TS Inter 1st Year Commerce Study Material Chapter 9 Source of Business Finance

Telangana TSBIE TS Inter 1st Year Commerce Study Material 9th Lesson Source of Business Finance Textbook Questions and Answers.

TS Inter 1st Year Commerce Study Material Chapter 9 Source of Business Finance

Long Answer Questions

Question 1.
Explain various sources of business finance available to Indian businessmen.
(Or)
Discuss the main sources of finance available to companies for meeting long-term as well as short-term financial requirements.
(Or)
Write a comparative evaluation of the various methods that are opened to meet the financial requirements of a business firm.
Answer:
A businessman can raise funds from various sources. On the basis of the period, they are classified into three:

Long-term sources
Medium-term sources
Short-term sources.

1) Long-term sources: These sources include i)Issue of equity and preference shares ii) the Issue of debentures iii) Retained earnings.

i) Shares: A company is able to get large amount of capital primarily by the issue of shares. A company generally issues various types of shares, preference, equity, and deferred shares. The object of issuing different kinds of shares is to appeal investors with different temperaments. Preference shares carry preferential rights regarding payment of dividends and repayment of capital at the time of winding up of the company. Equity shares do not carry such rights. Issue of shares is the most important method of raising long-term finance because the raising from the shareholders remain in the company till the time of winding up.

ii) Debentures: A company may not wish to possess more share capital. Instead it may invite persons to lend their money. Money so lent must be acknowledged. The document which the lender receives is called debenture. So, debenture is an acknowledge of debt by a company. It is usually issued under a common seal, secured by fixed or floating charge on the assets of the company. A company in order to secure long term finance for initial needs and more of ten for developments, to supplement its capital may issue debentures. Money raised through debentures remain in the company for long period,

iii) Retained earnings: The ploughing back of earning is an important source of financing the business. Instead of distributing the entire profits, some portion of the profits are retained in the business as reserve. The undistributed earnings are used to finance long term needs.

2) Medium term finance: These sources include

Public deposit
Loans from banks
Lease financing

i) Public deposits: Industries receive deposits from the public. These deposits are called as public deposits. The period of public deposits used to be short (i.e., For three years) so public deposits have been a very important source for working capital requirements.

ii) Loans from banks: Commercial banks occupy a vital position as they provide funds for different purposes and for different periods. They extend loans in the form of cash credits, overdrafts, purchase/discounting bills and term loans. The borrower is required to provide some security or to create a charge on the assets of the firm before a loan is sanctioned.

iii) Lease financing: A lease is a contractual agreement whereby the lesser or owner grants lesser the right to use the asset in return for a periodic payment known as lease rent. At the end of the lease period, the asset goes back to lessor. Lease finance is an important means for modernisation and diversification in the firm. Such financing is resorted to in acquiring assets like computers and electronic equipment.

3) Short-term sources: These sources include

Bank credit
Trade credit
Installment credit
Advances
C.P.

i) Bank credit: Commercial banks extend the short-term financial assistance to business in the form of loans, cash credits, overdraft and discount of bills. Bank loans are provided for a specific short period. Such advance is credited to loan account and the borrower has to pay interest on the entire amount of loan sanctioned. Bank grants the cash credit upto a specific limit. The firm can withdraw any amount within the limit. Interest is charged on the actual amount withdrawn. In overdraft, the customer can overdraw his current account. This arrangement is for a short period only. Commercial banks finance the business houses by discounting the bills of exchange or promissory notes.

ii) Trade credit: Just as firm grants credit to customers, so it often gets credit from suppliers. It is known as trade credit. It does not make available of funds in cash but it facilitate the purchase of goods without immediate payment.

iii) Installment credit: Business firm gets credit from equipment suppliers. The supplier may allow the purchase of equipment with payments extended over a period of 12 months or more. Some portion of the cost price is paid on delivery and the balance is paid in a number of installments. The supplier charges interest on unpaid balance.

iv) Customers advance: Many times, the manufacturer of goods insist on advance by the customers, incases of big orders. The customers advance represent a part of the price of the product that has been ordered which will be delivered at a later date.

v) C.P or Commercial Paper: Commercial paper is an unsecured promissory note issued by a firm to raise funds for shorter period, varying from 90 days to 365 days. It is issued by one firm to another firm. The amount raised by CP is generally large. As the debt is totally unsecured, firms having good credit rating can issue commercial paper.

