Business Studies Solved Question Papers' 2020 | AHSEC Class 12 Business Studies Solved Question Papers

[Class 12 Business Studies Solved question Paper, AHSEC, 2020, Assam Board]

Full Marks: 100
Time: 3 hours
The figures in the margin indicate full marks for the questions.

1. Answer the following questions: 1*10=10

(a) Write one important objective of management.                   1
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?                            1
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?                  1
Ans: As a part of economic reforms, the Government of India announced a new industrial policy in July 1991.
(d) Write True or False:
1)         Training is a systematic learning process.                   1              
Ans: True
2)         Setting the standard of performance is the first step in the control process.             1 
Ans: True
3)         Services can be stored.       1              
Ans: False
4)         Convenience products have a regular and continuous demand.                      1   
Ans: True
5)         ISI mark signifies Quality assurance on electrical goods.                     1              
Ans: True
2. What is meant by recruitment?                           2
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?                         2
Ans: Ratio analysis: It refers to analysis of financial statements by calculating various types of ratios. Some of the important ratios are current ratio, liquid ratio, debt-equity ratio, proprietary ratio, profitability ratios. These ratios help in knowing the operating efficiency and financial position of the company.
4. Write two features of Capital market.                              2
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.                               2
Ans: Difference Between Authority and Responsibility
Form of Difference
1. Meaning

2. Origin

3. Flow
4. Delegation

5. Period

6. Nature
7. Termination
It is a legal right to command and control subordinates.
It arises either from a formal contract or legal provision.
Authority always flows downward.
Authority can be delegated and shared.

It may continue. It has longer period than responsibility.
It is power.
Authority can be terminated by giving a notice.
It is the obligation of a sub-ordinate to perform the work assigned by his superior.
It arises from a superior-subordinate relationship.
Responsibility always flows upward.
Responsibility can be assigned but not delegated.
It comes to an end o the completion of the task.
It is duty.
It cannot be terminated so easily.
6. State two importance of supervision.                               2
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?                    3
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.                        3
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 diffe7rences 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.                             3
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.
State the three decisions involved in financial management.                    3
Ans: Decisions involved in financial management:
1. Investment decision: Funds procured from different sources have to be invested in acquiring fixed assets as well as current assets. When decision regarding fixed assets is taken it is called capital budgeting decision. A firm has many options to invest their funds but firm has to select the most appropriate investment which will bring maximum benefit for the firm and deciding or selecting most appropriate proposal is investment decision.
2. Finance decision: The second important decision which finance manager has to take is deciding source of finance. Under this decision finance manager has to decide how much to raise from owner’s fund and how much to raise from borrowed fund. This type of decision is also known as capital structure decision.
3. 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.
10. What are the legal protections offered to consumers under The Consumers Protection Act, 1986?
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.
a)      To remove the defect pointed out by the appropriate laboratory from the goods in question or;
b)      Replace the goods with new goods of similar description, which shall be free from any defect;
c)       Return to the complainant the price of the goods or the charges for the services rendered and / or;
Who is an entrepreneur? Mention the functions of an entrepreneur.                   3
11. Explain any three rights ensured to consumers in India.                        3
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 c777hoice of various goods and services of satisfactory quality and competitive price.
What do you understand by entrepreneurial attitude?                                 3
12. Discuss five principles of Management developed by Henry Fayol.                    5
Ans: Fayol suggested the following 14 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?          5
Ans: Coordination as an Essence of Management                           
Coordination, no doubt is the essence of management because all the managerial functions cannot be completed without proper coordination. It makes coordination as the soul of managerial operations. The significance of co-ordination can be verified by the fact that management experts such as Henry Fayol, R.C. Davis and Allen regard co-ordination as separate function of management. Coordination aims at creating harmonious relationship between departments, employees, manager and between workers and management. Effective coordination results in unity of action, Inspite of individual differences. It also results in integrated and balanced development, avoids overlapping and duplication of work and creates thrilling atmosphere of mutual confidence and co-operation. This is why; coordination is rightly said as the essence of management. Coordination exists in every function of management which is discussed below: (Process of coordination)
a)      Coordination through Planning: Planning facilitates coordination by integrating the various plans through mutual discussion, exchange of ideas. e.g., Coordination between finance budget and purchases budget.
b)      Coordination through Organizing: Coordination is very important at the time of organising. It is necessary when a manager groups or departments and assigns various activities to his subordinates or the departmental head.
c)       Coordination through Staffing: A manager should bear in mind that the right number of personnel in various positions with right type of education and skills are taken which will ensure right men on the right job.
d)      Coordination through Directing: The purpose of giving orders, instructions and guidance to the subordinates is served only when there is a harmony between superiors and subordinates.
e)      Coordination through Controlling: Manager ensures that there should be coordination between actual performance and standard performance to achieve organizational goals.
Now we can conclude that all the functions of management are affected by coordination. Hence coordination is essential for achieving the objectives of the organisation. It is also required for the survival, growth and profitability of the organisation. Coordination encourages team spirit, gives right direction, motivates employees, and makes proper utilisation of resources. Therefore, Coordination is rightly called the "Essence of Management".
Explain the techniques of scientific management.                          5
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.                  5
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:
a)      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.
b)      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.
c)       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.
d)      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.
e)      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.                  5
Difference between Functional Structure and Divisional Structure
Functional Structure
Divisional Structure
Basis of Formation
This structure is formed on the basis of function.
This structure is formed on the basis of production.
Accountability and responsibility
Difficult to make accountable as departments are interdependent.
Easy to fix the accountability as department work independently.
It is economical.
It is not very economical because all the resources are required in different departments.
Development of Managers
Less chance as manager becomes specialised in one function only.
More chances as managers perform multifunction.
This type of structure brings functional specialisation.
It brings product specialisation.
This type of organisation is suitable when only one product is manufactured.
This type of organisation is suitable when more than one product is manufactured.

