmental categories following functions are performed by SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock exchange.

C. Protective functions of SEBI

(a) It checks price rigging.

(b) It prohibits insider trading.

(c) It prohibits fraudulent and unfair trade practices.

(d) It educates investors.

Or

Distinguish between money market and capital market. Explain the features of money market.  

Ans: Difference between capital market and money market

Features of Money Market: The salient features of money market are as follows:

(i) Flow of short-term funds: The money market brings together the lenders who have surplus funds for short-term and the borrowers who are in need of short-term funds.

(ii) No fixed geographical location: There is no fix geographical location of money market. Different name is given to money market located in different areas.

(iii) Participants: The major participants of money market consist of the government, commercial banks, Life insurance companies, Mutual funds, Non-banking finance companies, stock exchange brokers etc.

(iv) Instruments: It deals in money or instruments which are a close substitute of money such as treasury bills (TBs), Commercial bills, Commercial paper (CP), ADRs, GDRs, Call and Short money market etc.

(v) Sub-markets or components: Money market consists of many sub-markets such as call money market, collateral loan market, acceptance market, bill market, treasury bills market etc.

(vi) Reasonable access: Money market provides reasonable access to users of short-term funds to meet their requirements on reasonable terms or rates of interest.

(vii) Source of working capital: Money market constitutes a major source of working capital finance for borrowers.