Question 2.
What do you mean by Specialized Financial Institutions? Why are these needed?
Answer:
Specialised financial institutions are the institutions which have been setup to serve the increasing financial needs of commerce and trade in the areas of venture capital, credit rating and leasing etc.

1) IFCI Venture Capital Funds Ltd.: Formerly known as Risk Capital and Technology Finance Corporation Ltd. is a subsidiary of Industrial Finance Corporation of India Ltd. It was promoted with the objective of broadening entrepreneurial base in the country by facilitating funding to ventures involving innovative product /process/ technology.

2) ICICI Venture Funds Ltd: Formerly known as Technology Development and Information Company of India Ltd. was established in 1988 as a joint venture with the Unit Trust of India. Subsequently, it became a fully owned subsidiary of ICICI. It is a Technology Venture Finance Company set upto sanction project finance for new technology ventures. The industrial units assisted by it are in the fields of computer, chemicals/polymers, drugs, diagnostics and vaccines, biotechnology, environmental engineering etc.

3) Tourism Finance Corporation of India Ltd.: TFCI is a specialised financial institution setup by Government of India for promotion and growth of tourist industry in the country. Apart from conventional tourism projects, it provides financial assistance for non-conventional tourism projects like amusement parks, ropeways, car rental services, ferries for inland water transport etc.

Question 3.
Critically examine the advantages and disadvantages of raising funds by issuing shares of different types.
Answer:
Issue of shares: The capital of the company is divided into number of equal parts known as shares. A company can issue different types of shares to get funds from the investors to suit their requirement. Some investors prefer regular income though it may be low, others may prefer higher returns and they will be prepared to take risk. Under the companies act, 1956, a company can issue only two types of shares. 1) Preference shares 2) Equity shares.

1) Preference shares: As the name suggests, these shares have certain preferences as compared to equity shares. There is a preference for payment of dividend and also repayment of capital at the time of liquidation. When the company has distributable profits, the dividend is first paid to preference shares. In the event of liquidation of the company, after the payment of outside creditors, preference share capital is returned. Because of these preferences they are called preference shares. These shares are further divided into cumulative, noncumulative, participating, redeemable, irredeemable, convertable and non-convertable preference shares.

Advantages:

Rate of return is guaranteed to those investors who prefer safety and want to earn income certainly.
These shares are helpful in raising long term capital of the company.
Redeemable preference shares have the added advantage of repayment of capital whenever there is surplus in the company.
As fixed rate of dividend is payable, this enable the company to adopt trading on equity.
There is no need to mortgage assets for the issue of shares.

Disadvantages:

Fixed rate of dividend is paid on these share. This is a permanent burdent to the company.
These shares does not carry any voting right and cannot participate in the management of the company.
Compared to other types of securities such as debentures, usually cost of raising capital is high.

2) Equity shares: They are also known as ordinary shares. Equity shareholders are the real owners of the company as these shares carry voting rights. Equity shareholders are paid dividend after paying to the preference shares. The rate of dividend depends on the profits of the company. There may be a higher rate of dividend or they may not get anything. These shareholders take more risk as compared to preference shareholders. Equity capital is returned after meeting all other claims including preference shares.

Advantages:

Equity shares do not create any obligation to pay fixed rate of dividend.
They can be issued with creating any charge over the assets of the company.
It is a permanent source of capital and the company need not repay it except under liquidation.
Equity shareholders are the real owners of the company.
In case of profits, these shareholders can get higher dividends and appreciation in the value of shares.

Disadvantages:

If only equity shares are issued the company cannot take the advantage of trading on equity.
There is danger of over capitalisation in case of excess issue of these shares.
These shareholders can put obsticles in management.
In case of higher profits, increase in the value of shares may lead to speculation in the market.

Short Answer Questions

Question 1.
What are the sources of Short-Term finance?
Answer:
The following are the sources of short-term finance:
1) Bank credit: Commercial banks extend the short term financial assistance to business in the form of loans, cash credits, overdrafts and discount of bills. Bank loans are provided for a specific short period. Such advance is credited to loan account and the borrower has to pay interest on the entire amount of loan sanctioned. Bank grants cash credits upto a specific limit. The firm can withdraw any amount within that limit. Interest is charged on the actual amount withdrawn. In overdraft, the customer can overdraw his current account. The arrangement is for short period only. Commercial banks finance the business houses by discounting the bills of exchange and promissory notes.

2) Trade credit: Just as firm grants credit to customers, so it often gets credit from suppliers. It is known as trade credit. It does not make available of funds in cash but it facilitates the purchase of goods without immediate payment of cash.

