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CBSE Sample Papers for Class 11 Business Set 1 with Solutions

Students must start practicing the questions from CBSE Sample Papers for Class 11 Business with Solutions Set 1 are designed as per the revised syllabus.

CBSE Sample Papers for Class 11 Business Set 1 with Solutions

Time : 3 Hours
Maximum Marks : 80

General Instructions:

  1. This question paper contains 34 questions.
  2. Marks are indicated against each question.
  3. Answers should be brief and to the point.
  4. Answers to the questions carrying 3 marks may be from 50 to 75 words.
  5. Answers to the questions carrying 4 marks may be about 150 words.
  6. Answers to the questions carrying 6 marks may be about 200 words.
  7. Attempt all parts of the questions together.

Question 1.
Himanshu has been running a textile mill. He wants to expand his business for which he is recruiting a huge manpower force. Which objective of business is being discussed in the above lines? [1](A) Social objective
(B) Economic objective
(C) Political objective
(D) Both (A) and (B)
Answer:
Option (D) is correct.
Explanation: Social Objective by recruiting manpower ‘or’ Economic objective by growing business.

Question 2.
Mr. Himanshu is the karta of HUF business. He has the absolute power of taking business decisions and his decisions are binding on the other members. Once he took a wrong decision of buying a machinery which soon got obsolete and the business suffered the heavy loss.
Identify the limitation of HUF highlighted here [1](A) Limited resources
(B) Unlimited liability of Karta
(C) Dominance of Karta
(D) Limited managerial skills
Answer:
Option (B) is correct
Explanation: The Karta of the family has unlimited liability, also he is not responsible to any member of the family except in case of fraud or misappropriation. Although the senior-most male member of the family is the Karta, a junior member can also become the Karta if all the coparceners agree to it.

Question 3.
What is the maximum amount that can be invested in equipment by a Medium enterprise engaged in rendering
services? [1](A) ₹2 crore
(B) ₹3 crore
(C) ₹4 crore
(D) ₹5 crore
Answer:
Option (D) is correct
Explanation: An enterprise, engaged in providing or rendering of services is said to be:
(a) a micro enterprise, where the investment in equipment does not exceed ₹10 lakhs;
(b) a small enterprise, where the investment in equipment is more than ₹10 lakhs but does not exceed ₹2 crore;
(c) a medium enterprise, where the investment in equipment is more than ₹2 crore but does not exceed ₹5 crore.

Question 4.
Which is the e-business application that involves the online buying and selling of shares and other financial instruments? [1](A) e-Delivery
(B) e-Promotion
(C) e-Bidding
(D) e-Trading
Answer:
Option (D) is correct.
Explanation: e-Trading involves securities trading, that is online buying and selling of shares and other financial instruments.

Question 5.
The Head of the joint Hindu family business is called: [1](A) Proprietor
(B) Director
(C) karta
(D) Manager
Answer:
Option (C) is correct
Explanation: The head of the Hindu Joint Family also called the Karta or manager of the joint family occupies a unique position unlike any other member of the family. The senior most male member of the Hindu joint family is usually the Karta or head of the family.

Question 6.

Identify the economic activity depicted in the picture. [1](A) Business
(B) Profession
(C) Employment
(D) All of the above
Answer:
Option (B) is correct.
Explanation: A doctor treating a patient is a professional activity. A doctor needs to get specialised knowledge and has to be associated with the Medical Council of India to practice. A Code of conduct also exists for the doctors which makes this a full-fledged profession.

Question 7.
Business finance refers to the requirements of funds by business to carry out its various activities. Hence, finance
is called the life ……………….. of any business. [1](A) Blood
(B) Brain
(C) Heart
(D) None of these
Answer:
Option (A) is correct.
Explanation: Business is concerned with the production and distribution of goods and services for the satisfaction of needs of society. For carrying out various activities, business requires money. Finance, therefore, is called the life blood o f any business. The requirements of funds by business to carry out its various activities is called business finance.

