Reviewing AP Inter 2nd Year Commerce Study Material Chapter 2 Auxiliaries to Trade Questions and Answers can help students prepare confidently for exams.
AP Inter 2nd Year Commerce 2nd Lesson Auxiliaries to Trade Questions and Answers
Very Short Answer Questions
Question 1.
Define Banking.
Answer:
A Bank is an institution which deals with money and credit. It accepts deposits from the public, makes the funds available to those who need them, and helps in the remittance of money from one place to another.
Question 2.
E-banking.
Answer:
E-banking refers to the delivery of banks service to a customer at his office or home by using electronic delivery channels. It is the application of electronic technology for transfer of funds. Various transactions like cash receipts, Payments, transfer of funds etc. are done. It is anywhere, anytime banking (24 hrs in a day and 7 days in a week).
Question 3.
Sum Assured.
Answer:
Sum Assured refers to the money value of risk. It is the maximum value that is payable by the insurer to the insured in case of the occurrence of the event. Sum assured is also called as insured amount, policy money, and face value of the policy.
Question 4.
Proximate cause.
Answer:
According to Proximate cause principle, risk coverage is available to the insured party, provided the loss has occurred directly from such events as specified in the insurance policy. This principle points out that the proximate or immediate cause and not the remote cause.
Question 5.
Bonded warehouse.
Answer:
Bonded warehouses are licensed by the government to accept imported goods prior to payment of tax and customs duty. These are goods which are imported from other countries. Importers are not permitted to remove goods from the docks or the airport till customs duty is paid.
Question 6.
Pipeline transport.
Answer:
Pipeline transport is a significant means of transport for the movement of liquid commodities, like crude oil, natural gas, and other petroleum products. They are transported through pipelines. Pipelines offer uninterrupted movement at a relatively low cost.
Question 7.
Business Communication
Answer:
Business communication is the exchange of information within a company and with external parties like customers, partners, and the public. Its primary purpose is to help a business run efficiently and achieve its goals.
Short Answer Questions
Question 1.
What are the advantages of E-Banking?
Answer:
Advantages of E-Banking:
1. Convenience and Accesibility: It is 24 hours in a day and 7 days in a week banking service. The customer can obtain information on his account and conduct transactions from his home or office.
2. Faster Transactions: Electronic banking allows customers to complete transactions much faster. For example, they can transfer money instantly using systems like NEFT, RTGS, IMPS, and UPI. It also supports quick bill payments, mobile phone recharges, and online shopping.
3. Cost effective: The cost of banking transactions is considerably reduced. It thus increases the profitability of banks.
4. Wide Range of Services: Electronic banking offers many types of services. These include (transferring money, applying for loans, opening new accounts online.
5. Real-Time Account Monitoring: With electronic banking, customers can check their balance, view account statements, and track recent transactions at any time.
6. Secure Transactions: Electronic banking uses strong security features such as encryption, two-step verification, one-time passwords (OTPs), and biometric login (like fingerprint or face recognition). These features help protect users’ data and money.
Question 2.
Explain the term Insurance? Explain the functions of Insurance.
Answer:
Insurance is a form of contract or agreement which one party agrees in return of a consideration to pay an agreed amount of money to another party to make good for a loss, damage, injury to something of value in which the insured has a pecuniary interest as a result of some uncertain event. Thus, insurance is a method of securing protection against future calamities and uncertainties.
Functions of Insurance:
- Providing certainty: Insurance provides certainty of payment for the risk of loss. There are uncertainties of happening of time and amount of loss. Insurance removes these uncertainties and the assured receives payment of loss. The insurer charges premium for providing the certainty.
- Protection: The second main function of Insurance is to provide protection from probable chances of loss. Insurance cannot stop the happening of a risk or event but can compensate for losses arising out of it.
- Risk sharing: On the happening of a risk event, the loss is shared by all the persons exposed to it. The share is obtained from every insured member by way of premiums.