3) Installment credit: Business firms get credit from equipment suppliers. The suppliers may allow the purchase of equipment with payments extended over a period of 12 months or more. Some portion of the cost price is paid on delivery and the balance is paid in number of installments. The supplier charges interest on the unpaid balance.

4) Customers advance: Many times, the manufacturer of goods insist on advance by customers in case of big order. The customers advance represent a part of the price of the product which will be delivered at a later date.

5) Commercial paper: Commercial paper is an unsecured promissory note issued by a firm to raise funds for shorter period, varying from 90 days to 365 days. It is issued by one firm to another firm. The amount raised by C.P is large. As the debt is totally unsecured, firms having good credit rating can issue commercial paper.

Question 2.
What are the sources of Long-term finance?
Answer:
The sources of long-term finance are

Issue of shares
Issue of debentures
Retained earnings.

i) Issue of shares: A company is able to get large amount of capital primarily by the issue of shares. A company may issue different types of shares like preference shares, equity shares and deferred shares. The object of issuing different types of shares to appeal investors with different temperment. Preference shares carry preferential right with regarding to payment of dividend and repayment of capital. The equity shares do not carry such rights. It is important method of raising long term finance because the share capital remain in the company till winding up.

ii) Issue of debentures: If a company do not wish to possess more share capital may invite persons to lend their money. Debentures is an acknowledge of debt by company, issued under common seal, secured by fixed or floating charge on the assets of the company. A company in order to secure long-term finance for development purposes and to suppliment its capital may issue debentures. Money raised through debentures remain in the company for a longer period.

iii) Retained earnings: The ploughing back of earnings is an important sources of financing the business. Instead of distributing entire profits, some portion of the profits are retained in the business as reserve. This is called as “Retained Earnings”. The undistributed earnings are used to finance long term needs.

Question 3.
What are the sources of medium term finance?
Answer:
1) Public Deposits: The deposits that one raised by organisations directly from public are known as ‘public deposits’. Any person who is interested in depositing money in any organisation, can do by filling up a prescribed form. The organisation in return issues a deposit receipt as acknowledgement of debt. Company generally invite public deposits for a period upto 3 years. The acceptance of public deposits is regulated by RBI.

2) Loans from Commercial Bank: Commercial Banks provides funds for different purposes as well as for different time periods. Bank extend loans to firm of all sizes and in many ways like cash credit, overdraft, term loans, discounting of bills etc., the rate of interest charged by banks depend on various facts. 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.

3) Lease Financing: A lease is a contractual agreement where by one party i.e., the owner of an asset grants the other party right to use the asset in return for a periodic payment. The owner of the assets is called the ‘lessor’ while the party that uses the assets is known as the “lesser”. The lesser pays a fixed periodic amount called lease rental to the lessor for the use of the asset. At the end of the lease period, the asset goes back to the lessor. While making the leasing decision, the cost of leasing an asset must be compared with the cost of owning the same.

Question 4.
Discuss the need for specialized financial institutions.
Answer:
Specialised financial institutions are the institutions which have been setup to serve the increasing financial needs of commerce and trade in the areas of venture capital, credit rating and leasing etc.

1) DFCI Venture Capital Funds Ltd.: Formerly known as Risk Capital and Technology Finance Corporation Ltd. is a subsidiary of Industrial Finance Corporation of India Ltd. It was promoted with the objective of broadening entrepreneurial base in the country by facilitating funding to ventures involving innovative product /process/ technology.

2) ICICI Venture Funds Ltd: Formerly known as Technonology Development and Information Company of India Ltd. was established in 1988 as a joint venture with the Unit Trust of India. Subsequently, it became a fully owned subsidiary of ICICI. It is a Technology Venture Finance Company set upto sanction project finance for new technology ventures. The industrial units assisted by it are in the fields of computer, chemicals/polymers, drugs, diagnostics and vaccines, biotechnology, environmental engineering etc.

Question 5.
Explain the advantages and disadvantages of equity source of finance.
Answer:
Equity shares: Equity shares are the most important source of raising long term capital by a company. Equity shares also known as “ordinary shares” represent the ownership of a company. The capital raised by issue of such shares are known as “Owners Fund”. Equity share holders do not get a fixed dividend but are paid on the basis of earning by the company. They are reffered as “residual owners”. They liability, is limited to the extent of capital contributed by them in the company. These share holders have a right to participate in the management of a company.

Merits: The important merits or raising funds through issuing equity shares are given below.