Question 8.
The business assets of a firm amount to ₹22,000 but the liabilities stand at ₹47,000. What course of action can the
creditors take if it is a sole proprietorship firm? [1](A) Creditors can settle their account only to the extent of business assets available i.e. ₹22,000.
(B) Besides using business assets of ₹22,000, creditors can use the personal property of the owner to the extent of ₹25,000.
(C) Creditors can settle their account only to the extent of owner’s personal assets available.
(D) None of these
Answer:
Option (B) is correct.
Explanation: In case of sole proprietorships firm the liability of the owner is unlimited so the creditors can take the personal property of the owner for ₹25,000 and can have ₹22,000 by selling the assets of the organisation.

Question 9.
Which of the following is incorrect regarding social responsibility? [1](A) It involves an element of voluntary action on the part of business.
(B) It involves the question of what is morally right or wrong in relation to the firm’s responsibilities.
(C) It involves the obligation to take decisions and perform actions which are desirable in terms of the objectives and values of our society.
(D) All the statements are correct.
Answer:
Option (D) is correct.
Explanation: Social responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and values of our society. The assumption ‘ of social responsibilities by business enterprises implies that they respect the aspirations of society and would try their best to contribute to the achievement of these aspirations along with their profit interests.

Question 10.
Read the following statements: Assertion (A) and Reason(R). Choose the correct alternative from those given
below: [1]Assertion[A]: Commerce refers to all those activities which are concerned with the transfer of goods and services from the producers to the consumers.
Reason[R]: Commerce embraces all those activities which are considered necessary for maintaining free flow of goods and services. It includes trade and auxiliaries to trade.
Alternatives:
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
(B) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
(C) Assertion (A) is true but Reason (R) is False
(D) Assertion (A) is False but Reason (R) is True.
Answer:
Option (A) is correct

Question 11.
This Bank has the largest market capitalisation and most number of branches in India as compared to any other
banking company. Name the bank that is being mentioned above. [1](A) State Bank of India
(B) ICICI Bank
(C) Reserve Bank of India
(D) Punjab National Bank
Answer:
Option (A) is correct
Explanation: State Bank of India (SBI) a Fortune 500 company, is an Indian Multinational, Public Sector Banking and Financial services statutory body headquartered in Mumbai. The rich heritage and legacy of over 200 years, accredits SBI as the most trusted Bank by Indians through generations.

Question 12.
Which of the following is a source for raising borrowed funds? [1](A) Equity Shares
(B) Preference Shares
(C) Loans from financial institutions
(D) Retained Earnings
Answer:
Option (C) is correct.
Explanation: Financial institutions are established by the central as well as state governments. They provide both owned capital and loan capital for long- and medium-term requirements and supplement the traditional financial agencies like commercial banks.

Question 13.
Statement I: e-business is more comprehensive than e-commerce.
Statement II: e-Commerce includes not only e-business but also comprises various other business transactions. Choose the correct option from the following: [1](A) Statement I is true and II is false
(B) Statement II is true and I is false
(C) Both the statements are true
(D) Both the statements are false
Answer:
Option (A) is correct.
Explanation: E-business has a wider scope than e-commerce. It includes e-commerce and several other activities.

Question 14.
Raising money through retained earnings involves which of the following explicit costs? [1](A) Interest
(B) Dividend
(C) Flotation cost
(D) No explicit cost is incurred
Answer:
Option (D) is correct
Explanation: 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 flotation cost. As the funds are generated internally, there is a greater degree of operational freedom and flexibility.

Question 15.
These shareholders do not get the right to participate in the annual meeting of the company but get the preferential right for the payment of dividend. Name the type of shareholders that are being mentioned in the above lines. [1](A) Equity Shares
(B) Debentures
(C) Preference Shares
(D) None of the above
Answer:
Option (C) is correct.
Explanation: Preference shares, also called preferred stocks, enable preference shareholders to receive dividends announced by companies before ordinary shareholders.

