Chapter 1 : Financial Markets

1) What is the Money Market? Explain its function.

A) Definition: According to the RBI, "The Money Market is the centre for
dealing mainly in monetary assets of a short-term character; it meets the
short-term requirements of borrowers and provides liquidity to lenders."

Functions of the Money Market:

1. Short-term Credit: It provides short-term credit to businesses to meet

working capital requirements.

2. Funds the Government: It funds the government by issuing

short-term instruments to investors.

3. Credit Instruments: It deals with various credit instruments.

4. Transaction Platform: It enables savers of funds and investors to

transact with each other.

5. Helps Trade and Commerce: It supports business development by

issuing bills.

6. Promoting the Saving Habit: It helps promote the saving habit

among people, as they earn interest or discounts when they invest their
savings in credit instruments.

7. Provides Information: It provides valuable and accurate information

to the transacting parties, saving them money, time, and effort.

8. Equalizes Demand and Supply: It balances the demand and supply

of short-term funds.

9. Focal Point for Central Bank: It serves as a focal point for the
central bank's intervention, influencing liquidity and interest rates in the
economy.
10. Reasonable Access for Providers and Users: It enables
reasonable access for providers and users of short-term funds, allowing
them to meet their borrowing and investment needs at market-clearing
prices.

2) What are the differences between Money Market and Capital

Market?

A) Money Market: This is the market that deals with short-term credit
instruments, with maturities of less than one year.

Capital Market: This is the market that deals with long-term funds for
financing long-term requirements.

Basis of Money Market Capital Market

Difference
1. Term Deals with short-term Deals with long-term
credit instruments not finance for long-term
exceeding one year. requirements.

2. Players Major players include Major players include

commercial banks, RBI, merchant banks, financial
LIC, GIC, UTI, etc. institutions, foreign
investors, and individual
investors.

3. Credit Deals with credit Deals with shares,

Instruments instruments like treasury debentures, bonds, and
bills, commercial papers, government securities.
call money, etc.

4. Supply of It is engaged in the It is engaged in the

Capital supply of working capital supply of fixed capital
requirements for a short requirements for
period. businesses and the
 government.
5. Liquidity Its instruments enjoy Its instruments have low
high liquidity. liquidity.

6. Safety and Its instruments are much Its instruments are less
Risk Level safer, with a low level of safe, with risks to returns
risk. and principal amounts.

7. Returns Investors cannot expect Investors may receive

high returns. returns in the form of
dividends.

8. Value Instruments are The face value of

generally high in value. securities may be lower.

9. Transaction Transactions typically Initial and secondary

Place take place over the issues are conducted
phone, internet, etc. through the market

10. Its activities are Its activities are regulated

Regulations regulated by the RBI. by SEBI.

3) What are the differences between Primary Market and Secondary

Market?

A) Primary Market: This is the market that deals with fresh issues of
shares and debentures. It is also known as the new issues market.

Secondary Market: This is the market that deals with the buying and
selling of existing securities.
Basis of Primary Market Secondary Market
Difference
1. Shares It is concerned with It is concerned with the
the issue of new marketing of existing
shares. shares
2. Capital It is directly It is indirectly connected
Formation connected with the with the promotion of
promotion of capital capital formation.
formation.
3. Deals with It deals with the It deals with both
Securities buying of securities. buying and selling of
securities.

4. Value / Price The management of Prices depend on

the company decides demand and supply
the value of the
securities.
5. Location No fixed geographical Located at specific
location. places.

4. Differentiate between Indigenous Bankers and Money Lenders

A) Indigenous Banker: It is a type of unorganized money market entity

that provides financial assistance for the development of trade and
commerce.
Money Lender: It is a type of unorganized money market entity that
provides financial assistance for increasing the consumption of goods.

Basis of Indigenous Money Lenders

Difference Bankers
1. Provides For the development For consumers, to
Finance of trade and increase the
commerce. consumption of
 goods.
2. Rate of The rate charged is The rate charged is
Interest generally low. generally high.

3. Interest Rate The rate of interest The rate of interest

Stability is fixed for call fluctuates depending
loans. on demand.
4. Security Requires security for Does not require
issuing loans. security for loans.

Very Short Answer Questions

1) Financial Market: A financial market is where financial transactions

take place for the creation and exchange of financial assets. It plays a
major role in providing short-term and long-term finance to businesses.

2) Business Finance: The requirement of funds by a business firm to

meet its day-to-day activities is called "business finance." It consists of
fixed capital, i.e., long-term finance, and working capital, i.e., short-term
finance.

3) Call Rate: Commercial banks must meet the CRR (Cash Reserve
Ratio). If a bank’s reserves fall below the statutory requirement, it
borrows from other banks with surplus cash reserves. The interest paid
for such lending is known as the "call rate."

4) Derivatives: A derivative is a product whose value is derived from the

value of one or more underlying assets, called "derivatives." Example:
futures contracts.
5) Mutual Fund: It pools the savings of multiple investors who share a
common financial goal. The fund manager invests these pooled funds in
different types of securities.

Chapter 2 : Stock Exchange

1) What is a stock exchange? Explain its functions.

A) A stock exchange is a market where securities and bonds are traded.

It provides liquidity to securities. It is an organized secondary market
where listed securities are bought and sold by investors.

Functions of Stock Exchange:

1. Provides Infrastructure for Trading: In a stock exchange, trading

can be done very quickly, attracting investment by providing a ready and
continuous market for securities.

2. Provides Information Regarding Prices: It gives information to

investors about the prices of securities. Investors can verify the real
value of their holdings at any time.