Equity shares do not create any obligation to pay a fixed rate of dividend.
Equity shares can be issued without creating any charge over the assets of the company.
It is a permanent source of capital and the company need not repay it except under liquidation.
Equity shareholders are the real owners of the company who have the voting rights.
In case of profits, equity share holders are the real gainers by way of increased dividends and appreciation in the value of shares.

Limitations: The major limitations of raising funds through issue of equity shares are as follows.

Investors who want steady income may not prefer equity shares as equity shares get fluctuating returns.
The cost of equity shares is generally more as compared to the cost of raising funds through other sources.
Issue of additional equity shares dilutes the voting power and earning of existing equity shareholders.
More legal formalities and procedural delays involved while raising funds through issue of equity shares.

Question 6.
Differentiate between the Equity shares and Preference shares.
Answer:
The following are the differences between equity shares and preference shares.

Basis of Difference	Equity shares	Preference shares
1. Choice of Issue	Issue of these shares are compulsory.	Issue of these shares are optional. i.e., not compulsory.
2. Payment of dividend	Dividends are paid after paymet of dividends to preference shares.	Dividends are paid before payment of dividends to equity shares.
3. Rate of dividend	Rate of dividend is not fixed and recommended by board of directors.	Rate of dividend is prefixed and precommunicated.
4. Return of capital	Incase of windingup capital is refunded after the payment of preference shares.	Incase of windingup capital is refunded before the payment to equity shares.
5. Voting rights	Equity shareholders are the real owners of the company who have the voting rights.	These shares do not have any voting rights.
6. Risk	It is highly risk as compared to preference shares.	It is less risky as compared to equity shares.
7. Speculation	Scope for speculation.	No scope for speculation.
8. Bonus shares	Bonus shares are offered to equity shareholders.	Bonus shares are not offered to preference shareholders.

Question 7.
Differentiate between Shares and a Debenture.
Answer:
The following are the differences between shares and Debentures.

Shares	Debentures
1. A share is a part of owned capital.	1. A debenture is an acknowledge of debt.
2. Shareholders are paid dividend on the shares held by them.	2. Debenture holders are paid interest on debentures.
3. The rate of dividend depends upon the amount of divisible profits and policy of the company.	3. A fixed rate of interest is paid on debentures irrespective of profit or loss.
4. Dividend on shares is a charge against profit and loss appropriation account.	4. Interest on debentures is a charge against profit and loss account.
5. Shareholders have voting rights. They have control over the management of the company.	5. Debenture holders are only creditors of the company. They cannot participate in management.
6. Shares are not redeemable (except redeemable preference shares) during the life time of the company.	6. The debentures are redeemed after a certain period.
7. At the time of liquidation of the company, share capital is payable after meeting all outside liabilities.	7. Debentures are payable in priority over share capital.

Question 8.
What is preference shares and explain the types of preference shares?
Answer:
Types of preference shares:

Cumulative preference shares: Under cumulative preference shares the dividend accumulated if it is unpaid during a year.
Non-cumulative preference shares: Under non-cumulative preference shares, the dividend does not accumulate.
Participating preference shares: Participating preference shares are those preference shares which have a right to participate in the company’s surplus after paying dividend to equity share holders and preference share holders.
Non-participating preference shares: The holders of such shares do not enjoy right of participating in the profit of the company.
Convertible preference shares: These shares can be converted into equity shares with in a specific period of time.
Non-convertible preference shares: Non-convertible preference shares cannot be coverted into equity shares.

Question 9.
What is Retained earnings and explain merits and limitations of Retained earnings.
Answer:
Retained earnings:
A company generally does not distribute all its earnings amongst the share holders as dividends. A portion of the net earnings may be retained in the business for use in the future. This is known as “retained earnings”. It is a source of internal financing or self financing or “ploughing back of profits”. The profit available for ploughing back of points in an organisation depends on many factors like net profits, dividend policy and age of the organization.

Merits: The merits of retained earning as a source of finance are as follows:

Retained earnings is a permanent source of funds available to an organisation.
It does not involve any explicit cost in the form of interest dividend or floation cost.
As the funds are generated internally, there is a greater degree of operational freedom and flexibility.
It enhances the capacity of the business firm to absorb unexpected losses.
It may lead to increase in the market price of the equity shares of a company.

Limitations:

Excessive ploughing back may cause dissatisfication amongst the share holders as they would get lower dividends.
It is an uncertain source of funds as the profits of business are fluctuating.
The opportunity cost associated with these funds is not recognized by many firms. This may lead to sub-optimal use.

