Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

The regulatory body ________ introduced the concept of ADR.

commerce sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

  1. Securities Exchange Commission (SEC)

  2. SEBI

  3. RBI

  4. Imperial Bank

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Correct Option: A
Explanation:

The regulatory body Securities Exchange Commission introduced the concept of ADR.American Depository Receipt (ADR) is a certified negotiable instrument issued by an American bank suggesting the number of shares of a foreign company that can be traded in U.S. financial markets. Common types of ADR are: mediation, concilation, arbitration.

_____ is/are the disadvantage(s) of Global Depository Receipts.

commercial studies sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

  1. Dividends are paid in domestic countrys currency which is subject to volatility in the forex market.

  2. It is mostly beneficial to High Net-Worth Individual (HNI) investors.

  3. GDR is one of the expensive sources of finance.

  4. All of the above

Show answer
Correct Option: D
Explanation:
GDR is a foreign currency denominated derivative instrument in the form of depository receipt created outside India and issued to non-resident investors. GDR stands for Global Depository Receipt. It is a bank certificate issued in more than one country for shares in a foreign company. Disadvantages of GDR are:
a) Dividends are paid in domestic countrys currency which is subject to volatility in the forex market.
b) It is mostly beneficial to High Net-Worth Individual (HNI) investors.
c) GDR is one of the expensive sources of finance.

Which is the next step of GDR mechanism, after the overseas depository bank enter into a custodian agreement with the domestic custodian of such company?

commercial studies sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

  1. On the instruction of domestic custodian, the overseas depository bank issues shares to foreign investors.

  2. The domestic custodian holds the equity shares of the company.

  3. The domestic company enters into an agreement with the overseas depository bank for the purpose of issue of GDR.

  4. The whole process is carried out under strict guidelines.

Show answer
Correct Option: B
Explanation:

After the overseas depository bank enter into a custodian agreement with the domestic custodian of such company, the next step of GDR mechanism is: the domestic custodian holds the equity shares of the company.  Hence the equity shares is held by the domestic custodian when the overseas depository bank signs the agreement.

Depository bank has right to issue one GDR certificate for _______ shares.

commercial studies sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

  1. 2 to 10

  2. 3 to 5

  3. 4 to 8

  4. 5 to 10

Show answer
Correct Option: A
Explanation:

GDR is a foreign currency denominated derivative instrument in the form of depository receipt created outside India and issued to non-resident investors. GDR stands for Global Depository Receipt. It is a bank certificate issued in more than one country for shares in a foreign company.Depository bank has right to issue one GDR certificate for 2 to 10 shares.

GDRs can not be directly issued to foreign investors.

commercial studies sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

GDRs can not be directly issued to foreign investors- this is a true statement.GDR is a foreign currency denominated derivative instrument in the form of depository receipt created outside India and issued to non-resident investors. GDR stands for Global Depository Receipt. It is a bank certificate issued in more than one country for shares in a foreign company.

Lessor gets fixed amount of lease rental every year and they cannot increase this even if the cost of asset goes up.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Lessor gets fixed amount of lease rental every year and they cannot increase this even if the cost of asset goes up- this is a true statement.While making the leasing decision, the cost of leasing an asset must be compared with the cost of owning the same.

Lease rentals paid by the lessee are deductible for computing taxable profits.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

The lessee never becomes the owner of the asset. A person who holds an property is known as lessee.Lease rentals paid by the lessee are deductible for computing taxable profits- this is a true statement.

Match the statements in List-I with the types of lease in the List-II as follows:

List - I List - II
(a) Lessor transfers all risks and rewards of an asset to the lessee. (i) Indirect lease
(b) Lessor transfers the assets to the lessee but bears the cost of maintenance (ii) Operating lease
(c) The owner of the asset sells it to turn leases it back to the owner (now lesser) (iii) Finance lease
(d) Lessor owns/ acquires the assets that are leased to a given lesser. (iv) Direct lease
commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. $(a) - (ii), (b) - (iii), (c) - (iv), (d) - (i)$

  2. $(a) - (i), (b) - (iv), (c) - (ii), (d) - (iii)$

  3. $(a) - (iii), (b) - (ii), (c) - (i), (d) - (iv)$

  4. $(a) - (iv), (b) - (i), (c) - (iii), (d) - (ii)$

Show answer
Correct Option: C

The demand for leasing is steadily increasing as economic growth can be maintained even during the period of depression.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

The demand for leasing is steadily increasing as economic growth can be maintained even during the period of depression- this is a true statement. For using an asset, a contract has to be made between the leaser and the leasee, which is known as a lease.

The _____ never becomes the owner of the asset.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. lessee

  2. bank

  3. hypothicatee

  4. franchisee

Show answer
Correct Option: A
Explanation:

The lessee never becomes the owner of the asset. A person who holds an property is known as lessee.