3. Clearing House: Without a stock exchange, trading cannot occur

properly. It acts on behalf of both the buyer and seller and assists in
trading securities.

4. Provides Liquidity: Securities holders can easily encash their

securities by selling them to buyers whenever they wish.

5. Protects Investors' Wealth: The stock exchange protects the

interests and wealth of investors through the enforcement of its rules and
regulations.

6. Helps to Raise New Capital: It provides a ready market for shares,

offering a platform for both new and existing companies to raise capital.
7. Acts as a Barometer: An efficient stock exchange acts as a
barometer of business conditions in the country.

8. Increases Creditworthiness of Company: If a company’s shares

are listed on the stock exchange, it gains a good reputation, which
increases its creditworthiness.

9. Minimizes the Danger of Speculation: Through its rules and

regulations, the stock exchange minimizes the danger of speculative
dealings and price manipulations.

10. Facilitates Speculation: The stock exchange facilitates speculation,

helping businesspeople earn more profits from changes in the prices of
securities.

2) What is SEBI? What are its functions and powers?

A) SEBI stands for the Securities and Exchange Board of India, which
regulates the Indian capital market. SEBI was established through the
SEBI Act, 1992, passed by the Indian Parliament, and was given
statutory powers.

Functions of SEBI:
SEBI performs three main functions:

1. Quasi-Legislative
2. Quasi-Judicial
3. Quasi-Executive

These functions can be summarized as follows:

1. Educate and Train: SEBI educates investors and provides training to

intermediaries in the securities market.

2. Controls: SEBI controls the operations of the stock exchange.

3. Register and Regulate: SEBI registers and regulates the activities of
intermediaries such as brokers, merchant bankers, underwriters, etc.

4. Regulate Collective Investment Schemes: SEBI regulates the

operations of collective investment schemes, including mutual funds.

5. Audits and Inspections: SEBI conducts audits and inspections.

6. Restricts: Restricts insider trading of securities in the stock

exchanges.

Powers of SEBI:

1. Approve and Amend: SEBI has the power to approve and amend
the by-laws of stock exchanges.

2. Inspect: SEBI can inspect the books of accounts of financial

intermediaries.

3. Periodical Returns: SEBI can call for periodical returns from

recognized stock exchanges.

4. Mandate Companies: SEBI can mandate companies to list their

shares on one or more stock exchanges.

3) What is the procedure for listing securities?

A) A public company that wants its securities to be traded on a stock

exchange must enlist itself. The stock exchange must allow the company
to trade its securities. This is known as the "listing of securities."

Procedure for Listing of Securities:

A company with a minimum issued capital of Rs. 3 crore, of which at
least Rs. 1.8 crore (60%) is offered to the public, can apply. It has to
submit the following documents to the stock exchange:

1. Copies of the Memorandum of Association (MOA), Articles of

Association (AOA), prospectus, and director's report.

2. Balance sheets and agreements with underwriters and brokers.

3. Specimen copies of share and debenture certificates, etc.

4. Particulars about the capital structure.

5. A statement showing the distribution of shares.

6. Particulars of dividends and bonuses declared and paid during the last
10 years.

7. Particulars of shares or debentures for which permission is applied for

in the stock exchange.

8. Brief Report on Company's Activities Since Its Incorporation

9. Listing Agreement, with Required Initial and Annual Listing Fees

A new company may not be able to submit some of the above

documents. After the submission of an application, the stock exchange
scrutinises the application. If the stock exchange is satisfied with the
particulars, it may inform the company to execute a listing agreement.

4) Explain various types of stock exchange speculators.

A) In a stock exchange, some individuals, known as speculators, make

profits by trading securities for short periods. They accept high risks and
typically do not take or give deliveries of securities.

Types of Speculators:
1. Bulls: Bull speculators are optimistic and are also known as
"Tejiwala." They always think and expect a rise in the price of certain
securities in the future. The behavior of bulls generally pushes the
market upward.

2. Bear: Bear speculators are pessimists and are also known as

"Mandiwala." They expect the prices of some securities to fall in the
future and sell securities in the present. They are quite the opposite of
bulls in the current market. A bear usually forces prices downward.

3. Lame Duck: When a bear’s expectation does not come true and the
price of securities does not fall, he may fail to fulfill his commitment. In
this situation, he is said to be struggling like a "lame duck." A bear may
agree to sell certain securities on a certain date and may then be unable
to deliver the securities.

4. Stag: A stag is a cautious speculator. He neither buys nor sells shares

actively. Instead, he applies for shares of a new company at face value
and later sells these shares at a premium.

Very Short Answer Questions

1. Jobber: A jobber is an operator in a stock exchange. A jobber deals

with securities independently, buying and selling them in his own name
with a limited number of shares. He can deal with a broker or another
member in the stock exchange.

2. Broker: Brokers are commission agents who work for a fee. They act
as a link between the jobber and the general public. Brokers contact
jobbers to buy or sell securities on behalf of the public.

3. Permitted Securities: Along with listed securities, permitted

securities are also allowed to be traded on the stock exchange.
Permitted securities are those actively traded on other stock exchanges.
4. Stock Exchange
5. Listing of Securities
6. Lame Duck
7. Stag
8. SEBI

All of the above questions are covered in long answer questions.

Chapter 3 : Banking Services

1) Define Banking and explain its functions.

A) According to the Banking Regulation Act of 1949, banking is defined

as "accepting deposits of money from the public for the purpose of
lending or investment, repayable on demand or otherwise, and
withdrawable by cheque, draft, order, or otherwise."

Functions of Banking:
I) Primary Functions:

1. Acceptance of Deposits: Banks accept money from the public in

different forms, which constitute borrowings by the bank.

