CBSE Sample Papers for Class 11 Business Set 2 with Solutions

Students must start practicing the questions from CBSE Sample Papers for Class 11 Business with Solutions Set 2 are designed as per the revised syllabus.

CBSE Sample Papers for Class 11 Business Set 2 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.
Which of the following document is prepared by the exporter and includes details of the cargo in terms of the shipper’s name, the number of packages, the shipping bill, port of destination, name of the vehicle carrying the cargo? [1](A) Shipping Bill
(B) Packaging list
(C) Mate’s Receipt
(D) Bill of Exchange
Option (A) is correct
Explanation: Shipping Bill is prepared by the exporter and includes details such as the shipper’s name, the number of packages, the shipping bill number, port of destination, and the name of the vehicle carrying the cargo. It serves as an important document in international trade for customs clearance and provides information about the exported goods.

Question 2.
“Buy nail cutter and peacock feathers for pooja ghar from Som Bazaar which is held on every second Monday of the month, outside Shiva temple.” Identify the types of retailers as stated in the given sentence: [1](A) Street trader
(B) Cheap jacks
(C) Market trader
(D) Hawkers and Peddlars
Option (C) is correct
Explanation: They are also small traders who sell their goods at different places on fixed days. For example, every Saturday or every Sunday in ‘Saturday market’ and ‘Sunday market’, etc.

Question 3.
Business activity involves dealing in goods and-services on what basis? [1](A) Irregular basis
(B) One-time basis
(C) Regular basis
(D) None of these
Option (C) is correet
Explanation: Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase, therefore, does not constitute business. Thus, for example, if a person sells his/ her domestic radio set even at a profit, it will not be considered a business activity. But if he/ she sells radio sets regularly either through a shop or from his/her residence, it will be regarded as a business activity.

CBSE Sample Papers for Class 11 Business Set 2 with Solutions

Question 4.
When the importer places an order with the exporter for the goods to be dispatched, which of the foUowing documents are used: [1](A) Proforma invoice
(B) Indent
(C) Quotation
(D) Trade Enquiry
Option (B) is correct
Explanation: It is a document in which the buyer (importer) orders for supply of requisite goods to the supplier (exporter). The order or indent contains the information such as quantity and quality of goods to be imported, price to be charged, method of forwarding the goods, nature of packing, mode of payment, etc.

Question 5.
Which scheme has been introduced by Government of India to encourage an entrepreneurial culture, inculcate entrepreneurial values in the society and influence the mindset of people towards entrepreneurship? [1](A) MGNREGA
(B) Start up India Scheme
(C) Jawahar Rozgar Yojna
(D) Integrated Rural Development Programme A
Option (B) is correct

Question 6.
CBSE Sample Papers for Class 11 Business Set 2 with Solutions 1
Identify the type of business organisation depicted in the picture given above in which the owner has unlimited liability and he enjoys all the profits and bears all the losses. [1](A) Partnership
(B) Sole proprietorship
(C) Joint Hindu Family business
(D) Joint Stock Company
Option (B) is correct
Explanation: In a sole proprietorship, the owner is a single person who enjoys all the profits and bears all the losses. He has unlimited liability.

Question 7.
Mayank wants to invest his savings in the financial security which provides higher returns and high liquidity
control over business affairs. Identify which of the following would be the most suitable security? [1](A) Trade credit
(B) Loan
(C) Debentures
(D) Equity shares
Option (D) is correct
Explanation: Equity shareholders are the owners of the company. The rate of dividend is paid after meeting all other claims. These shareholders have a right to vote and participate in the management of the company. They enjoy the reward as well as bear the risk.

Question 8.
Mr. Shailesh owns an oil factory in Rajasthan. Due to illness of his parents living in the UK, he had to go to UK. There he joined a job. He asked his friend Mr. Vijay Arora to take charge of his company till he returns to India. Mr. Vijay took a fire insurance policy for this factory from Zokhim Free Insurance Pvt. Ltd. A month before he got the fire insurance policy, he received a notice from electricity department to get the wiring of the company repaired. He didn’t inform the insurance company about it. He didn’t get the wiring of the factory repaired. After five months of taking the policy, the factory caught fire due to faulty wiring.