16. State five disadvantages of internal sources of recruitment.     5
Ans: Disadvantages of Internal Source of Recruitment                                  
a)      Discourages new ideas: Recruitment of internals leads to inbreeding and discourages new blood with new ideas from entering into the organization.
b)      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.
c)       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.
d)      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.
e)      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.                          5
Ans: Functions of stock exchange                           
As the barometer measures the atmospheric pressure, the stock exchange measures the growth of the economy. It performs the following vital functions:
1.       Ready market and liquidity: Stock exchange provides a ready and continuous market where investors can convert their money into securities and securities into money easily and quickly. It provides a convenient meeting place for buyers and sellers of securities.
2.       Evaluation of securities: Stock exchange helps in determining the prices of various securities that reflect their real worth. The forces of demand and supply act freely in the stock exchange and help in the valuation of securities.
3.       Mobilisation of savings: Stock exchange helps in mobilising surplus funds of individuals and institutions for investment in securities. In the absence of facilities for quick and profitable disposal of securities, such funds may remain idle.
4.       Capital formation: Stock exchange not only mobilises the existing savings but also induces the public to save money. It provides avenue for investment in various securities which yield higher returns. It helps in allocation of available funds into the most productive channels.
5.       Regulation of corporate sector: Stock exchanges frame their rules and regulations. Every company which wants its securities to be dealt in at the stock exchange has to follow the rules framed by the stock exchange in this regard.
6.       Economic barometer: Stock exchange is very sensitive barometer of business conditions in the country. Booms, depressions and other important events affect prices of securities. Price trends on the stock 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.
7.       Encourages Industrialization: The stock exchange provides capital to industry and commerce. They provide finance to the Govt.
8.       Helps government in the Policy Formulation: All the government policies have their clear reflection on the national science through stock exchange whether they are economic policies or monetary or fiscal.

18. What is publicity? Distinguish between advertising and publicity.                   2+3=5
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
The activity of generating advertisements of products and services to commercialize them is known as Advertising.
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.
Given by
It is done by company and its representative.
It is done by third party.
It is a paid form of communication.
It is unpaid form of communication.
Credibility and reliability
Credibility and reliability is more as compared to publicity.
 Credibility and reliability is less.
There is complete control over advertisement.
There is no control over publicity.
Explain the functions of marketing.                        5
Ans: Functions of Marketing / Marketing activities
a)      Marketing research : Marketing research means Gathering and analysing marketing information i.e. what the customers want to buy, when they are likely to buy in what quantities do they buy, from where do they buy etc.
b)      Marketing planning: Specific plan for increasing the level of production, promotion of the products etc must be designed and the action programmes are formulated to achieve these objectives.
c)       Product designing and development: Marketer must take decision like, what to product? Which model? What will be the size? Brand name? Packaging quality? Quality level of product? So that customer needs are satisfied.
d)      Buying and assembling: Buying of raw materials and assembling them into finished product is an important function of marketing manager.
e)      Packing and labeling: Packaging is an essential ingredient for the promotion and marketing of any product. Marketing manager must decide the packaging quality and labeling before starting selling of products.
f)       Branding: Creating a distinct identity of the product from that of competitors e.g. Videocon washing machine is an important function. A good brand helps any product to survive in the competitive market.
19. What do you mean by delegations of authority? What are its elements? Why delegation of authority is considered essential in management?                          2+2+4=8
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.
d)      Employee development: As a result of delegation, employees get more opportunities to utilize their talent. It allows developing those skills which will improve their career prospects.
e)      Reduce the work load of managers: Managers can reduce their workload by sharing their responsibilities and work with the subordinates.