Types of Deposits:

a) Current Deposits: These deposits are known as "demand deposits."

This account has no limitations on the number of withdrawals and
deposits, and no interest is earned on deposits.

b) Savings Deposits: This is meant for professionals and middle-class

individuals to help them deposit small savings and earn interest. There
are some restrictions on the number of withdrawals and the maximum
amount that can be withdrawn.

c) Fixed Deposit: It is also called a "Term Deposit" or "Time Deposit."

The amount deposited cannot normally be withdrawn until maturity. The
interest received on fixed deposits is greater than on other deposits.

d) Recurring Deposits: Depositors are required to deposit a fixed

amount every month for a specific period. At the end, the customer
receives all the deposited amounts along with the cumulative interest.

2) Loans and Advances: Loans and advances are credit facilities

provided by the bank to its customers.

Types of Loans and Advances:

a) Cash Credit: It is an agreement between a bank and a customer

whereby the bank agrees to lend money to the borrower up to a certain
limit. Interest is charged only on the amount actually drawn by the
customer.

b) Loan: A loan is a specified amount sanctioned by a bank to the

customer. It is granted against the security of property or personal
security, and the loan amount is credited to the borrower's account.
Loans are generally granted for specific purposes.

c) Overdraft: An overdraft is a facility provided by commercial banks to

their current account holders. The account holder can withdraw an
amount in excess of the balance held in the account. Interest is charged
only on the extra amount withdrawn, not on the total amount of the
current account.

d) Purchasing and Discounting of Bills: A bill of exchange is a

negotiable instrument. The holder of a bill of exchange sells the bill to his
banker at an amount lower than the actual amount.
II. Secondary Functions

1) Agency Functions: Banks act as agents for their customers and, as

such, perform various agency functions. These include:

a) To collect or make payments for bills, cheques, interest, etc.

b) To act as executors, trustees, and attorneys for customers.
c) To work as correspondents, agents, and representatives of their
clients.

2) General Utility Services:

a) Letter of Credit: A letter of credit may be issued by the bank at the

request of an importer to guarantee payment to the exporter.

b) Acceptance or Collection of Foreign Bills of Exchange: Banks

accept or collect foreign bills of exchange on behalf of their customers.

c) Safe Deposit Lockers: Banks arrange safe deposit lockers for the
safe custody of customers' securities, valuables, and jewelry.

d) Traveler's Cheques: Banks issue traveller's cheques to travelers.

2) What are the features of Internet Banking?

A) Features of Internet Banking:

1. It removes the traditional geographical barriers, as it can reach

customers spread across the country.
2. The traditional risks associated with bank transactions are minimised.
3. The internet is a public domain that is not controlled by any single
authority or group.
4. Banks continuously update their technology as and when new
technology is developed.
5. It leads to the establishment of an efficient and effective cost and
control system.
6. Railway tickets can also be booked through "E-Rail."
7. Customers can pay electricity bills, insurance premiums, etc., through
the e-pay scheme.
8. It enables the payment of direct taxes online.

3) What are the types of Retail Loans?

A) Retail loans are loans provided by banks to individuals for person al

needs. These loans are typically smaller in size compared to corporate
loans.

Types of Retail Loans

1. Housing Loan: Banks provide housing loans to individuals to help

them buy an apartment or construct a new house if they already own the
land.

2. Educational Loan: These loans are given to students to cover tuition

fees, hostel expenses, foreign education, and other related costs.

3. Vehicle or Auto Loans: This type of loan is provided to individuals

who want to buy cars, whether new or second-hand. Auto loans are also
given for two-wheelers.

4. Personal Loans: These loans are given to individuals for various

personal needs, such as marriage expenses, travel abroad, medical
expenses, or any other personal requirement.

5) Credit Card: A bank allows the cardholder to borrow funds to

purchase goods and services and make payments to merchants who
accept credit cards. The cardholder pays back the principal and
applicable interest and other charges either in full by the billing date or
over time.

4) What is E-Banking? Explain its Advantages and Limitations.

A) E-Banking is a system of banking carried out with the use of
electronic tools and facilitated through electronic delivery channels.

Advantages of E-Banking:

1. Lower operating costs for banks.

2. Increased speed and accuracy of information.
3. Round-the-clock services are available.
4. Faster and more flexible transactions.
5. A higher degree of personalization.
6. Bank accounts can be accessed from anywhere and at any time.
7. Leads to greater customer satisfaction.
8. Helps banks reduce the workload of their branches.

Disadvantages of E-Banking:

1. Non-availability of internet in rural areas.

2. Training banking staff is a challenge.
3. Problems related to security and reliability.
4. The high illiteracy rate in India is a major hurdle to e-banking.

Very Short Question Answers

1) Money at Call: Banks grant loans for a short period, not exceeding 1
day, to borrowers against collateral securities to dealers or brokers in the
stock exchange.

2) Cash Credit: Under this method, the bank gives a loan to the
borrower, but the amount is credited into his account in the bank. He is
required to pay interest only on the amount of credit availed by him.

3) ATM: It means Automatic Teller Machine. ATMs have removed the

time limitations of customer services. It is one of the methods of
electronic fund transfer. It works 24 hours a day, 7 days a week.

4) Credit Cards
5) Overdraft
Are covered in long answer questions.

Chapter 4 : Insurance Services

1) Define Insurance and what are the principles of Insurance?

A) Introduction:
Insurance is a contract for specified consideration where one party
undertakes to compensate the other for a loss related to a particular
subject matter. It is a social device for spreading the chance of financial
loss among a large number of people.