“Mr. Vijay took a fire insurance policy for this factory from Zokhim Free Insurance Pvt. Ltd….”. Which principle of insurance is relevant here? [1](A) Insurable interest
(B) Indemnity
(C) Good faith
(D) Contribution
Option (A) is correct
Explanation: The person getting an insurance policy must have an insurable interest in the property or life insured. A person is said to have an insurable interest in the property if he is benefited by its existence and prejudiced by its destruction. Without insurable interest, the insurance contract is void.

CBSE Sample Papers for Class 11 Business Set 2 with Solutions

Question 9.
Which of the following is incorrect regarding the objectives of WTO : [1](A) Reduction of tariffs and other trade barriers imposed by different countries.
(B) Engage in such activities which improve the standards of living, create employment, increase income etc.
(C) No emphasis on sustainable development.
(D) Promote an integrated, more viable and durable trading system.
Option (C) is correct
Explanation: The basic objectives of WTO are similar to those of GATT, i.e., raising standards of living and incomes, ensuring full employment, expanding production and trade, and optimal use of the world’s resources. WTO objectives, moreover, talk of the idea of ‘sustainable development’ in relation to the optimal use of the world’s resources so as to ensure protection and preservation of the environment.

Question 10.
Read the following statements: Assertion (A) and Reason(R). Choose the correct alternative from those given below: [1]Assertion[A]: Business does not need any particular qualification.
Reason[R]: Business does not require any specific code of conduct.
(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.
Option (B) is correct.
Explanation: Business can be done by any person. It does not require any specific qualification to be a businessman. No specific code of conduct is there for business.

Question 11.
…………….. is the written document which defines the ethical principles of conduct for the whole organization? [1](A) Act
(B) Code
(C) Order
(D) Resolution
Option (B) is correct.
Explanation: Enterprises with effective ethics programmes do define the principles of conduct for the whole organisation in the form of written documents which is referred to as the “code”. This generally covers areas such as fundamental honesty and adherence to laws; product safety and quality; health and safety in the workplace; conflicts of interest; employment practices; fairness in selling/ marketing practices; and financial reporting.

Question 12.
If a company aims at fulfilling the social obligations, then it has to compromise with its goal of profit maximisation.
Thus, social responsibility and profit maximization cannot go hand-in-hand. The given statement is: [1](A) True
(B) False
(C) Depends on the nature of business
(D) Depends on the social obligation to be fulfilled
Option (B) is correct

Question 13.
Statement I: Trade credit is the credit extended by one trader to another for the purchase of goods and services. Trade credit facilitates the purchase of supplies without immediate payment.
Statement II: Trade credit is commonly used by business organisations as a source of long-term finance.
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
Option (A) is correct.
Explanation: Trade credit is used as a source of short-term finance.

Question 14.
Which of the following does not result from conducting ethical business? [1](A) Improving public image
(B) Earning people’s confidence and trust
(C) Suffering losses
(D) Leading to greater success
Option (C) is correct
Explanation: Conducting ethical business increases the goodwill of the business and hence increases the profits of the business.

Question 15.
Which of the following is true regarding a minor as a partner? [1](A) Minor cannot become a partner in any firm even with the mutual consent of all other partners.
(B) Minor partner’s liability is limited to the extent of the capital contributed by him in the firm.
(C) Minor partner is eligible to take an active part in the management of the firm.
(D) Minor partner shares both the profits and the losses of the firm.
Option (B) is correct
Explanation: “Minor partner’s liability is limited to the extent of the capital contributed by him in the firm” is true. A minor’s liability is limited to the extent of the capital they have contributed to the partnership. They are not personally liable for the debts and obligations of the partnership beyond their capital contribution.

CBSE Sample Papers for Class 11 Business Set 2 with Solutions

Question 16.
Statement I: The members of co-operative societies cannot transfer their shares.
Statement II: The main aim of a co-operative society is to render services to its members. [1]Choose the correct option from the following:
(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
Option (c) is correct
Explanation: The members of co-operative societies cannot transfer their shares. This is true because one of the fundamental principles of a co-operative society is the concept of “one member, one vote” rather than the transferability of shares. The ownership and control of the co-operative society remain with its members, and the shares cannot be freely transferred to others.The main aim of a co-operative society is to render services to its members. This is also true. Co-operative societies are formed to provide benefits and services to their members, who are the primary beneficiaries. The primary objective of a co-operative society is to cater to the needs and interests of its members, such as providing goods, services, or financial assistance, rather than maximizing profits for external stakeholders.