What are the steps in the process of Organising? State four points explaining the importance of Organising.    3+5=8
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.  2+6=8
Ans: Training: Training means equipping the employees with the required skill to perform the job. The candidates are sent for training so that they can perform the job in the expected manner.
Methods of Job Training:
a)      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.
b)      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.
c)       Films: Showing films is also a very effective method in certain cases. Films can give important information on various techniques through demonstrative skill.
d)      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.
e)      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.
f)       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.
Explain the importance of staffing. Distinguish between recruitment and selection.    5+3=8
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, 7research & 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.                       
It is the process of searching and Motivating candidates to apply for Job.
It is that process of staffing which rejects the unsuitable candidates and choose the suitable candidates.
The basic purpose is to create a large pool of applicants for the jobs.
The basic purpose is to eliminate as many candidates as possible until the most suitable candidates get finalized.
Recruitment is restricted to the extent of receipt of application.
Selection includes sorting of the candidates.
Positive /Negative process
Recruitment is a positive process. As more and more applicant are sought to be attracted.
Selection is a negative process as more applicants are rejected than selected.
It gives freedom to applicants. Any one is free to apply.
It gives very little freedom to applicants. Applicants must meet the selection criteria.
21. Discuss four internal and external factors affecting capital structure decision of a company.   4+4=8
Ans: Following Internal and External factors are to be considered before determining capital structure.
Internal Factors
1.       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.
2.       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.
3.       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.
4.       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
5.       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.
6.       Regulatory framework: Before determining the capital structure of a company, the guidelines of SEBI and concerned regulatory authority is to be considered.
7.       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.
8.       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.
What are the aspects of dividend decision? Explain six factors affecting dividend decision of a company.           2+6=8
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.                  2+6=8
Ans: SECURITIES AND EXCHANGE BOARD OF INDIA: With the growth in the dealings of stock markets, lot of malpractices also started in stock markets such as price rigging, ‘unofficial premium on new issue, and delay in delivery of shares, violation of rules and regulations of stock exchange and listing requirements. Due to these malpractices the customers started losing confidence and faith in the stock exchange. So government of India decided to set up an agency or regulatory body known as Securities Exchange Board of India (SEBI). Securities Exchange Board of India (SEBI) was set up in 1988 but legal status is granted in May 1992. SEBI is a body corporate having a separate legal existence and perpetual succession.
Functions of SEBI: The SEBI performs functions to meet its objectives. To meet three objectives SEBI has three important functions. These are:
i. Protective functions                                   
ii. Developmental functions                       
iii. Regulatory functions.
1. Protective Functions: These functions are performed by SEBI to protect the interest of investor and provide safety of investment. As protective functions SEBI performs following functions:
(i) It Checks Price Rigging. SEBI prohibits such practice because this can defraud and cheat the investors.
(ii) It Prohibits Insider trading. SEBI keeps a strict check when insiders are buying securities of the company and takes strict action on insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices. SEBI does not allow the companies to make misleading statements which are likely to induce the sale or purchase of securities by any other person.
(iv) SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various companies and select the most profitable securities.
(v) SEBI promotes fair practices and code of conduct in security market by taking following steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders wherein companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has provisions for stiff fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices.
2. Developmental Functions: 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.
3. Regulatory Functions: These functions are performed by SEBI to regulate the business in stock exchange. To regulate the activities of stock exchange following functions are performed:
(i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.
(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner.
(iv) SEBI registers and regulates the working of mutual funds etc.
(v) SEBI regulates takeover of the companies.
(vi) SEBI conducts inquiries and audit of stock exchanges.
Distinguish between money market and capital market. Explain the features of money market.  3+5=8
Ans: Difference between capital market and money market
Basis of  Distinction
Capital Market
Money Market
1)   Period
Capital market is a market for medium and long term funds.
Money market is a market for short term funds.
2)   Constituents
These include new issue market, stock market, stock brokers and intermediaries.
These include call money market, bill market and discounting market.
3)   Participants
Individual and institutional investors operate in the capital market.
Only the institutional investors operate in the money market.
4)   Instruments
The instruments in the capital market include shares, debentures, bonds etc.
Trade bills, certificate of deposits, commercial papers etc. are the instruments of money market.
5)   Liquidity
The instruments of capital market always take time to convert into cash.
The instruments of money market have very high degree of liquidity.
6)   Safety
Investments are unsecured due to high volatility in market.
Investment are safe as compared to capital market.
7)      Regulation
Capital market is primarily regulated by the Securities and Exchange Board of India (SEBI)
Money market is regulated by the Reserve Bank of India (RBI)
Features of Money Market: The salient features of money market are as follows: 2020
a)      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.
b)      No fixed geographical location: There is no fix geographical location of money market. Different name is given to money market located in different areas.
c)       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.
d)      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.
e)      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.
f)       Reasonable access: Money market provides reasonable access to users of short-term funds to meet their requirements on reasonable terms or rates of interest.
g)      Source of working capital: Money market constitutes a major source of working capital finance for borrowers.

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