Question 10.
What is Debentures and write the different types of Debentures.
Answer:
Debentures: ‘Debentures’ are an important instrument for raising term debit capital A company can raise funds through issue of debentures. The debenture issued by a pany is an acknowledgement that the company has borrowed a certain amount of r Which it promises to repay on a future date. Debentures holders are therefore termed as creditors of the company.

Debenture holders are paid a fixed state amount of interest at specified intervals say six months or one year.

Types of Debentures: Debentures may be of a various types. Some important types of debentures are as follows.

1) Mortage Debenture: They are also known as ‘Secured debentures’. The payment of interest and principal is secured by some charge on any part of the whole of the company.

2) Simple Debentures: These debentures have no charge on the assets of the company. They are also known as naked or unsecured debentures. They are not secured by any change or security on any asset of the company.

3) Redeemable Debentures: Those debentures which are issued for a particular fixed time period and after expiry of that period the principal amount is returned.
For example: 5 years, 10 years, 15 years maturity period, after that the amount of debenture is paid back to their holders.

4) Irredeemable Debentures: They are to be paid back at the time of winding up of the company. They are not refundable. Perpetual in nature. A company can, however, redeem such debentures whenever at deems fit.

5) Registered Debentures: The names of the holders are recorded in the books of the company. If such debentures are transferred, the name of the transferee is entered in the register and the name of the original holders is cancelled.

6) Bearer Debentures: The debentures which are not recorded in the register of debenture holders are known as bearer debentures. These debentures are transferable by more delivery.

7) Convertible Debentures: They carry the option of getting a part or the full value of their investments converted into equity shares on a fixed date.

8) Non-Convertible Debentures: They do not enjoy any such right to get themselves converted into equity shares.

Question 11.
Explain various international sources of finance?
Answer:
Liberalisation and Globalisation processes initiated in India in 1991 have opened the gates for the foreigners to invest in India and vice versa. Since then certain international sources are available for financing purposes.

1) American Depository Receipts (ADRS): American depository receipts is issued by any U.S Bank. The first ADR was introduced by J.P. Morgan in 1927 for the British retailers. It is basically a negotiable instrument which represents a specified number of share(s) in a foreign stock that is traded on U.S. exchange. The majority of ADRS range in price from $10 to $100 per share.

The holder of American depository receipt does not carry voting rights. The dividend on ADR is paid in terms of U.S. Dollars.

2) Global Depository Receipt (GDRs): GDR is a bank certificate issued in more than one country for shares in a foreign company. There are more than 900 GDRs listed on exchanges world wide. A holder of GDR does not carry any voting rights. A holder of GDR can convert it into the number of shares that it represented. On conversion of GDR into equity shares, no remitance is to be made by the company.

3) Indian Depository Receipts (IDRs): An IDR is an instrument in the form of Depository Receipt created by the Indian depository in India against the underlaying equity shares of the issuing company. IDRs are listed on stock exchanges in India and are freely transferable. IDRs can be issued with prior approval from securities exchange. Board of India (SEBI). Application can be made for the same 90 days before the issue opening date. An IDR is denominated in Indian Rupees.

According to the guidelines of SEBI, only those companies listed in their home market for at least three years and which have been profitable for three of the preced-ing five years can issue IDRS.

4) Foreign Currency Convertible Bonds (FCCBs): FCCBs have assumed a great importance for various multinational companies. A foreign currency convertiable bond is a type of convertiable bond in which the money is raised by issuing company in the form of a foreign currency. FCCBs are issued in currencies different from the issuing company’s domestic currency. FCCBs are redeemable at maturity if not converted into equity.

Very Short Answer Questions

Question 1.
Business finance
Answer:
1) The requirement of funds by business firms to accomplish its various activities is called business finance.

2) Business finance is viewed as the activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of the business enterprise.

Question 2.
Bank loan
Answer:
1) Bank loan is a direct advance made in lumpsum against some security. A specified amount is sanctioned by the bankers to the customer.

2) The loan amount is paid in cash or credited to customers account. The customer has to pay interest on the amount from the date of sanctioning the loan.

Question 3.
Debentures
Answer:
1) A debenture is an acknowledgement of debt by a company. It is usually issued under common seal, secured by a fixed or floating charge on the assets of the company.

2) The debentures can be classified in different types on the basis of terms and conditions of issue. A company may issue debentures in secure long-term finance for initial needs and for expansions and developments.

Question 4.
Trade Credit
Answer:
1) Trade credit is the credit extended by one trader to another for the purchase of goods and services.