Question 16.
Statement I: Entrepreneurship is the process of setting up one’s own business as distinct from pursuing any other economic activity.
Statement II: Entrepreneurship development is the means of enhancing the knowledge and skill of entrepreneurs through several classroom coaching and programs, and training.
Choose the correct option from the following: [1](A) Statement I is true and II is false
(B) Statement II is true and I is false
(C) Both the statements are true
(D) Both the statements are false
Answer:
Option (C) is correct

Question 17.
Which of the following are fixed shop retailers?
(A) Market traders
(B) Pavement vendors
(C) Cheap jacks
(D) Speciality shops
Answer:
Option (D) is correct
Explanation: Instead of selling a variety of products of different types, these retail stores specialise in the sale of a specific line of products. For example, shops selling children’s garments, men’s wear, ladies shoes, toys and gifts, school uniforms, college books or consumer electronic goods, etc. These are some of the commonly found stores of this type in the marketplace

Question 18.
Match the following:

1. Large Scale Industry (A) More than ₹25 lakh and up to ₹5 crores
2. Medium Scale Industry (B) More than ₹10 crores.
3. Small Scale Industry (C) More than ₹5 crores and up to ₹10 crores.
4. Micro Enterprise (D) Up to ₹25Lakhs

(A) 1. (C), 2. (A), 3. (D), 4. (B)
(B) 1. (B), 2. (C), 3. (A), 4. (D)
(C) 1. (D), 2. (A), 3. (B), 4. (C)
(D) 1. (A), 2. (D), 3. (B), 4. (C)
Answer:
Option (B) is correct

1. Large Scale Industry (B) More than ₹10 crores.
2. Medium Scale Industry (C) More than ₹5 crores and up to ₹10 crores.
3. Small Scale Industry (A) More than ₹25 lakh and up to ₹5 crores
4. Micro Enterprise (D) Up to ₹25Lakhs

Question 19.
e-commerce offers many benefits to the consumers. Which of the following is not a benefit resulting from
e-commerce? [1](A) Flexibility
(B) More options and choices
(C) Quick and Timely delivery
(D) Narrow outreach
Answer:
Option (D) is correct
Explanation: Outreach marketing is a strategy that involves getting your business, brand, products, services, or messaging out in front of influential sources who are connected to your target market and can promote you to their followers.

Question 20.
Proforma invoice contains information about the product. It is sent by ……………… to ………………… ? [1](A) Exporter, Exporter
(B) Exporter, Importer
(C) Importer, Exporter
(D) Importer, Importer
Answer:
Option (B) is correct
Explanation: A proforma invoice is a document that contains details as to the quality, grade, design, Size, weight and price of the export product, and the terms and conditions on which their export will take place.

Question 21.
India’has emerged as a low cost back office, manufacturing and research base, thanks to its skilled but relatively
cheap manpower. Thus, in recent times, India has become an attractive destination for MNCs. But it is said that multinational corporations are of great advantage but they are not free from ill effects. Explain any three ill effects of multinational corporations. [3]Answer:
Limitations or ice-effects of multinational corporations are as follows:

  • Disregard of national objectives: Sometimes, the multinational companies disregard the national objectives. As a result, planning done by the government falls in vain.
  • Depletion of national resources: Multinational companies are set up with profit motive only. They exploit the natural resources in an unbalanced manner. So, it is harmful for the economies.
  • Threat of obsolete technology: Sometimes in the ‘technology transfer’ process, obsolete technology is transferred as a result of which the diseconomies of scale prevail.
  • Unhealthy competition: Multinational companies enjoy economies of scale and the cost of production is less as compared to other companies. It provides a threat to the domestic industry.
  • Threat to national sovereignty and integrity: Multinationals are a severe threat to national sovereignty and integrity of the nation. History has instances to prove this like East India Company ruled India for many decades.
  • Oligopolist power: It means when power is concentrated in the hands of a few companies, only takeovers are often exercised by multinationals. (Any three)

Question 22.
Mention three special features of Inter-corporate deposits. [3]OR
Discuss any three institutional sources from which a large industrial enterprise can raise capital for financing modernisation and expansion. [3]Answer:
The main features of inter-corporate deposits are as follows:

  1. Period of deposit: Minimum period for which ICD is deposited is 90 days and maximum period is 180 days. However, after the expiry of this period, the deposit may be renewed if both the parties agree.
  2. Amount of deposit: Minimum deposit amount which can be raised is 1 lakh and there is no limit on the maximum amount.
  3. Interest rate: Interest rate varies from 12% to 17% per annum.