Principles of Insurance:

1. Utmost Good Faith: This means that both parties in an insurance

contract should reveal all relevant facts to each other. All such facts that
may have some bearing on the decision of the other party to enter into
the contract must be disclosed.

2. Insurable Interest: This refers to a financial interest in a life or object.

No person can enter into a valid insurance contract unless they have an
insurable interest in the object or life insured. Without this interest, it is
considered "gambling."

3. Indemnity: All insurance contracts, except life insurance contracts,

are contracts of indemnity. The basic purpose is to provide
compensation for actual loss, so that the insured is restored to their
financial position prior to the loss.

4. Subrogation: This principle is an extension of the indemnity principle.

According to it, once the insured has been fully and finally compensated
for a claim, the insurer gains the right to any recoveries from third parties
related to the insured loss.
5. Contribution: Sometimes a person may have "double insurance" for
their goods, meaning coverage from more than one insurance company.
In the event of a loss, each company will contribute its proportionate
share of the claim based on the policy issued.

6. Mitigation of Loss: The purpose of this principle is to ensure that the

insured does not become careless or inactive in the event of a mishap. It
is the duty of the insured to take all possible steps to mitigate or
minimise the loss.

7. Proximate Cause: The insurance company will only cover losses

directly caused by the insured event. This is based on the principle
"Causa Proxima Non Remota Optima," meaning the nearest cause, not
the remote cause, is considered.

2) What are the functions of Insurance?

A) Introduction:

Insurance functions can be categorized into two types:

I. Primary functions of Insurance
II. Secondary functions of Insurance

I. Primary Functions of Insurance:

a) Insurance Provides Certainty:

Insurance provides certainty of payment in the event of an uncertain
loss. It reduces anxiety with better planning and management. Insurance
relieves people from the burden of unpredictable losses.

b) Insurance Provides Protection:

Insurance guarantees payment for losses, thereby protecting the insured
from financial hardship. Although insurance cannot prevent risks from
occurring, it can provide financial compensation for the losses.
c) Risk-Sharing:
Since risk is uncertain, the resulting loss is also unpredictable. When a
risk occurs, the loss is shared by all individuals exposed to that risk
through the insurance pool.

II. Secondary Functions of Insurance:

a) Prevention of Loss:
Insurance is actively engaged in preventing losses for the insured. This
prevention helps to reduce premiums, which encourages more business
for the insurer and reduces the financial burden on the insured.

b) Provision of Capital:
Insurance provides capital funds to society. The premiums collected are
invested in productive channels, benefiting industries, businesses, and
individuals through investments and loans from insurers.

c) Improvement of Efficiency:
Insurance relieves people from worries about losses, allowing them to
focus fully on their work, which can lead to higher productivity and
improved efficiency.

d) Promotion of Economic Progress:

Insurance protects society from significant losses due to damage and
destruction, fostering an environment for economic growth. Additionally,
it provides essential capital, a key factor for economic development.

3) What are the features of insurance?

A) Features of Insurance:

1. Risk-Sharing Device:
One of the basic features of insurance is to provide protection against
specific or uncertain losses due to events like death, fire, theft, and
accidents.
2. Cooperative Device:
Insurance functions on a cooperative basis, where both parties in the
contract work together with mutual trust and cooperation.

3. Protective Device:
Insurance provides protection against various types of risks and losses.
Without insurance, individuals would have to bear all losses on their
own.

4. Risk Measurement Device:

An insurance contract requires an evaluation of risk before the coverage
begins. In other words, risks must be assessed to calculate the premium
accurately.

5) Payment Device:
In an insurance contract, the insurer agrees to pay a certain sum upon
the occurrence of a specified event, which may or may not happen.
Payment is made only if this contingency occurs; otherwise, the insurer
is not liable.

4) What is IRDA? Explain the powers and functions of IRDA.

A) On the recommendations of the Malhotra Committee, the government

set up the Insurance Regulatory and Development Authority (IRDA) as a
regulatory body to regulate and control the insurance business in India.
IRDA was established by an act enacted in the Indian Parliament, known
as the IRDA Act of 1999, and it was amended in 2002.

Powers and Functions of IRDA

1. Specifying the code of conduct for surveyors.

2. Promoting efficiency in the conduct of insurance business.

3. Regulating the investment of funds by insurance companies.

4. Supervising the functioning of the tariff advisory committee.

5. Adjudicating disputes between insurers and intermediaries.

6. Specifying requisite qualifications and practical training for insurance

agents and intermediaries.

7. Promoting and regulating insurance and reinsurance business; levying

fees and other charges for carrying out the purposes of this Act.

8. Exercising other powers as prescribed.

Very Short Answer Questions

1) Mixed Policy
It is also known as a time and voyage policy. It seeks to insure the
subject matter on a particular voyage for a specific period of time.

2) Endowment Policy
This policy runs only for a limited period or up to a particular age. The
policy money becomes due at the end of the period specified in the
policy. However, if the assured dies before the specified time, the policy
money is paid at the time of death.

3) Surrender Value
If a policyholder decides to surrender their policy before its maturity, the
insurer pays them the surrender value. A policy acquires surrender value
after it has run for at least three years.

4) Voyage Policy
This policy is meant to insure the subject matter in transit from one place
to another. Under this policy, it is generally cargo that is exposed to
marine risks during the course of transit.

5) Whole Life Policy

This policy is meant to run for the entire term of the life of the assured.
The sum assured under such a policy becomes payable to the
beneficiary only after the death of the assured person. It is also called an
"ordinary policy.”

Chapter 5. Entrepreneurship

1) Define Entrepreneur and Explain the Characteristics?