Question 17.
The Central bank of any country supervises, controls and regulates the activities of all the commercial banks of that country. In India, which Bank performs this role? [1](A) Central Bank of India
(B) Reserve Bank of India
(C) Revenue Bank of India
(D) State Bank of India
Option (B) is correct
Explanation: The Central bank of any country supervises, controls and regulates the activities of all the commercial banks of that country. It also acts as a government banker. It controls and coordinates currency and credit policies of any country. The Reserve Bank of India is the central bank of our country.

Question 18.
Match the following concepts given in Column I with the suitable options given in Column II: [1]

Column I Column II
1. Payment made using UPI (A) Credit card
2. Transfer money electronically from bank account (B) Cash on delivery
3. Goods bought on credit (C) BHIM
4. Payment done after receiving the commodity (D) EFT

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

Question 19.
“The business must follow the laws and regulations enacted by the government for protecting the environment instead of ignoring social responsibility of the business.” Identify the kind of social responsibility stated here. [1](A) Economic
(B) Ethical
(C) Legal
(D) Discretionary
Option (C) is correct
Explanation: The statement emphasizes that businesses have a responsibility to follow the laws and regulations enacted by the government for protecting the environment. This aligns with the legal aspect of social responsibility, which refers to the obligation of businesses to comply with applicable laws and regulations. In this case, the business is being urged to prioritize environmental protection by adhering to environmental laws and regulations rather than ignoring their social responsibility.

Question 20.
The company organises training and skill development programme for its workers. Which of the following is not an example of the category of business responsibility stated? [1](A) Providing safe working conditions
(B) Fair deals from management
(C) Earn fair returns on capital employed
(D) Develop sense of belongingness
Option (C) is correct
Explanation: Providing safe working conditions, fair deals from management, and earning fair • returns on capital employed are all examples of business responsibilities towards workers. However, developing a sense of belongingness is not explicitly mentioned as a category of business responsibility towards workers. While it is important for companies to foster a positive work culture and promote employee engagement, it may not be specifically classified as a business responsibility in the same way as the other options.

Question 21.
Ved has allowed Shrey and Gaurav for using his name for sports equipment manufacturing unit but Ved will not take active part in managing the firm and neither share profit and loss. [3](a) Will Ved be considered as partner in a firm. If yes, which type of partner and why.
(b) Also comment upon the kind of liabilities Ved will have to assume under such circumstances.
(a) Yes, Ved will be considered as a Partner. He is a nominal partner in the firm because he has only lent his name and is neither taking part in the management nor participating in the profits and losses.

(b) Under such circumstances Ved is accountable for all the financial liabilities arising in this business. He bears unlimited liability for the debts of the firm.

Question 22.
Explain the nature and significance of business finance. [3]OR
Services are those separately identifiable, essentially intangible activities that provide satisfaction to the consumers. In context of business, how can you define services? [3]Answer:
Finance is the life blood of any business. It refers to the funds required by the business for carrying out various business activities. Availability of adequate funds is essential for the smooth functioning of a business. The capital contributed by the promoters may not be sufficient. Hence, the business firms have to look for other sources from where the fund requirements can be met.
In the context of business, services are separately identifiable as services differ from marketer to marketer and experience of each customer also differs. Services are essentially intangible activities that provide satisfaction as these are the actions or deeds of the marketer to create value desired by customers. Services may be defined as all those economic activities that are intangible and imply an interaction between the service provider and the consumer to create satisfaction. Business services include banking, insurance, transportation, warehousing, communication, etc.

CBSE Sample Papers for Class 11 Business Set 2 with Solutions

Question 23.
Sameer has recently graduated from Delhi University. He is planning to open a new restaurant near the campus area. His father advised him to open a bank account in which he can deposit and withdraw money number of times in a day.
Identify and explain the bank account being referred above.
A current account is being referred here. Current Deposit Account: The account holder can deposit and withdraw money whenever desired. This account is generally opened by the businessman to conduct numerous transactions in a single day.

Question 24.
‘Karta is too powerful to run the business’. Explain. [3]OR
Explain any two auxiliaries to trade. [3]Answer:
Under Joint Hindu Family business, control of the business lies in the hands of Karta. His decisions are binding on other members. But if karta is inefficient and incapable for managing the business, he may not run the business properly. The decision of Karta, at times may not be acceptable to other members which may cause conflict resulting in breakdown of the family unit.
Following are the important auxiliaries to trade:
(i) Transportation and communication: Production of goods generally takes place in particular location, but these goods are demanded for consumption in different parts of the country. This hindrance of place can be removed by transportation – road, rail or coastal shipping, etc. In the same way, the hindrance of information is removed by communication. Communication helps in exchange of information between producers, consumers and traders.

