The preference shareholders enjoy a preferential position over equity shareholders in two ways: In other words, as compared to the equity shareholders, the preference shareholders have a preferential claim over dividend and repayment of capital. It is, therefore, important to evaluate the different sources from where funds can be raised. (i) Discounting of Bills of Exchange When goods are sold on credit then a supplier generally draws bills of exchange upon customers who are required to accept the same. 1. Business Finance It refers to capital funds and credit funds invested in the business. Another aspect affecting the choice of a source of finance is the flexibility and ease of obtaining funds. Get Sources of Business Finance, Business Studies Chapter Notes, Questions & Answers, Video Lessons, Practice Test and more for CBSE Class 10 at TopperLearning. Different features of public deposits are, (i) Unsecured(ii) Finance of working capital(iii) Time period(iv) Simple procedure to raise(v) Repayment. Short-term funds are those which are required for a period not exceeding one year. A holder of GDR can at any time convert it into the number of shares it represents. A fixed rate of interest is paid by the borrowers on such funds. Since these are unsecured that is why these are generally issued by companies having a good reputation. (i) Period Basis On the basis of time period, a business finance can be classified in three categories. The rate of interest charged by banks depends on various factors such as the characteristics of the firm and the level of interest rates in the economy. CBSE Class 11 Business Studies Worksheet - Sources of Business Finance - Practice worksheets for CBSE students. For carrying out various activities, business requires money. The main securities used by Indian companies to tap international sources of finance are given below, (i) Loans from Commercial Bank!’;(ii) International Agencies and Development Bank(iii) International Capital Market, The businessman must keep in mind the following factors, (i) Cost involved(ii) Financial capacity of the firm(iii) Form of business organisation(iv) Time period(v) Risk involved(vi) Control(vii) Flexibility(viii) Claim over the assets(ix) Tax benefits. Seasonal businesses that must build inventories in anticipation of selling requirements often need short-term financing for the interim period between seasons. On the basis of period, the different sources of funds can be categorized into three parts. For example, a long-term business expansion plan should not be financed by a bank overdraft which will be required to be repaid in the short term. (a) Cushion of security(b) Funds for new and innovative projects(c) Medium and long term finance(d) Conversion into ownership fund. This allows greater flexibility to the lessee to replace the asset. Explain sources of Business finance on the basis of the period. Practice sample question papers … Terms of trade credit may vary from one industry to another and from one person to another. 3. For the sake of the candidates we are providing Class 11 Mock Test / Practice links below. (I) Receiving a fixed rate of dividend, out of the net profits of the company, before any dividend is declared for equity shareholders; and. As these institutions aim at promoting the industrial development of a country, these are also called ‘development banks’. Lessor is called the owner of the assets and lessee hires the assets by paying rent. The funds required in fixed assets remain invested in the business for a long period of time. Business Studies Class 11 Chapter 8 Notes: Introduction Chapter 8 BST Class 11 notes, Sources Of Business Finance is an important chapter that presents an informative overview of the various sources from where the finances can be obtained for business. In addition, many non-banking finance companies and other agencies provide factoring service. It consists of the funds contributed by the owners of business as well as profits reinvested in business. Thus, a holder of FCCB has the option of either converting them into equity shares at a predetermined price or exchange rate, or retaining the bonds. This, therefore, is an easier source of funds; (iv) Loan from a bank is a flexible source of finance as the loan amount can be increased according to business needs and can be repaid in advance when funds are not needed. Providing information about credit worthiness of prospective client’s etc., Factors hold large amounts of information about the trading histories of the firms. 4. Important Questions for Class 11 Business Studies are outlined by the subject matter experts from the latest edition of CBSE books. Many Indian companies such as Infosys, Reliance, Wipro and ICICI have raised money through issue of GDRs. Owners Fund Owners fund is also called as Owners Capital or owned capital. Its regulation comes under the purview of the Reserve Bank of India. Such credit appears in the records of the buyer of goods as ‘sundry creditors’ or ‘accounts payable’. Similarly, the purposes for which funds are required need to be considered so that the source is matched with the use. The deposits are beneficial to both the depositor as well as to the organisation. Define ploughing back of profits. Debentures are an important instrument for raising long term debt capital. Class XI Chapter 7 Business Studies, Sources of Business Finance , study notes and study material to learn and revise your chapter. Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days. Class 11 Important Business Studies Questions is very important resource for students preparing for Class XI board Examination. Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specific period. Similarly, some funds are required for day-to-day operations, say to purchase raw materials, pay salaries to employees, etc. The share of NRI deposits in foreign capital is more than 30% and it is increasing continuously. Class 11 Chapter-wise, detailed solutions to the questions of the NCERT textbooks are provided with the objective of helping students compare their answers with the sample answers. But schools, business books, and academic settings are not the only ones that use business case studies. Each share has its nominal value. ... Trade credit may be readily available in case the credit worthiness of the customers is known to the seller; These are equity shares and preference shares. Sources of Business Finance 11th Business CBSE NCERT Chapter 8 Marketing along with videos,solved papers and worksheets.These are helpful for students in doing homework or preparing for the exams (I) Investors who want steady income may not prefer equity shares as equity shares get fluctuating returns; (ii) The cost of equity shares is generally more as compared to the cost of raising funds through other sources; (iii) Issue of additional equity shares dilutes the voting power, and earnings of existing equity shareholders; (iv) More formalities and procedural delays are involved while raising funds through issue of equity share. Finance, therefore, is called the life blood of any business. Business Studies Case studies Class 11; Chapters 3,4 and 5 Chapter: 3 Private, Public and Global Enterprises Q:1 It is a public enterprise established under the Indian Companies Act and conducts business in competition with companies in private sector. For example, as equity share holders enjoy voting rights, financial institutions may take control of the assets or impose conditions as part of the loan agreement. (ii) Secrecy of business can be maintained as the information supplied to the bank by the borrowers is kept confidential; (iii) Formalities such as issue of prospectus and underwriting are not required for raising loans from a bank. For the grant of loan. Candidates can also check out the Key Points, Important Questions & Practice Papers for various Subjects for Class 11 in both Hindi and English language form the link below. Equity Shares Equity shares is a common security issued under permanent or owner’s fund capital. A business cannot function unless adequate funds are made available to it. These bodies were set up by the Governments of developed countries of the world at national, regional and international levels for funding various projects. A clear assessment of the financial needs and the identification of various sources of finance, therefore, is a significant aspect of running a business organization. There are two methods of factoring — recourse and non-recourse. Trade credit is the credit extended by one trader to another for the purchase of goods and services. Cases typically present a problem, issue, or challenge that must be addressed or solved for a business to prosper. Business is concerned with the production and distribution of goods and services for the satisfaction of needs of society. They are referred to as ‘residual owners’ since they receive what is left after all other claims on the company’s income and assets have been settled. Commercial banks all over the world extend foreign currency loans for business purposes. (I) the procedure of obtaining deposits is simple and does not contain restrictive conditions as are generally there in a loan agreement; (ii) Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions; (iii) Public deposits do not usually create any charge on the assets of the company. There is not a single best source of funds for all organizations. A firm may also offer different credit terms to different customers. Sources of Finance Companies can raise finance from the following methods. Case study questions involving various topics and chapters in Business Studies are becoming a reason to create panic in students but there is nothing like this. (I) Excessive ploughing back may cause dissatisfaction amongst the shareholders as they would get lower dividends; (ii) It is an uncertain source of funds as the profits of business are fluctuating; (iii) The opportunity cost associated with these funds is not recognized by many firms. (I) a commercial paper is sold on an unsecured basis and does not contain any restrictive conditions; (ii) As it is a freely transferable instrument, it has high liquidity; (iii) It provides more funds compared to other sources. This may lead to sub-optimal use of the funds. The depository receipts issued by a company in the USA are known as American Depository Receipts. 8. The organizations that provide such services include SBI Factors and Commercial Services Ltd., Canbank Factors Ltd., Foremost Factors Ltd., State Bank of India, Canara Bank, Punjab National Bank, Allahabad Bank. When the earnings of the organization are not stable, fixed charged funds like preference shares and debentures should be carefully selected as these add to the financial burden of the organization. The borrower is required to provide some security or create a charge on the assets of the firm before a loan is sanctioned by a commercial bank. In other words it is a renting of an asset for some specified period. CBSE Guide Sources of Business Finance class 11 Notes. Commercial banks occupy a vital position as they provide funds for different purposes as well as for different time periods. (I) Financial institutions follow rigid criteria for grant of loans. The more notable among them include International