OR
Sources are as follows:

  • Industrial Finance Corporation of India: It was established in July 1948. IFCI has contributed a lot to the development of management education in the country. The main function is to provide finance to private sector units.
  • State Financial Corporations: It was established in the year 1951 by SFC Act. It provides short term loans to the business units.
  • Industrial Credit and Investment Corporation of India (ICICI): It was formed in the year 1955 as a private limited company. It provides long term finance to private sector units.
  • Unit Trust of India: It was established by government of India in 1964 under the Unit Trust of India Act 1963. Its main objective is to mobilise the community’s savings into the productive ventures. Other important financial institutions are LIC, IDBI, SIDBI, SIDC etc. (Any three)

Question 23.
Naresh took a fire insurance policy from NICL of ₹50 Lakh for his factory at the annual premium of ₹75,000. In order to avoid premium more than his amount, he did not disclose that highly explosive chemicals are being manufactured in his factory. Due to fire, his factory was damaged. The insurance company, NICL refused to make
the payment for claim as it came to know about the highly explosive chemicals.
Is Naresh entitled to claim? Explain the principle of insurance violated by Naresh. [3]Answer:
No, Naresh is not entitled to receive the claim because he has violated the principle of ‘Utmost Good Faith’.

Good faith or disclosure of all material facts: An insurance contract is a contract of good faith. Both parties to the contract are bound to likely affect the acceptance of the proposal by the insurance company. It is known as a contract uberrimae fidei, i.e. contract requiring absolute good faith and the disclosure of all material facts.

Question 24.
A factory owner gets his stock of goods insured, but he hides the fact that the electricity board has issued him a
statutory warning letter to get his factory’s wiring changed. Later on, the factory catches fire due to short circuit of wring. Can he claim for compensation? If yes, explain. [3]OR
Explain the classification of sources of funds on the basis of period. [3]Answer:
No, he cannot claim the compensation, as he has violated the principle of utmost good faith. He should have disclosed all the material facts to the insurance company.
OR
The sources of funds on the basis of period can be classified into three parts:

  1. Long-term sources: It includes those sources which are required by the business firms for a period exceeding 5 years. For example, shares, debentures.
  2. Medium-term sources: It includes those sources which are required for a period of more than a year but less than 5 years. For example, public deposits, borrowings from Commercial Banks.
  3. Short-term sources: It includes those sources which are required by business firms for a period of less than 1 year. For example, trade credit, commercial papers.

Question 25.
Explain any two merits and two demerits of raising funds through preference shares. [4]OR
State the limitations of equity shares. [4]Answer:
Merits:

  1. Preference share capital cannot be redeemed during the life span of the company. Hence, these are the sources of permanent capital.
  2. The cost of issuing preference shares is economical.

Demerits:

  1. The dividend paid to the preference shareholders is not a deductible expense while computing the tax liability of the company.
  2. Investors willing to take risk and earn higher profit do not prefer preference shares.

OR
Limitations of Equity Shares:

  1. The voting power and earnings of existing equity shareholders is affected by issue of additional equity shares.
  2. Raising funds through issue of equity shares involves a lot of formalities and a lengthy procedure.
  3. Since the dividend payable to equity shareholders keeps on fluctuating, investors who want steady income do not prefer them.
  4. The cost of raising funds through equity shares is generally more as compared to other sources.

Question 26.
Explain the following features of a Multinational Company. [4](A) Centralised control
(B) Modern Technology and management practices
OR
What role does the small-scale industries play in the following areas:
(A) Employment Generation
(B) Increase of output
(C) Balanced regional development
(D) Reduction in income inequalities [4]Answer:
Features of MNCs:
(A) Centralised control: MNCs have a centralised control system. All the decisions for subsidiaries or branches are taken by the headquarters of MNCs. Headquarter of MNCs exercises control over their foreign subsidiaries.