(ii) Banking and finance: Banks and financial institution provide credit facility to provide finance for smooth flow of business activities. Other facilities like collection and deposit of cheques, issue of bank draft, discounting of bills of exchange, etc. are also provided by banking institutions.

(iii) Insurance: Risk is inherent in business. The insurance sector provides protection from some of the risks faced by business. These risks mainly include theft, burglary, fire, accident, etc.

(iv) Warehousing: Goods are not consumed immediately when these are produced. Usually there is a time gap between production and consumption of goods as special arrangement has to be made to store the goods to prevent the loss to goods and to keep them fresh. Warehousing helps the businessman to overcome the problem of storage by creating time utility. (Any two)

Question 25.
Explain the following advantages of Joint Hindu Family Business: [4](a) Limited liability of members
(b) Continued business existence
Explain the following services of wholesalers to retailers:
(a) Risk Sharing
(b) Marketing Support [4]Answer:
(a) Limited liability of members: Except the Karta, the liability of other members is limited to the extent of their share in the business.

(b) Continued business existence: The operation of the business is not threatened by the death, insanity or imprisonment of the Karta because in the eventuality of any mis-happening with the Karta, the next eldest member takes up his position.
The services of wholesalers to retailers are as follows:
(a) Risk sharing: A retailer does not have to bother about risk of storage, reduction in price, fluctuation in demand, etc. All these risks are borne by the wholesaler.
(b) Marketing support: The wholesalers undertake advertisements and other sales promotional activities in order to induce the consumers to purchase the goods. Thus, they provide marketing support to the retailers.

Question 26.
Discuss the problems related to international business. [4]OR
What is meant by Bill of lading and Bill of Entry?
The problems in international business are as follows:

  • Distance barrier: International business is carried across the borders of the country. When the markets are far moved by distance, the transportation cost becomes high and the delivery time tends to become longer. As a result, there is an increase in cost of product.
  • Differences in language: An international businessman often encounters the problems arising out of differences in language. Even when the same language is used in different countries, the same words or terms may have different meanings.
  • Cultural differences: Cultural differences constitute one of the most important problems in international business. Many domestic markets are not free from cultural diversities.
  • Political and legal differences: Political and legal differences also act as a major hurdle in international business. The complexity generally increases as more countries are included in the company’s portfolio.

(i) Bill of Lading: 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.

(ii) Bill of Entry: It is an application form supplied by the customs office to the importer. At the time of receiving the goods, the importer has to fill in three copies of this form and submit same to the customs office. It contains information like name of ship, number of packages, marks on the packages, name and address of the exporter, etc.

CBSE Sample Papers for Class 11 Business Set 2 with Solutions

Question 27.
Ishu and Neeti, two fashion designers from Delhi decided to sell their designer outfits to rich market segment by providing them facility of customizing the outfits as per their needs. So, they made a website ‘myfashion.com’ as they don’t want to spend too much finance on operating retail outlet in a costly market. Sooner they started getting good response not only from Delhi but also from other cities like Mumbai, Jaipur, etc. [4](A) Name and state the form of business highlighted above by quoting the lines.
(B) Highlight any two advantages of the above form of business.
(i) The form of business highlighted above is ‘e-business’ Lines – “They made a website myfashion.com …. costly market”.
(ii) Advantages of e-business:
(a) Ease of formation and lower investment requirements: Unlike a host of procedural requirements for setting up an industry, e-business is relatively easy to start. The benefits of internet technology accrue to big or small business alike. In fact, internet is responsible for the popularity of the phrase ‘networked individuals and firms are more efficient than net worthed individuals.

(b) Convenience: Internet offers the convenience of 24 hours, 7 days a week, 365 days a year business that allows shopping well after midnight.

Question 28.
Explain the following: [4](i) Unified Payment Interface (UPI)
(ii) Aadhaar Enabled Payment System (AEPS) [4]Answer:
(i) Unified Payment Interface (UPI): A payment mode used to make fund transfers through the mobile app using UPI Apps like BHIM, iMo- bile, PhonePe, Paytm, etc.