Finance Corporation (IFC), EXIM Bank and Asian Development Bank. At times it puts a lot of burden on the business as payment of interest is to be made even when the earnings are low or when loss is incurred. Question from very important topics are covered here for NCERT Class 11. BUSINESS STUDIES CLASS XI - VALUE BASED QUESTIONS VALUE BASED QUESTIONS. The factor charges fees for the services rendered. Here we have provided Exemplar Problems Solutions along with NCERT Exemplar Problems Class 11. Discounting of bills (with or without recourse) and collection of the client’s debts. The need for funds arises from the stage when an entrepreneur makes a decision to start a business. (I) Equity shares are suitable for investors who are willing to assume risk for higher returns; (ii) Payment of dividend to the equity shareholders is not compulsory. Prominent financial instruments used for this purpose are: (b) American Depository Receipts (ADR’s): (c) Foreign Currency Convertible Bonds (FCCB’s): Factors Affecting the Choice of the Source of Funds. It facilitates the purchase of supplies without immediate payment and is commonly used by business organizations as a source of short-term financing. (iv) The lessee never becomes the owner of the asset. The local currency shares of a company are delivered to the depository bank. The sources for raising borrowed funds include loans from commercial banks, loans from financial institutions, issue of debentures, public deposits and trade credit. NCERT Class 11 Business Studies Books are provided in PDF form so that students can access it at any time anywhere. The difference between the face value of the debenture and its purchase price is the return to the investor. This is known as fixed capital requirements of the enterprise. CBSE guide notes are the comprehensive notes which covers the latest syllabus of CBSE and NCERT. (I) this source is expensive when the invoices are numerous and smaller in amount; (ii) The advance finance provided by the factor firm is generally available at a higher interest cost than the usual rate of interest; (iii) The factor is a third party to the customer who may not feel comfortable while dealing with it. Companies generally invite public deposits for a period up to three years. Public deposits can take care of both medium and short-term financial requirements of a business. Therefore, there is no burden on the company in this respect; (iii) Equity capital serves as permanent capital as it is to be repaid only at the time of liquidation of a company. With the issue of debentures, the capacity of a company to further borrow funds reduces. The assets of a company are, therefore, free to be mortgaged for the purpose of borrowings, if the need be; (vi) Democratic control over management of the company is assured due to voting rights of equity shareholders. Debentures Debentures are common securities issued under borrowed fund capital. Class 11 Business Studies notes on Chapter 7 Sources of Business Finance class 11 Notes Business Studies are also available for download in CBSE Guide website. Free PDF download of NCERT Solutions for Class 11 Business Studies Chapter 8 Sources of Business Finance solved by Expert Teachers as per NCERT (CBSE) Book guidelines. The importance of finance increased tremendously these days because of mass production and use of capital intensive techniques. Question 10: Internal sources of capital are those that are. Disclaimer | The amount raised by CP is generally very large. 14. The financial requirements of an enterprise do not end with the procurement of fixed assets. The factor becomes responsible for all credit control and debt collection from the buyer and provides protection against any bad debt losses to the firm. The depository bank issues depository receipts against these shares. According to BO Wheeler, “Finance is thai business activities which is concerned with acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.” The financial needs of a business can be classified into two categories. RBSE Class 11 Business Studies Chapter 5 Short Answer Type Questions (SA – II) Question 1. According to BO Wheeler, “Finance is thai business activities which is concerned with acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.”. Trade credit is commonly used by business organizations as a source of short-term financing. A portion of the net earnings may be retained in the business for use in the future. It is similar to a GDR except that it can be issued only to American citizens and can be listed and traded on a stock exchange of USA. QUESTION 1. Business should evaluate each of the sources of finance in terms of the risk involved. Issue of equity shares 2. Trade Credit It refers to an arrangement whereby a manufacturer is granted credit from the supplier of raw materials, inputs spare parts etc. This source of financing is considered suitable when large funds for longer duration are required for expansion, reorganization and modernization of an enterprise. While the depositors get higher interest rate than that offered by banks, the cost of deposits to the company is less than the cost of borrowings from banks. Internal sources of funds are those that are generated from within the business. The interest is required to be paid irrespective of the firm earning a profit or incurring a loss. Hope these notes helped you in your schools exam preparation. (b) Borrowed Fund It refers to the borrowing of the firm. They are an important source of financing non-trade international operations. TOPIC – Sources of Business Finance. Question and solutions on Sources of Business Finance Covers the