(B) Modern technology and management practices: Most of the MNCs compete in the international markets on the basis of their modern technology and efficient management practices. In fact, these global enterprises are sources of spreading modern technology and management practices in the world.
OR
Role of Small Scale Industries in India:
In India more than 65% of total population lives in rural areas. These areas have been deprived of the benefits of industrialization and economic development. In the light of this, small business has good opportunity to play its role in these areas. This role is as follows:

(A) Generation of employment: The SSIs account for 95% of industrial units in India. They provide more employment than the large scale industries. They are the second largest employment generator after agriculture.

(B) Increase in Output: SSIs contribute nearly 40% of the gross industrial value added of the country. They produce a large variety of products – garments, plastic goods, toiletries, food items, handicrafts, leather and rubber goods, etc.

(C) Balanced regional development: The SSIs produce simple goods using simple technologies. They can be set up anywhere in the country, using local resources. Thus, they lead to balanced regional development of the country.

(D) Reduction in income inequalities: They reduce income inequalities between rural and urban areas and contribute towards equitable distribution of income and wealth. This leads to improvement in standard of living of the rural population.

Question 27.
In order to promote infrastructural development in the country with active participation of private sector, which
type of business partnership would you suggest to the government? Also enumerate three features of such partnership. [4]Answer:
I would suggest for Public-Private Partnership.
The features of PPP are as follows:

  1. It is a contractual relationship between government and private sector organisation for implementing a project for public benefit.
  2. PPP is confined to a particular project for a specific area like its operation or maintenance or management.
  3. Selection of the private partner is done by the
    government through competitive bidding or competitive negotiations.

Question 28.
Identify and explain the features of sole proprietorship shown in following statement sentences : [4](i) He can carry out his plans without any interference from others.
(ii) He receives all the business profits which become a direct reward for his risk bearing.
Answer:
(i) The feature indicated here is ‘Control’. The right to run the business and make all the decisions lies absolutely with the sole proprietor. He ‘ needs not to take consent of anyone else while taking decisions. He solely controls his business.

(ii) The feature shown in the sentence is ‘Sole risk bearer and the profit recipient’ As the sole proprietor is the only owner of the business, therefore the risk of failure of business or profit earned by successfully running the business are enjoyedby him all alone.

Question 29.
Identify the economic activities in the following case and classify them into Primary, Secondary and Tertiary industries.
(i) Mohan, a farmer producing wheat.
(ii) Raj, the owner of a cotton textile firm.
(iii) Ramesh, is working as a peon in an oil refinery.
(iv) Krishna, is running her advertisement agency. [4]Answer:
(i) Farmer-Business-Primary industry.
(ii) Owner of a cotton textile firm-Business secondary industry.
(iii) Peon-Employment-Secondary industry.
(iv) Advertisement agency-Business-Tertiaryindustry.

Question 30.
Rashmi wants to setup a co-operative society which can protect the farmers in rural areas from the exploitation of money lenders who charge high rates of interest on loans. Through this, she will also promote saving habits in them. [4](i) Identify the type of co-operative society she will form? What are the functions of such co-oprative society?
(ii) What two values are communicated to society by setting up such societies?
Answer:
(i) Rashmi will form a credit co-operative society. The functions of such co-operative society are to provide loans to members out of the amounts collected as capital and to collect deposits from the members.

(ii) Values communicated are (a) Mutual help, (b) Promotion of savings habits (c) Increasing rate on capital formation (d) Protection of farmers from the money lenders.

Question 31.
(i) Explain the types of international business:
(a) Export
(b) Import
(c) Enrepot
(ii) Point out any three disadvantages of international trade for the underdeveloped and developing countries. [6]OR
(i) Differentiate between the following:
(a) Sight and usance drafts.
(b) Bill of lading and airway bill.
(c) Pre-shipment and post-shipment finance.
(ii) What are the different documents related to payment? [3 + 3 = 6]Answer:
(i) International business are as follows:
(i) Export: It involves selling of goods and services to other countries.
(ii) Import: It involves buying of goods and services from other countries.
(iii) Entrepot (re-export): It involves import of goods not to be used in home country but for exporting them to another country.