Ans:
Entrepreneurial qualities are essential for success in any business
venture. While some qualities are inborn, others can be enhanced
through training and experience.

Characteristics of Entrepreneurs:

1. Innovation:
An inventor only originates the invention, whereas an entrepreneur goes
further by exploiting the invention commercially. Entrepreneurs embrace
change and do not rely on old ideas.

2. Risk-Taking:
Any new business involves risk for an entrepreneur. They may succeed
or fail, but entrepreneurs are willing to take calculated risks. They prefer
to depend on their skills and decisions rather than luck.

3. Self-Confidence:
Entrepreneurs have confidence in their abilities and believe they can
succeed in their chosen field. They trust in their capacity to change
existing conditions.

4. Hard Work:
Entrepreneurs are hard workers driven by their desire to excel. They put
in long hours of dedicated effort to achieve their goals.
5) Goal Setting:
Entrepreneurs derive happiness by setting and striving for goals. They
may not always achieve these goals, but achieving one often leads to
setting up another.

6. Leadership:
Leadership is the ability to direct, guide, and influence workers to do
their best to achieve specified goals.

2) Explain the Functions of Entrepreneurs

Ans:
An entrepreneur is one who takes on risks, innovates, initiates, and
organizes a business. They combine all factors of production in a
manner that maximizes output at minimum cost.

Functions of Entrepreneurs:

1. Innovation:
Innovation involves doing new things or performing existing activities in a
new way. It includes creating new products, discovering new markets,
and establishing new organizational structures.

2) Risk-bearing:
Entrepreneurs are key players in the game of business, where risks and
rewards are inevitable. They must be ready to accept these challenges.
An entrepreneur is willing to assume the risks involved in inventions,
new ventures, and expansions.

3) Organization and Management:

Organization and management of the enterprise are the main functions
of an entrepreneur. They must decide the nature and type of goods and
services to be produced. The entrepreneur also undertakes managerial
functions.
4) Business Planning:
The entrepreneur must provide a logical and scientific basis for planning
business operations, such as setting goals, policies, and budgets.

5) Decision-making:
The entrepreneur has to make decisions regarding the activities of the
enterprise. They are expected to take numerous decisions to run and
maintain the business concern effectively.

3) How Danhof Classified the Entrepreneurs?

Ans:
In a study of American agriculture, Danhof classified entrepreneurs into
the following categories:

1. Innovating Entrepreneurs:
These entrepreneurs introduce new products, methods of production,
and open new markets. They are aggressive and proactive in their
approach.

2. Adoptive or Imitative Entrepreneurs:

Instead of innovating new things, these entrepreneurs adopt successful
innovations created by others. They may make modifications to suit their
specific needs and circumstances.

3. Fabian Entrepreneurs:
These entrepreneurs are very cautious and conservative. They are rigid
in their approach, follow the practices of their predecessors, and are
reluctant to take risks or introduce new ideas.

4. Drone Entrepreneurs:
These entrepreneurs are resistant to change and reluctant to adopt new
methods or innovations. They may continue operating in outdated ways
and could face business closure due to their refusal to adapt.
4) Distinguish Between Entrepreneur and Entrepreneurship
Ans:
The word "Entrepreneur" is derived from the French word entrepreneur,
which refers to a person who undertakes the risk of a new enterprise.
Entrepreneurship, on the other hand, largely depends on personal
qualities like accepting challenges and bearing risks.

Entrepreneur Entrepreneurship
1) He is a person. 1) It is a plan of action.

2) He is an administrator. 2) It is an administration

3) He is a risk bearer 3) It is a risk bearing activity.

4) He is an innovator. 4) It is a process of Innovation

5) He combines factors of 5) It is the process of using factors

production of production.

6) He is an initiator. 6) It is taking an initiative.

7) He is a leader. 7) It is nothing but leadership

Very Short Question Answers

1) Enterprise:
Enterprise is a project or activity that involves many people and is often
difficult, complicated, or risky. It is a unit of economic organization or a
business organization.

2) Balanced Regional Development:

Entrepreneurs help to remove regional disparities by setting up
industries in backward areas. This is because the government extends
various concessions and subsidies to entrepreneurs, resulting in
balanced regional development.

3) Professional Entrepreneur:
They develop a business, sell it to somebody, and start another business
only to sell it to others. It is a profession involving the commencement of
a business.

Note: Questions on "Leadership" and "Innovation" are covered in Long

Answer Questions.

Chapter 6. Setting up of Business

1) What are the thrust areas of investment identified by the

Government of Telangana?
Ans:
The Telangana State Government has recognized 14 sectors as thrust
areas, investments in which will be given higher priority over others:

1. Life Sciences, including bulk drugs, vaccines, biologicals, and R&D

facilities.
2. IT hardware, including biomedical devices, electronics, and cellular
communications.
3. Engineering, including aviation, aerospace, and defense.
4. Food processing and nutrition products, including dairy, poultry, meat,
and fisheries.
5. Automobiles, transport vehicles, auto components, tractors, and farm
equipment.
6. Textiles and apparel, and leather products.
7. Plastics and polymers, chemicals and petrochemicals, glass, and
ceramics.
8. FMCG and domestic appliances.
9. Engineering and capital goods.
10. Gems and jewelry.
11. Waste management and green technologies.
12. Renewable energy and solar parks.
13. Mineral-based and wood-based industries.
14. Transportation, logistics hubs, inland ports, and container depots.