topic in detail for Class 11th Business Chapter 8 Easy to understand Page 1 of 1 Notesgen is the No. Sources of Business Finance Notes Class 11: Extramarks offers notes & NCERT solutions of Sources of Business Finance for CBSE Class 11. The form of business organization and status influences the choice of a source for raising money. The owner of the assets is called the ‘lessor’ while the party that uses the assets is known as the ‘lessee’. The dependence of business on certain sources may affect its credit worthiness in the market. (ii) Equity shares with differential rights as to divided. With the help of Notes, candidates can plan their Strategy for particular weaker section of the subject and study hard. Owners Fund 2. The financial needs of a business can be categorized as follows: A business can raise funds from various sources. ‘Borrowed funds’ on the other hand, refer to the funds raised through loans or borrowings. To assist you with that, we are here with notes. Borrow Fund 1. There are many benefits that a company can gain from business case study presentations. At the end of the lease period, the asset goes back to the lessor. (I) Preference shares provide reasonably steady income in the form of fixed rate of return and safety of investment; (ii) Preference shares are useful for those investors who want fixed rate of return with comparatively low risk; (iii) It does not affect the control of equity shareholders over the management as preference shareholders don’t have voting rights; (iv) Payment of fixed rate of dividend to preference shares may enable a company to declare higher rates of dividend for the equity shareholders in good times; (v) Preference shareholders have a preferential right of repayment over equity shareholders in the event of liquidation of a company; (vi) Preference capital does not create any sort of charge against the assets of a company. Class 11 Business Studies Sources of Business Finance – Get here the Notes for Class 11 Business Studies Sources of Business Finance. The supplier allow theircustomers to pay their outstanding balance, with in a credit period. (I) Preference shares are not suitable for those investors who are willing to take risk and are interested in higher returns; (ii) Preference capital dilutes the claims of equity shareholders over assets of the company; (iii) The rate of dividend on preference shares is generally higher than the rate of interest on debentures; (iv) As the dividend on these shares is to be paid only when the company earns profit, there is no assured return for the investors. The assets can be used as security for raising loans from other sources; (iv) As the depositors do not have voting rights, the control of the company is not diluted. Candidates who are ambitious to qualify the Class 11 with good score can check this article for Notes. Too many formalities make the procedure time consuming and expensive; (ii) Certain restrictions such as restriction on dividend payment are imposed on the powers of the borrowing company by the financial institutions; (iii) Financial institutions may have their nominees on the Board of Directors of the borrowing company thereby restricting the powers of the company. In addition to the sources discussed above, there are various avenues for organizations to raise funds internationally. Each of the sources has unique characteristics, which must be properly understood so that the best available source of raising funds can be identified. The money raised by issue of equity shares is called equity share capital, while the money raised by issue of preference shares is called preference share capital. Business simply cannot function without money, and the money required to make a business function is known as business funds. FCCB’s are very similar to the convertible debentures issued in India. For example, Standard Chartered emerged as a major source of foreign currency loans to the Indian industry. CLASS –XI . Under recourse factoring, the client is not protected against the risk of bad debts. Trade credit facilitates the purchase of supplies without immediate payment. In order to start business, funds are required to purchase fixed assets like land and building, plant and machinery, and furniture and fixtures. Class 11 Business Studies Sources of Business Finance have different set of questions. The acceptance of public deposits is regulated by the Reserve Bank of India. Restrictive provisions, detailed investigation and documentation in case of borrowings from banks and financial institutions for example may be the reason that business organizations may not prefer it, if other options are readily available. Wholesalers and manufacturers with a major portion of their assets tied up in inventories or receivables also require large amount of funds for a short period. (iii) Insurance: It provides a cover against the loss of goods, in the process of transit, storage, theft, fire and other natural calamities. The types of loans and services provided by banks vary from country to country. NCERT Solutions Class 11 Business Studies Chapter 8 Sources of business finance. Their liability, however, is limited to the extent of capital contributed by them in the company. Below we provided the Notes of Class 11 Business Studies for topic Sources of Business Finance. It provides security for a debt that a firm might otherwise be unable to obtain; (iv) It does not create any charge on the assets of the firm; (v) The client can concentrate on other functional areas of business as the responsibility of credit control is shouldered by the factor. 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