- Assist in capital formation: The accumulated funds of the insurer received by way of premium payments made by the insured are invested in various income generating schemes.
Question 3.
What are the key benefits of Advertising in business?
Answer:
Advertising is a strategic way for businesses to communicate with a specific group of people, called a target audience. Its main goal is to promote products, services, or ideas. It employs various media channels, such as television, radio, print, and digital platforms, to create awareness and prompt consumers to purchase the product or service.
Key Benefits of Advertising for Businesses:
- Increases Awareness: Advertising helps more people know and remember a brand. This makes the brand more visible and helps it stand out in the market.
- Boosts Sales: Ads encourage people to buy products, which leads to higher sales and more money for the business.
- Builds Relationships: Through advertising, businesses can talk directly with their customers and get feedback. This helps build stronger relationships and customer loyalty.
- Targets the Right People: Modern advertising lets businesses show their ads to specific groups of people who are most likely to be interested. This makes marketing more efficient.
- Helps Businesses Grow: Advertising allows businesses to reach new areas and attract new customers, helping them expand their market.
- Provides Valuable Feedback: Running ad campaigns helps businesses learn what their customers like and dislike. This information is used to improve future marketing efforts.
Question 4.
Explain the significance of Communication in Commerce and Trade.
Answer:
Business communication is the exchange of information within a company and with external parties like customers, partners, and the public. Its primary purpose is to help a business run efficiently and achieve its goals.
Significance of Communication in Commerce and Trade:
1) Connects Everyone: Communication links producers, traders, and consumers. It’s how people share details about products, agree on prices, place orders, and arrange for delivery.
2) Boosts Business Growth: By connecting markets globally, communication helps businesses expand beyond their local area and entering new countries.
3) Makes Transactions Easier: Modern communication tools like email and video calls reduce the need for expensive and risky travel.
4) Builds Trust: In global trade, clear communication is key to building strong, lasting relationships between people from different cultures. It helps resolve conflicts.
5) Overcomes Barriers: Communication breaks down the barriers of distance and time.
6) Improves Customer Service: Communication is the foundation of good customer service. By actively listening to customers and providing timely after-sales support, businesses can increase satisfaction and loyalty.
7) Supports Financial Transactions: Tools like banking networks and digital platforms rely on communication to handle payments, settle debts, and exchange financial documents securely across borders.
8) Ensures Compliance: Communication helps businesses and governments stay informed about trade rules and legal requirements
Long Answer Questions
Question 1.
Define banking. Explain the functions of the banking system.
Answer:
Definition of Banking: A Bank is an institution which deals with money and credit. It accepts deposits from the public, makes the funds available to those who need them, and helps in the remittance of money from one place to another.
According to Crowther, a bank is a financial institution that “collects money from those who have it to spare or who are saving it out of their incomes and lends this money to those who require it”.
Functions of Banks are two types:
- Primary Functions,
- Secondary Functions.
1. Primary Functions:
A. Accepting Deposits: Banks accept money from the public in various forms. The deposits are one of the sources of funds for the banks. The deposits are as follows:
- Savings Account: It is opened for the purpose of encouraging saving habit among the people. There are some restrictions on the number of withdrawals and the maximum amount.
- Current Deposits: These deposits are opened by companies, institution, governments and businessmen. Current accounts bear no interest. There are no restrictions on number of withdrawals and deposit of amount.
- Fixed Deposits: Fixed deposits are also called ‘Term Deposits’ or Time Deposits”. Under this type of deposit, the amount cannot be normally withdrawn until maturity. These deposits carry higher interest rate, depending on the maturity period.
B. Granting Loans and Advances:
- Personal Loans (Non Mortgages): Unsecured loans for personal expenses like a wedding or vacation.
- Home Loans (Mortgages): Large loans for purchasing real estate, secured by the property itself.