(ii) Aadhaar Enabled Payment System (AEPS): Customer needs only his or her Aadhaar number to pay to any merchant. AEPS allows bank to bank transactions. It can be used to withdraw or deposit cash and send money to another Aadhar linked account with it. It uses the fingerprint as a password.

Question 29.
Classify the following activities into economic and non-economic activities, and also mention which type of economic activities are they: [4](i) People working for others and getting paid in the form of salaries.
(ii) Providing food to the people in flood affected area by a charitable institution.
(iii) Production and sale of goods by a leading textile industry.
(iv) A lawyer filing a case in the court for his client.
(i) Economic activity – employment = Getting remunerated in return for the work done for others refers to an employee. Employees are the people who are employed by others. Thus, people who work in factories, offices of banks, insurance companies or government department, etc., at various posts are the employees of these organizations.

(ii) Non – economic activity= A non-economic activity is an activity performed with the purpose of rendering services to others without any considerations of financial gains. Activities that are initiated for personal content or for meeting human sentiments are non-economic activities.

(iii) Economic activity – business = Business refers to those economic activities, which are connected with the production or purchase & sale of goods or supply of services with the main object of earning a profit. To earn income in the form of profit people engage themselves in business.

(iv) Economic activity – profession = Profession is a type of paid occupation which involves training, utilization of skills for a prolonged period.

Question 30.
“Main objective of Public-Private Partnership (PPP) is to combine the skills, expertise and experience of both the public and private sector.” In the light of this statement, specify its main advantages. [4]Answer:
Public-Private Partnership refers to the involvement of private sector in the Government projects aimed at public benefit in the form of management expertise and monetary contribution.
Advantages offered by PPP are:

  1. The PPP approach enables the Government to overcome its budgetary and financial constraints.
  2. Leads to faster implementation of infrastructural projects with high degree of efficiency.
  3. Benefits of combined expertise of private and public sector. Public-Private Partnership’s (PPP).

Question 31.
(i) Describe the following two services offered by e-banking:
(a) ATM
(b) Debit card
(c) Credit card
(ii) State three differences between life insurance and fire insurance. [6]OR
(i) Explain the following features of insurance:
(a) Risk sharing
(b) Protection
(c) Providing certainty
(ii) How is fire insurance difference from marine insurance? [6]Answer:
(i) (a) ATM (Automated Teller Machine): It is a self-service terminal which can be operated at any time i.e. 24 hours a day. To use an ATM, a client has to insert a plastic card in the machine and enter his identification code. If the code is appropriate, the machine would respond by providing cash, accepting deposits, etc.

(b) Debit card: Debit card facility is offered to the account holders to make payment up to the amount of credit balance available in their account. It is generally located in sale terminals (shop/store) which are tied up electronically to the bank computer. When the customer presents the debit card, the amount is automatically transferred from the customer’s bank account to the seller’s account.

(c) Credit card: It refers to a card which permits overdraft facility to the clients depending upon their credit worthiness. Through this the customer can purchase products by presenting the credit card. It is an important type of support service provided by the banks.

(ii) Difference between life insurance and fire insurance:

Basis Life Insurance Fire Insurance
(i) Subject matter The subject matter in case of life insurance is human life. The subject matter in fire insurance is any damages caused by fire.
(ii) Indemnity Life insurance is not based on the principle of indemnity. The sum assured is either paid on the happening of certain event or on maturity of policy. Fire insurance is a contract of indemnity. The insured can only claim the actual amount of loss from the insurer.
(iii) Paid up/surrender value Life insurance has a surrender or paid-up value. Fire insurance does not have a surrender value or paid- up value.

(i) (a) Risk sharing: The other important function of insurance is risk sharing. On the happening of a risk/event the loss is shared by all persons exposed to it. The share is obtained from every insured member by way of premium.
(b) Protection: Though Insurance can’t stop the happening of risk or event but provides protection against losses arising out of it.
(c) Providing certainty: Insurance provides certainty of payment for the risk of loss due to happening of uncertain events. There are uncertainties of happenings of time and amount of loss. Insurance provides certainty to the assured for payment compensation against such losses.

