Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

Companies generally invite public deposits for a period upto ________ years.

commercial studies sources of business finance - 2 public deposits non-institutional sources - medium-term financing lease financing

  1. One

  2. Two

  3. Three

  4. Four

Show answer
Correct Option: C
Explanation:
The deposits that are raised by organisations directly from the public are known as public deposits. The organization in return issues a deposit receipt as acknowledgement of the debt. Public deposits can take care of both short-term or medium-term financial requirements. Companies generally invite public deposits for medium-term period upto three years.

Cost of public deposits is generally _______ than the cost of borrowings from banks and financial institutions.

commercial studies sources of business finance - 2 public deposits non-institutional sources - medium-term financing lease financing

  1. Higher

  2. Lower

  3. Equal

  4. None of the above

Show answer
Correct Option: B
Explanation:
The deposits that are raised by organisations directly from the public are known as public deposits. Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions.

The deposits that are raised by organisations directly from the public are known as __________.

commercial studies sources of business finance - 2 public deposits non-institutional sources - medium-term financing lease financing

  1. Lease finance

  2. Public deposits

  3. Commercial paper

  4. Trade credit

Show answer
Correct Option: B
Explanation:

The deposits that are raised by organisations directly from the public are known as public deposits. Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions. Public deposits are beneficial to both depositor as well as the organization. 

Rates of interest offered on public deposits are usually _________ than that offered on bank deposits.

commercial studies sources of business finance - 2 public deposits non-institutional sources - medium-term financing lease financing

  1. Higher

  2. Lower

  3. Equal

  4. Both a and b

Show answer
Correct Option: A
Explanation:
The deposits that are raised by organisations directly from the public are known as public deposits. Rates of interest offered on public deposits are usually higher than that offered on bank deposits. 

Any person who is interested in depositing money in an organisation can do so by filling up a prescribed form. The organisation in return issues a deposit receipt as acknowledgment of the debt.

Collection of public deposits may prove difficult, particularly when the size of deposits required is _________.

commercial studies sources of business finance - 2 public deposits non-institutional sources - medium-term financing lease financing

  1. Large

  2. Small

  3. Medium

  4. Both a and b

Show answer
Correct Option: A
Explanation:

The deposits that are raised directly from the public are public deposits. Any person who is interested in depositing money in an organisation can do so by filling up a prescribed form. the cost of deposits to the company is less than the cost of borrowings from banks. But Collection of public deposits may prove difficult, particularly when the size of deposits required is large.

Public investment in a company is generally in the form of_______________.

commercial studies sources of business finance - 2 public deposits non-institutional sources - medium-term financing lease financing

  1. Shares, debentures and deposits

  2. Purchase of goods

  3. Money Transfer

  4. None of the above

Show answer
Correct Option: A
Explanation:

Public investment in a company is generally in the form of shares, debentures and deposits. It means public can invest in a company by purchasing shares, debentures and deposits.

Commercial papers provide _______ funds as compared to other sources.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. less

  2. more

  3. medium

  4. equal

Show answer
Correct Option: B
Explanation:
The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time. Commercial paper provides more funds as compared to other sources. 

A commercial paper is sold on an __________ basis and does not contain any restrictive conditions.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Secured

  2. Unsecured

  3. Both a and b

  4. None of the above

Show answer
Correct Option: B
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties.

Commercial paper is sold on an unsecured basis and does not contain any restrictive conditions. It is issued by one firm to another business firm, insurance companies, banks etc.

Which one of the following is not a merit of commercial paper?

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. A commercial paper is sold on an unsecured basis.

  2. As its is a freely transferable instrument, it has high liquidity.

  3. Only financially sound and highly rated firms can raise money through commercial papers.

  4. Companies can park their excess funds in commercial paper

Show answer
Correct Option: C
Explanation:

One of the demerits of commercial paper is that only financially sound and highly rated firms can raise money through commercial paper as it is an unsecured promissory note issued by a firm to raise funds for a short period of time.

The maturity period of a commercial paper usually ranges from ________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. 20 to 40 days

  2. 60 to 90 days

  3. 120 to 365 days

  4. 90 to 364 days

Show answer
Correct Option: D
Explanation:

Commercial paper is  issued by a firm to raise funds for a short period of time, the time can be ranging from 90 days to 364 days after which it has to be redeemed. Commercial paper is an unsecured promissory note.