2) Trade credit facilitates the purchase of supplies without immediate payment. Such credit appears in the records of the buyer of the goods as ‘sundry creditors’ or ‘account payable’. Trade credit is commonly used by business organisations as a source of short term financing.

Question 5.
Equity share
Answer:
1) These shares are also known as ordinary shares. Equity sharesholders are the real owners of the company, as these shares carry voting rights.

2) Equity shareholders are paid dividend after paying the preference shares. The rate of dividend depends upon the profits of the company.

Question 6.
Preference share.
Answer:
1) Preference shares have certain preferences as compared to equity shareholders.There is a preference for payment of dividend and also repayment of capital at the time of liquidation when the company has distributable profits, the dividend is first paid to preference shares. In the event of liquidation, after the payment of outside creditors, preference share capital is returned. Because of these preferences they are called as preference shares.

2) These shares do not carry any voting rights. Hence they cannot participate in the management.

Question 7.
Retained earnings.
Answer:
1) Ploughing back of profits or retained earnings refers to the process of reinvestment of the earnings year of after. In this technique all the profits are not distributed to shareholders. A part of the profits is retained in the business as a reserve.

2) These reserves are used to finance long-term and short-term needs of the company. It is also known as self financing or internal financing.

Question 8.
Deferred Shares.
Answer:
1) The rights of deferred shareholders with regard to payment of dividend and repayment of capital are deferred or postponed. These shareholders get their only when all the other shareholders are paid.

2) These shares are generally of small denomination. The management of the company remained in their hands by virtue of their voting rights. These shares were earlier issue to promoters or founders for services rendered to the company. Under the present act, a public company cannot issue deferred shares.

Question 9.
State Financial Corporation.
Answer:
1) The State Financial Corporation was established by the government of India in 1951 with a view to provide financial assistance to small and medium scale industries which are beyond the scope of industrial finance corporation of India.

2) Its share capital is subscribed by respective state governments, Reserve Bank of India, Life Insurance Corporation of India and commercial banks.

Question 10.
Commercial Banks.
Answer:
1) Commercial banks occupy a vital position as they provide funds for different purposes as well as for different periods. Banks extends loans to firms of all sizes and in many ways like cash credits, overdrafts, purchase / discounting of bills and issue of letter of credit.

2) The loan is repaid in lumpsum or installments. The borrower is required to provide some security or create a charge on the assets of the firm before the loan is sanctioned.

Question 11.
Financial Institutions.
Answer:
1) Another important source of raising finance is from the financial institutions like Industrial Finance Corporation of India, Industrial Development Bank of India, Industrial Credit and Investment Corporation of India.

2) Such institutions provide long-term and medium terms on easy installments to big industrial houses. Such institutions help in pomoting new companies and expansion and development of existing companies.

Question 12.
Industrial Development Bank of India.
Answer:
Industrial Development Bank of India was established in July 1964 by a special Act or Parliament. The IDBI’s whole paid up capital is held by the central government. The main objectives are:

To set up an apex institution to co-ordinate the activities of other financial institutions.
To promote participation of private capital.
To promote private ownership of industrial activities.

Question 13.
Industrial Finance Corporation of India.
Answer:
1) IFCI was the first development finance institution setup in 1948 under IFCI act inorder to pioneer long-term institutional credit to large and medium industries.

2) It is to provide financial assistance to industry by way of rupee and foreign currency loans, underwriting, subscribing the issue of shares, stocks, bonds and debentures of industries.

3) It has also diversified its activities in the field of merchant banking, syndication of loans, formulation of rehabilitation programmes, amalgamation and mergers etc.

Question 14.
Small Industrial Development Bank of India.
Answer:
1) SIDBI was setup by the government of India in April 1990 as a wholly owned subsidiary of IDBI. It is the principal financial institution for promotion, financing and development of small scale industries in the economy.

2) It aims to empower micro, small and medium enterprises sector with a view to contributing to the process of economic growth, employment generation and balanced regional development.

Question 15.
Global Depository Receipt.
Answer:
1) GDR is a bank certificate issued in more than one country for shares in a foreign company. There are more than 900 GDRs listed on exchange worldwide.

2) GDRs are mainly listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange and London Stock Exchange, Global depository receipts facilitate trade of shares several international banks issue GDRs such as Citigroup, J.P. Morgan, Bank of New York etc. A holder of GDR can convert into number of shares that it represents.

TS Inter 1st Year Commerce Study Material Chapter 9 Source of Business Finance

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