(ii) Following are the disadvantages:
(a) Economic Dependence: Most of underdeveloped and developing countries are totally dependent on the exporting countries for importing the goods and services for their economic development. Too much dependence on exporting countries has serious political and socio¬economic implications.

(b) Dumping of goods: Many exporting countries in order to capture the market in underdeveloped countries, dump their goods at throw away prices. Though such goods are inferior and have shorter life; they attract customers in importing countries which results in cut throat competition to domestic industries.

(c) Adverse effect on BOP: Because of relatively more freedom in international trade, the underdeveloped and developing nations are not in a position to compete with developed countries due to lack of competence. Thus, balance of trade remains negative on long-term basis.
OR
(i) (a) Sight and usance drafts: In the case of sight draft, the drawer instructs the bank to hand-over the relevant documents to the importer only against payment. But in case of usance drafts, the drawer instructs the bank to hand over the relevant documents to the importer against acceptance of the bill of exchange.

(b) Bill of lading and airway bill: Bill of lading is a document prepared and signed by the master of the ship acknowledging the receipt of goods on board. It contains terms and conditions on which the goods are to be taken to the port of destination.

On the other hand, an airway bill is a document wherein an airline/shipping company gives its official receipt of the goods on board its aircraft and at the same time, gives an undertaking to carry them to the port of destination. It is also a document of title to the goods and as such is freely transferable by the endorsement and delivery.

(c) Pre-shipment and post-shipment finance: Under pre-shipment finance, finance is provided to an exporter for purchase, processing, manufacturing or packing of goods for export purposes.

On the other hand, under post-shipment finance, finance is provided to the exporter from the date of shipment of goods to the date of realisation of export proceeds.

(ii) The different documents related to payment are as follows:
(a) Letter of credit: It is a guarantee letter issued by the importer’s bank stating that it will honour the export bills to the bank of the exporter up to a certain amount. It is the most appropriate and secure mode of payment.

(b) Bill of exchange: It is a written document whereby the person issuing it directs the other party to pay a specified amount to a certain person or the bearer of the instrument. In export and import transactions, the exporter draws the bill on the importer asking him to pay a specified amount to a certain person or the bearer of the instrument. The documents required by the importer for claiming the title of exported goods are passed on to him only when the importer accepts the bill.

(c) Bank certificate of payment: It is a certificate that the necessary documents (including the bill of exchange) relating to the particular export consignment have been negotiated and payment has been received in accordance with the exchange control regulations.

Question 32.
Explain the demerits of sole proprietorship firms. [6](a) unlimited libility
(b) limited managerial capacity
(c) limited life of a buisness concern
OR
Explain any six problems being faced by small business in India. [6]Answer:
(a) Unlimited liability: If due to some reasons there are losses in business, his personal property can be utilised to pay the business debts. This discourages him to expand his business.

(b) Limited managerial capacity: It is difficult for a sole proprietor to excel in all areas of business like purchasing, marketing etc. Further due to limited resources he can’t hire professionally qualified staff.

(c) Limited life of a business concern: Death, illness, insolvency of a sole-proprietor affects the business and can lead to its closure.
OR
Following are the main problems faced by small businesses:
(i) Finance: Non-availability of adequate funds in order to carry out business operations is one of the major problems of small businesses. Due to lack of credit worthiness, many of these units fail to raise funds from the capital market. Banks also hesitate to lend money to these units because many of these units fail to provide adequate collateral security or guarantees.

(ii) Raw materials: Obtaining good quality raw material is another important problem faced by these industries. They have to either compromise on the quality or have to pay a high price to get good quality materials. Bargaining power is relatively low because of the small quantity of purchases made by them.

(iii) Managerial skills: A small business is established and managed by a single individual. Hence, he/ she may not possess all the managerial skills needed to run the business. Due to shortage of funds, they cannot afford to employ professional managers.