2) What are the special provisions enacted by the Telangana State

for the MSMEs?
Ans:
The special provisions for Micro, Small, and Medium Enterprises
(MSMEs) are as follows:

1. Adequate number of smaller plots in industrial parks for MSMEs.

2. Special funds for addressing incipient sickness.
3. Special funds for IP (Intellectual Property) registration assistance.
4. Special fund for anti-piracy assistance.
5. Special fund for technology transfer and modernization of the MSME
sector.
6. Reimbursement of land conversion charges for units on their own
land.
7. Marketing assistance to participate in national and international trade
shows and buyer-seller meets.
8. Consultant panel to respond to MSMEs.
9. Separate state-level bankers' committee for industries, particularly
MSMEs.
10. Decentralized procedures for issuing licenses and permissions.

3) How is the special support extended by the Government of

Telangana to the SC/ST entrepreneurs in our state?
Ans:
Special support to SC/ST entrepreneurs is offered through TS-PRIDE,
the Telangana State Programme for Rapid Incubation of Entrepreneurs.
Some of the activities are as follows:

1. Direct Funding: A special direct funding programme for financing

SC/ST entrepreneurs.
2. Margin Money: Payment of margin money on behalf of SC/ST
entrepreneurs by the government, and creation of a Rs. 5 Crore Margin
Money Refund Scheme.

3. Allotment of Plots: Preferential allotment of plots in industrial parks

and reservation of 22% of land in industrial estates.

4. Supplier Diversity Opportunities: Opportunities for SC/ST

entrepreneurs to supply to large industries.

5. State Policy: State departmental procurement policy of 20%, in line

with the Government of India’s policy.

6. Development Programmes: Organizing intensive entrepreneur and

skill development programmes.

7. Subsidy Eligibility: Eligibility for subsidies and funding through

CRISIL-rated NBFCs if funded by them.

8. Representation: Representation in all district and state-level

committees.

Very Short Question Answers

1) Startup:
A startup is a company that attempts to capitalize on developing a
product or service for which the entrepreneurs believe there is demand
in the market.

2) Project Report:
A project report is a business plan prepared by an entrepreneur. It is a
written document outlining the proposals and course of action to
establish the enterprise.
3) Bridge Loans:
This loan is granted for a short duration to enable the entrepreneur to
continue with the implementation of the project until the term loan
applied for is sanctioned and disbursed by the financial institutions.

4). Term Loans:

Term loans are long-term loans required for acquiring fixed assets like
land, building, plant, and machinery.

Chapter 7. Internal Trade

1) Explain the services of a wholesaler to the manufacturer.

Ans:
Wholesale trade involves purchasing goods in large quantities from
producers or manufacturers and selling them in smaller lots to retailers.
The wholesaler acts as the connecting link between the manufacturers
and the retailers.

Services of a wholesaler to the manufacturer:

1. Production: Enabling large-scale production.

2. Risk: Sharing or transferring risk.

3. Advance: Providing financial assistance in the form of advance

payment.

4. Advice: Offering advice regarding market trends and strategies.

5. Place Barrier: Removing the place barrier by distributing goods in

various locations.

6. Facilitating: Facilitating continuous production by ensuring a steady

supply of raw materials.
7. Storing the Goods: Reducing the need for warehouse storage by
storing goods in bulk.

2) What services are referred to by retailers to the consumers?

Ans:
Retailers buy goods from wholesalers and sell them in very small
quantities to consumers for their personal consumption.

Services of retailers to consumers:

1. Supply of Goods: Quick and timely supply of goods.

2. Goods Availability: Making a wide variety of goods available.

3. Guidance: Providing expert guidance to customers.

4. Interaction: Face-to-face interaction with consumers and product

demonstrations.

5. Supply of Goods in Convenient Quantities: Supplying goods in

convenient lots or quantities.

6. Credit Facilities: Extending credit facilities to customers.

7. Home Delivery: Providing home delivery of goods.

8. After-Sales Service: Offering after-sales services.

3) Explain the objectives and advantages of SEZs.

Ans:
Special Economic Zones (SEZs) are introduced with a view to attracting
foreign investments and adopting the latest technology.
Objectives of SEZs:

1. Generation of additional economic activity.

2. Promotion of exports of goods and services.
3. Promotion of investments from domestic and foreign sources.
4. Increase in employment opportunities.
5. Development of infrastructure facilities.
6. Import of capital goods and raw materials duty-free.

Advantages of SEZs:

1. Employment Generation: SEZs are a highly effective tool for job

creation.

2. Economic Development: SEZs are viewed as engines for economic

development.

3. Growth of Labour-Intensive Industries: SEZs would lead to the fast

growth of labour-intensive manufacturing and service industries.

4. Balanced Regional Development: SEZs are a well-crafted initiative

for achieving balanced regional development.

5. Capacity Building: SEZs are important for stronger capacity building.

Very Short Question Answers

1) Itinerant Retailers:
Itinerant retailers are those who do not have a fixed place for the sale of
goods. They move from place to place in search of customers.

Features:
i) They sell low-cost products such as flowers and toys.
ii) They usually sell unbranded products.
iii) The goods are made available at the doorsteps of the customers.
2) Hawkers and peddlers: These itinerant move from place to place in
search of their customers, with a view.

Features:
ⅰ) They sell low cost products. Examples: flowers, toys etc..
ii) They usually sell umbranded products.
iii) The goods are made available at the doorsteps of the customers.

3) Cheap Jacks:
Another form of itinerant traders operates their business from small
rented shops for a specified period. They keep moving from place to
place.

Features:
i) They carry out their trade in small rented shops.
ii) They deal in low-cost items.
iii) The moment it is felt that trade is not going well at a particular place,
they shift to another place.

4) Second-Hand Goods Shops:

These shops deal in used articles or second-hand goods, such as old
furniture and books.

5) Seconds Shops:
These shops deal in defective goods.