- Cash Credit and Overdrafts: Short-term credit facilities mainly for businesses to meet their working capital needs. A cash credit is a loan against the security of a business’s inventory or receivables. An overdraft allows a current account holder to withdraw more money than they have in their account, up to a pre-approved limit.
C. Credit Creation: Credit creation is the natural outcome banking process. Banks have the ability to create credit many times more than the deposits.
2. Secondary Functions:
A. Agency Functions: These functions are done on behalf of their customers.
- Collecting and Paying on Behalf of Customers: Banks help their customers in transfering funds from one place to another through cheques, drafts etc.
- Foreign Exchange Services: Banks collect and pay various credit instruments like cheques, bills of exchange, promissory notes etc.
- Acting as a Trustee or Executor: Banks undertake to purchase and sale of various securities like shares, bonds, debentures etc. on behalf of their customers.
B. General Utility Services:
- Acceptance or collecting foreign bills of exchange.
- Locker Facilities: Banks arrange safe deposit (lockers), for the valuables of customers.
- E-banking and Digital Services:
- TM
- Free Internet Banking.
- Mobile banking
Question 2.
Discuss various principles of Insurance.
Answer:
Principles of Insurance:
1. Utmost Good Faith: It means that both the parties to the contract must give out all the material facts relating to the subject matter of insurance. The obligation to disclose all facts lies equally on the insurer and the insured. The burden falls more on the insured as he is in possession of the subject matter of insurance.
2. Proximate Cause: According to this principle, risk coverage is available to the insured party, provided the loss has occurred directly from such events as specified in the insurance policy. This principle points out that the proximate or immediate cause and not the remote cause.
3. Principle of Insurable Interest: The person getting an insurance policy must have an insurable interest in the property or life insured. A person is said to have an insurable interest in the property if he is benefited by its existence and is at loss by its destruction. Without insurable interest, the insurance contract is void.
4. Principle of Indemnity: Under this principle, the insurer agrees to make good the loss suffered by the insured. The insurer will indemnify the actual loss suffered. No profit can be made against insurance contract. The maximum amount of compensation will be upto the value of the policy.
5. Principle of Subrogation: The term ‘subrogation’ refers to stepping into the shoes of others. Accordingly, an insurer can step into the shoes of an insured, and become entitled to all the rights and privileges of the insured in relation to the insured object, after making payments to the insured. After the insurer pays the claim, he gets all such rights, which the insured had, in that subject matter. It is applicable only for fire and marine insurance.
6. Principle of Contribution: Sometimes a person may get his goods insured with more than one insurer. This is referred to as “Double Insurance”. But in the event of loss, the insured will have no right to recover more than the full amount of actual loss.
7. Principle of Loss Minimization or Mitigation of Loss: It is the duty of the insured to take steps to mitigate or minimize the loss. All reasonable efforts must be made by the insured to save the insured property in the event of mishap. He should not become careless and inactive in the event of the mishap.
Question 3.
Describe the various types of policies available under Life Insurance.
Answer:
Life Assurance Policy: Life Insurance, usually referred to as “Life Assurance” insures the insured against the happenings of certain event i.e., death through the time when it may happen is uncertain.
According to R. S. Sharma, “Life Insurance refers to a contract whereby the insurer, in consideration of a premium paid either in lump sum or in periodical installments, undertakes to pay an annuity of a certain sum of money either on the death of the insured or on the expiry of a certain number of years”.
The insurer pays certain sum of money to the insured on the expiry of specific period or on his death to the nominee whichever is earlier.
Kinds of Life Assurance Policies:
1. Whole life policy: It runs throughout the life time of the policy holder. Premium is low and covers high risk. The premium will be payable for a fixed period (20 to 30 years) or for the whole life of the assured.
2. Endowment Life assurance policy: The policy is taken up for a specific period. The policy will mature at the expiry of a specific period or attainment of particular age or on the death of the insured whichever is earlier.
3. Joint Life Policy: A policy may be taken up jointly on the lives of two or more persons. On the death of any one person, the policy is paid to other surviving policy holder as the case may be.