(iv) Labour: Due to shortage of funds, these enterprises are not in a position to afford high salaries to the employees. As a result, the productivity per employee is low and the rate of labour turnover is high. Therefore, attracting talented and skilled employees is a major problem faced by these units.

(v) Marketing: In many small-scale units, marketing is a weak area. Direct marketing is not feasible for these units since they lack the necessary infrastructure. Hence, they have to depend on middlemen who sometimes exploit them by paying low prices and delaying the payments.

(vi) Sickness: Many of these units are becoming sick because of various internal and external problems. Lack of talented and skilled labour, and managerial and marketing skills are the various internal problems while delayed payments, inadequate loans, lack of demand for their products, etc. are various external problems faced by these units.

Question 33.
Sidhu wants to import machinery from Germany for manufacturing of automatic and high-quality toys. Explain the initial six steps that he needs to take in order to perform import machinery. [6]Answer:
The initial six steps that he needs to take in order to import machinery are:
(i) Obtaining I.E.C. No.: Before starting the import procedure, he has to obtain an I.E.C. (Import- Export Code) number. This number is used in filling the formalities of import procedure. To get this number, he has to apply to the regional Import-Export Licensing Authority in the prescribed form.

(ii) Obtaining Registration-Cum-Membership Certificate (RCMC): He will get various benefits in the form of subsidies and exemption in excise duty, tax, etc. To get these benefits, they have to show RCMC. After getting the I.E.C. number, he will apply for RCMC.

The RCMC is issued by:
(a) Import Promotion Council.
(b) Federation of Indian Import Organisation.
(c) Import Development Authority, etc. Along with the application, he has to submit a bank certificate and IEC number. If the authority is satisfied, then they will issue RCMC.

(iii) Opening a letter of credit: Letter of credit is issued by his bank in favour of the exporter. In this letter, the bank undertakes guarantee for making payment on his behalf. He will approach his bank and instructs the bank to issue a letter of credit in favour of the exporter. He will instruct the bank about the documents to be collected from the exporter before making the payment.

(iv) Arrival of goods: Goods are shipped by the exporter as per his specifications. When goods reach the importer’s country, the captain of the ship informs the dock officer and instructs him to receive the goods and record the details about the goods on the document called Import General Manifest. This document gives all the details of imported goods.

(v) Informing importer: After the arrival of goods, the dock authorities inform the importer about the arrival of goods. The importer prepares a document called bill of entry, which contains details about the imported goods and submits this document to the customs officer to get custom clearance.

(vi) Customs clearance: The customs officer examines the bill of entry carefully and assesses the custom duty to be paid by the importer and after assessing the duty amount, the bill of entry is given to the appraiser officer who verifies the details given in the bill. If the appraiser officer is satisfied with the information given in bill of entry, then he returns the bill to the importer for making payment of custom duty.

Question 34.
Santosh is working as a finance manager in a German Company producing remote operated high – end kitchen equipment. Considering festival demand, the company needs to increase its stock of raw material and finished goods which will require funds of ₹50 Lakhs. The directors of the company have decided to expand the business by opening one more factory in India which will require funds of ₹3 crore and 1 branch is America requiring ?6 crores and 1 branch in Sri Lanka requiring ₹5 crore investment. [6](i) Advise Santosh about the various sources of finance available to meet fund requirement for buying stock of raw material and finished goods.
(ii) In case the company does not want to borrow /raise capital from general public and Banks, then through which financial instrument it can raise ₹50 laldis.for short period ? Explain it.
Answer:
(i) Santosh can meet his working capital requirement for short run through following sources of finance:
(a) Trade credit,
(b) Public Deposits,
(c) Loans from Commercial Banks,
(d) Commercial Papers,
(e) Overdraft,
(f) Loans from financial institutions, etc.

(ii) Without involving general public and Banks, the option available to the German Company to meet its working capital requirement is: Intercorporate Deposit, Inter Corporate Deposit is an unsecured borrowing by a company from other corporate entities for short-term.


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