Features:
i) The products have some visible manufacturing defects.
ii) Goods are sold at a discounted rate.
 Chapter 8. International Trade

1) What is international trade? How does it differ from internal

trade?
Ans:
International trade refers to the buying and selling of goods and services
between nations of different countries across political frontiers. Internal
trade, also referred to as "Home Trade" or "Domestic Trade," is
conducted within the political and geographical boundaries of a particular
country.

Differences between Internal and International Trade:

.
Internal Trade International Trade

1. The trade occurs within the 1. The trade occurs with other
country countries.

2. Does not involve any exchange 2. Involves the exchange of

of currencies. currencies.

3. There are no restrictions. 3. There are many restrictions.

4. Transport costs and risks are 4. Transport costs are higher, and
less risks are greater.

5. There is scope for the operation 5. The scope for the operation of
of demand and supply forces. demand and supply forces is
restricted.

6. It helps derive the benefits of 6. It helps all trading countries

specialization within the country. derive the benefits of
specialization.
2) Explain the features and advantages of EPZs.
Ans:
Export Processing Zones (EPZs) are industrial estates that are fenced
off for producing manufactured goods exclusively for export.

Features of EPZs:

1. The units set up in EPZs can select their desired location by following
certain parameters prescribed by the state government.
2. EPZs rigorously follow the active export-import policy.
3. The units in EPZs are completely customs-bonded.
4. Proposals for starting up units in EPZs are approved through the
automatic route, as enforced by the state government.

Advantages of EPZs:

1. EPZs are specialized areas where quotas and tariffs are eliminated.
2. EPZs are production centers that employ a large number of workers.
3. EPZs facilitate the import of raw materials and export of finished
goods, increasing foreign exchange earnings.
4. 100% Foreign Direct Investment (FDI) is allowed for activities in EPZs.
5. EPZs provide a major boost to the economic growth and
industrialization of the country.

3) Discuss the benefits of international trade.

Ans:
International trade refers to the buying and selling of goods and services
between nations of different countries across political frontiers.

Benefits of International Trade:

1. It reduces the wastage of resources.

2. It leads to better utilization of available resources.
3. It increases employment opportunities and boosts foreign exchange
reserves.
4. It promotes international division of labor and specialization.
5. It increases the income of people and raises their standard of living.
6. It equalizes the prices of goods worldwide, smoothing out wide
fluctuations.
7. It fosters cordial relationships between people of different countries,
leads to technological advancement, and promotes international peace.
8. It creates healthy competition.

Very Short Answer Questions

1) Letter of Credit
The importer has to prove his creditworthiness to the exporter. It is
issued by a bank in the importer’s country in favor of the exporter. The
bank gives an undertaking that the bill of exchange will be honored.

2) Bill of Lading
The Bill of Lading is an official receipt issued by the shipping company. It
is a document of title for the goods. The importer cannot take delivery of
the goods without producing the Bill of Lading.

3) Bonded Warehouses
The port authorities maintain large warehouses for the convenience of
importers. They charge a reasonable rent. Such a warehouse is
described as a "Bonded Warehouse."

4) Consular Invoice
To avoid time delays, the exporter gets a "Consular Invoice," which
enables the importer to obtain prompt clearance of goods after they
reach the port of destination.

5) Exchange Rate
The rate at which the currency of one country is exchanged for the
currency of another country is known as the "Exchange Rate."
 Chapter 9: Principles of Management
1) What are the Principles of Management?

Ans) An organization consists of a group of people working collectively

for a common purpose. Management becomes essential for efficiently
and effectively achieving such goals. Management is a universal
phenomenon and is present in all walks of life.

Henry Fayol defines management as:

"To manage is to forecast and to plan; to organize, to command, to
coordinate, and to control."

Principles of Management

1) Division of Labour:
All kinds of work must be subdivided and allocated to a number of
persons. This leads to specialization, which increases the efficiency of
employees and individuals. It is applicable to both technical and
managerial work.

2) Parity of Authority and Responsibility:

Authority refers to the right of a person to give orders to subordinates
and regulate their behavior. Responsibility refers to the obligation of the
subordinate to perform the assigned tasks effectively.

3) Discipline:
Discipline means obedience, proper conduct in relation to others, and
compliance with the rules and regulations of the organization. Smooth
functioning of a business requires discipline. It is necessary not only for
workers but also for the management.

4) Unity of Command:
This principle states that a subordinate should receive orders and be
accountable to one and only one superior. No employee should receive
instructions from more than one person. This helps to avoid confusion
and conflict.
5) Unity of Direction:
The efforts of all the members of the organization should be directed
toward a common goal. A group of activities having the same objectives
must have one head and one plan.

6) Scalar Chain:
It shows the line of authority from the highest executive to the lowest one
for the purpose of communication. This helps an employee know the
person to contact for advice and guidance.

7) Equity:
Managers should show kindness and justice in dealing with their
subordinates. The application of the principle of equity leads to the
successful working of the firm.

8) Remuneration of Personnel:
Workers must receive full and fair wages for the services rendered. It
should provide maximum satisfaction to both employees and employers.
The method of wage payment adopted must be satisfactory to the
employer as well.

9) Order:
Order requires that there is a place for everything and everything in its
place. This principle refers to placing the right person in the right
position.

10) Stability of Tenure of Personnel:

Every employee must feel that they enjoy job security. This encourages
them to take interest in their work and give their best performance. If
there is no stability, employees lose interest in the job.

11) Initiative:
The freedom to propose and execute a plan is known as "initiative." This
enables employees to experience satisfaction from their jobs.