Ex: Partnership business
4. Annuity Policy: Under this policy an insured would deposit a lump sum amount with the insurance company. The amount of the policy would be paid to the insured for a specified number of years, or until the death of the assured.
5. Children’s Endowment Policy: This policy is taken by a person for his/her children to meet the expenses of their education or marriage. The agreement states that a certain sum will be paid by the insurer when the children atfains a particular age.
Question 4.
Define Warehouse and explain the various types of Warehouses.
Answer:
A warehouse is a commercial building used for the storage of goods, while warehousing is the process of proper storage and handling of goods and cargo using scientific methods in the warehouse and making them available conveniently when needed.
Types of Warehouses:
1) Private Warehouses: Private warehouses are facilities owned and operated by large corporations or manufacturers specifically for storing their own products.
2) Public Warehouses: Public warehouses are commercial storage units available for use by the general public, typically for a fee or rent. These warehouses are strategically located near major transportation networks such as railway stations, highways, and ports, facilitating efficient logistics.
3) Bonded Warehouses: Bonded warehouses are government-authorized facilities designed for the storage of imported goods pending the payment of customs duties. Under the supervision of customs authorities.
4) Government Warehouses: Operated and managed by central or state governments, these warehouses aim to support small-scale farmers, traders, and businesses that may lack the resources to maintain private warehouses.
5) Co-operative Warehouses: Owned and administered by cooperative societies, these warehouses provide cost-effective warehousing solutions to farmers, traders, and the general public.
6) Cold Storage Warehouses: Cold storage warehouses are specialized facilities equipped to preserve perishable commodities such as fruits, vegetables, dairy products, and flowers by maintaining them at low temperatures.
Question 5.
Define transportation and explain its vital role in the economy.
Answer:
Transportation refers to the systematic activity that enables the physical relocation of goods and individuals from one place to another. It is a fundamental infrastructural activity that sustains economic activity by linking resources, industries, and consumers.
Importance of Transportation:
1) Support to manufacturers: Transportation enables the procurement of raw materials from regions where they are available and ensures their delivery to production centers.
2) Accessibility for consumers: By facilitating the distribution of finished products across multiple locations, transportation ensures that consumers have access to goods produced at distant locations.
3) Improving standards of living: The availability of diverse goods at varying price points enhances consumer choice and contributes to improved living standards.
4) Facilitation of large-scale production: Efficient transportation systems allow the consolidation of raw materials, labor, and technology at selected manufacturing hubs. This supports economies of scaie, resulting in reduced per-unit production costs.
5) Crisis management: Transportation plays a strategic role in situations of emergency, such as war or civil disturbances, and ensures the rapid mobilization of troops and essential supplies.
6) Employment generation: The transportation sector creates direct and indirect employment opportunities, ranging from vehicle production and infrastructure development to operational and maintenance activities.
7) Promoting labour mobility: By enabling work force movement across industries and manufacturing units, transportation enhances industrial productivity and flexibility in labor allocation.
8) Cultural and international exchange: Beyond economic functions, transportation fosters cultural interaction by enabling thd exchange of goods, ideas, and practices across nations, thereby promoting international cooperation and social integration.
Fill in the Blanks
Question 1.
A bank is an institution that deals with ___________ and credit.
Answer:
Money
Question 2.
The party who agrees to pay money on the event is known as the ___________.
Answer:
Insurer
Question 3.
The money paid periodically by the insured to the insurer is known as the ___________.
Answer:
Premium
Question 4.
The principle of ___________ ensures that the insured is compensated only for the actual loss, without making a profit.
Answer:
Indemnity
Question 5.
The process of proper storage and handling of goods using scientific methods is called ___________.
Answer:
Warehousing
Question 6.
Transportation creates ___________ utility by ensuring that products are available where consumers demand them.
Answer:
Place
Question 7.
The three main modes of transport are land, air, and ___________.
Answer:
Water