(ii) The difference between Fire insurance and marine insurance are:

Basis Fire Insurance Marine Insurance
(i) Claim The insured can claim the actual market value of the property destroyed by fire only. The insured can claim the prime cost of good destroyed plus a reasonable margin for anticipated profits.
(ii) Moral


Moral responsibility of the insured is an important factor in this contract. The moral responsibility of cargo owner does not exist.
(iii) Insurable interest Insurable interest must be present both at the time the policy is issued and also when the loss takes place. Insurable interest must exist only at the time of loss.

CBSE Sample Papers for Class 11 Business Set 2 with Solutions

Question 32.
What is the need of entrepreneurship development?
Explain the following features of Small-Scale Industries:
(a) Labour Intensive
(b) Simple Technology [6](c) Simple management
Entrepreneurship development aims at individuals who want to start or possibly expand a business.

  1. Entrepreneurship development programmes motivate people to establish new business which in turn creates employment opportunities.
  2. It helps in formation of capital.
  3. Entrepreneurship development programmes aids in formulation of projects.
  4. It helps in distributing economic activities in all the areas of the country thus resulting in balanced regional growth.
  5. It also helps the entrepreneur to use local resources.
  6. Entrepreneurship development programmes help in creating employment opportunities which in turn leads to improvement in standard of living.

(a) Labour intensive techniques: There is pre-dominance of labour. These units use labour intensive techniques of production instead of mechanised methods of production.

(b) Simple technology: The machinery and equipment used for production of goods are operated manually and are not very sophisticated.

(c) Simple managerial structure: It is managed by owners only. Thus, can reap the benefits of direct motivation, secrecy, flexibility, etc.

Question 33.
Read the statements given in point 1 and 2, answer the questions that follow: [6](1) ‘e-business can be handled effectively by suitably qualified personnel and a well-designed system’.
(i) Enumerate the systems which are necessary for successful implementation of e-business.
(ii) How does suitable payment mechanism help in effective e-business.
(2) “M/s Touchwood Furniture Dealers, distributor of Godrej Furniture in Hyderabad made the ‘default on delivery’ while taking online order from Godrej furniture for making delivery to its online customers.”
(i) Identify and explain the limitation of e-business highlighted above.
(ii) Explain any two more limitations of e-business.
1. (i) (a) Proper computerised system: There should be a proper computerised system i consisting of computer hardware and matching computer software.
(b) Effective telecommunication: Effective telecommunication should be used as a channel of communicating with others.
(c) Well-designed websites: Websites meant for e-business should be designed in such a way that it is effective in providing information to customers and serves as a means of product promotion.

(ii) Payment mechanism involved in e-business should be such which suits the customers of different types.

2. (i) Increased risk due to anonymity and non-traceability of parties: Internet transactions occur between cyber personalities. As such, it becomes difficult to establish the identity of the parties. Moreover, one does not know even the location from where the parties may be operating. It is riskier, therefore, transacting through internet.

(ii) Two other limitations are:
(a) Low personal touch: High-tech it may be, e-business, however, lacks warmth of interpersonal interactions. To this extent, it is relatively less suitable mode of business in respect of product categories requiring high personal touch such as garments, toiletries, etc.
(b) Incongruence between order taking/giving and order fulfilment speed: Information can flow at the click of a mouse, but the physical delivery of the products takes time. This incongruence may play on the patience of the customers.

Question 34.
Surya company, an LED lights manufacturing company has good growth prospects. The owners of the company are planning to expand their business. For this, the company needs additional funds. The finance manager reports that the company is not in a position to bear extra burden of paying any fixed financial charges like interest or dividend. They do not want to bear any flotation costs even. Also, the equity shareholders insist not to issue further shares as there is risk of dilution of control. [6](a) Suggest the source of finance most suitable for the company.
(b) Enumerate any three merits and two demerits of the source of finance identified in part (i).
(a) The most suitable course of finance is ‘retained earnings.

(b) Merits of retained earnings.

  1. Most dependable source: Retained earnings is permanent and dependable source of funds to an organisation as it is an interned source.
  2. Economic source: It does not involve any explicit cost in the form of interest, divided or flotation cost.
  3. No dilution of control: As the funds are generated internally so there is a greater degree of operational freedom and flexibility.

Demerits of Retained Earnings:

  1. Over capitalisation: Large amount of retained earnings results in issue of bonus shares to equity shareholders. It may result in over capitalisation.
  2. Dissatisfaction among shareholders: Excessive ploughing back may cause dissatisfaction among equity shareholders, as they do not receive higher rate of dividend.

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