12) Centralization:
It refers to the extent to which authority is centralized or dispersed. The
appropriate degree of centralization will vary across organizations.
Under centralization, managers or executives play an important role.

13) Subordination of Individual Interest to General Interest:

The interest of the organization as a whole should take precedence over
the interests of individual employees.

14) Esprit de Corps:

This principle emphasizes the importance of teamwork, harmony, and
unity among employees to ensure smooth and effective operations
within the organization.

2) What are the characteristics of management?

Ans) Characteristics of Management

Definition:
Henry Fayol defines, "To manage is to forecast, to plan, to organize, to
command, to coordinate, and to control."

Characteristics of Management:

1) It is an Economic Activity:
Management is part and parcel of every economic activity of mankind. It
involves the sum total of activities pertaining to plans, policies, and
purposes, securing men, money, material, methods, markets, and
machinery needed for their achievement.

2) It Gets Things Done Through Others:

Management does not perform the work itself but enables and assists
others to do it. In any organization, a group of people is involved in
working toward a common objective.

3)It is a creative activity:

Management is a creative and purposeful activity. It involves group
activity, motivating others, economic orientation, delegation of authority,
and above all, decision-making activities.

4) It Coordinates Efforts:
Management brings about a coordinated effort among many individuals
and smaller groups, which are collectively referred to as "Human
Resources."

5) It is a Process:
Management is a conceptual, theoretical, and analytical process. It
involves creating, directing, maintaining, and operating purposive
organizations through systematic and coordinated human efforts.

6) It is Goal-Oriented:
The purpose of management is to achieve specific goals. For example,
if the objective of a company is to maximize profit, management may
take steps to reduce the cost of production.

7) It Acts as a Group:
The term "management" refers to a group of individuals occupying
managerial positions. All managers, from the chief executive to the
first-line supervisors, are collectively addressed as "Management."

8) It is a Discipline:
Management is recognized as a formal discipline with an organized
body of knowledge, which can be learned through instruction and
teaching.

3) Explain the Levels of Management

Ans:
There are three levels of management:

1) Top Level:
The top-level management includes the Board of Directors, Managing
Director, and General Managers. They establish policies, plans, and
objectives. This level requires more human and conceptual skills
compared to technical skills. They are responsible for innovative
decision-making.

2) Middle Level:
Middle-level management consists of departmental heads. Their main
function is to implement the policies and programs formulated by the
top-level management. They act as a bridge between top-level
management and lower-level management.

3) Lower Level:
The lower level includes supervisors and foremen who are directly in
touch with the workers. They are responsible for the direct arrangement
of work, exercising authority, and taking necessary actions concerning
employees.

Note:
All 2 marks questions have been covered in the above answers.

Chapter 10: Functions of Management

1) Define Organizing. Explain the Steps in Organizing.

Ans:

Prof. L. Urwick defines "Organization" as "determining what activities are

necessary to any purpose and arranging them into groups which may be
assigned to individuals."
Steps in Organizing:

1) Identification and Division of Work:

The first step in the organizing process involves identifying and dividing
the work into manageable activities. This ensures that duplication is
avoided, and the workload is shared among employees effectively.

2) Departmentalization:
Once the work has been divided, activities that are similar in nature are
grouped together. This grouping process is called departmentalization.

3. Assignment of Duties:
Once departments have been formed, each of them is placed under the
charge of an individual. Jobs are then allocated to the members of each
department in accordance with their skills and competencies.

4. Establishing Reporting Relationships:

The allocation of work is not enough. Each individual should also know
from whom they are to take orders and to whom they are accountable.

2) Explain the Principles of Directing

Ans) A manager has to deal with employees, and certain guiding

principles of directing may help in the directing process. These principles
are as follows:

1) Maximum Individual Contribution:

This principle emphasizes that every individual in the organization
should contribute to their maximum potential for the achievement of
organizational objectives.

2) Harmony of Objectives:
This principle emphasizes that harmony can be achieved by convincing
employees that rewards and work efficiency are complementary to each
other.

3) Unity of Command:
This principle insists that a person in the organization should receive
instructions from only one superior to avoid confusion and conflicts.
4) Appropriateness of Direction Technique:
According to this principle, appropriate motivational and leadership
techniques should be used while directing employees, based on their
needs, attitudes, and the prevailing situation.

5) Leadership:
Managers should influence subordinates positively while directing them,
ensuring satisfaction and motivation without causing dissatisfaction.

3) What are the main features of planning?

Ans) Planning is closely connected with creativity and innovation. It

requires taking decisions since it involves making a choice from
alternative course of action.

Characteristics/Features of Planning

1) Planning is an intellectual process: Thinking of objectives, the

manager goes through an intellectual process. The quality of planning
will vary according to the quality of the mind of the manager.

2) Planning is goal-oriented: All planning is linked with certain goals

and objectives. It follows that a plan must contribute positively to the
accomplishment of group objectives.

3) Planning is a primary function of management: It is the basis of all

managerial functions. Planning decides upon the policies, procedures,
programs, and projects of the organization.

4) Planning is directed towards efficiency: A plan is a course of action

that shows promise of organizing with the minimum use of resources. In
planning, the manager evaluates alternatives based on efficiency.
Very Short Question Answers

1) Staffing:

The managerial function of staffing involves manning the organization

through proper and effective selection, appraisal, and development of
personnel to fill the roles designed in the structure.

2) Meaning of control:

It is the last function of management. The management should set

certain standards in various fields of activity and allow the employees to
work accordingly. The actual work done should be compared with the
standards laid out in the organization.

3) POSDCORB:

It stands for Planning, Organizing, Staffing, Directing, Coordinating,

Reporting, and Budgeting.