NCERT Solutions for Class 12 – Business Studies

Businesses are the backbone of an economy. The day-to-day functioning of life is influenced by countless business decisions that need to be correct and sound. These entities affect not only the economy, but also individual earnings, livelihoods, and personal endeavors. As a result, knowing about the ins and outs of how a business functions smoothly and what goes into creating a successful empire is vital. 

For all students of Business Studies, NCERT solutions are available in an easy-to-download format. The Class 12 version is an advanced level of the NCERT solutions class 11 with all concepts explained in greater detail. The language used is simple to help students  easily understand it. Successful preparation begins with studying smart, not hard!

Class 12 Business Studies NCERT Textbook Solutions – FREE Download 

Because Class 12 is considered  an important year for students, it brings with it a great deal of anxiety and pressure. This class is believed to decide not just  the college admissions in the future but also a student’s career. As a result, students are advised to pay full attention to all of their subjects in order to score a good overall mark in their Board examinations. 

However, the truth is that this process can be a challenging one, demanding that students study smart and not just hard. Though regular and consistent efforts are absolutely necessary, the truth is that with so many subjects to cover, studying smart is the only way to guarantee good marks in the examination. The key to studying smart is to know what to study and how exactly to study it so as to score well. 

This is why solution booklets are often recommended. While it is true that you can simply be thorough with your classroom textbooks, it always pays well to walk that extra mile and ensure you have a strong grasp of the concepts that you have studied. This is possible through the regular practice of NCERT solutions for Class 12 Business Studies. This comprehensive guide includes questions and answers explained in a detailed manner, as well as practice questions at the end to help you assess your knowledge and performance. 

These papers are put together by experts in the field and include some of the most commonly asked questions during Business Studies examinations as well as solutions to the same. There are relevant examples given to help you grasp each concept better. When you study for your Board examinations using this solution booklet, you will be equipped to solve any mock paper that comes your way. 

Chapter-Wise NCERT Solutions for Class 12 Business Studies 

The conventional classroom textbook for CBSE Class 12 Business Studies consists of 12 chapters, each dealing with a unique aspect of the subject. Extramarks’ helpful NCERT solutions for class 12 Business Studies booklet is divided into these 13 chapters, where each is explained in great detail with relevant examples. 

To have access to it, all you need to do is easily download the same from the website. Once done, simply open it and start studying. Given below are the links to download NCERT solutions for the 12 chapters –

<Download Link for Chapter 1 – Nature and Significance of Management>

<Download Link for Chapter 2 – Principles of Management>

<Download Link for Chapter 3 – Business Environment>

<Download Link for Chapter 4 – Planning>

<Download Link for Chapter 5 – Organising>

<Download Link for Chapter 6 – Staffing>

<Download Link for Chapter 7 – Directing>

<Download Link for Chapter 8 – Controlling>

<Download Link for Chapter 9 – Financial Management>

<Download Link for Chapter 10 – Financial Markets>

<Download Link for Chapter 11 – Marketing>

<Download Link for Chapter 12 – Consumer Protection>

NCERT Solutions Business Studies Class 12 – FREE Download 

Students can find NCERT solutions for Class 12 Business Studies online on Extramarks. These files are easy to download and are free of cost. Students should download these files and put them to good use. They can use them to assess their knowledge in the different chapters. The entire syllabus is covered in these NCERT solutions and can help you  be thoroughly prepared for your Board examinations. 

It is perfectly normal and common to feel overwhelmed by the syllabus or examination pressure. Class 12 is considered  a crucial time in a student’s life, mainly because it is the deciding point for one’s career. However, the good news is that students can easily ace this examination when they study smart using NCERT solutions of Class 12 Business Studies by Extramarks. These solutions are designed by subject matter experts and cover all the important topics in simple language and with relevant real-life scenario-based examples. 

NCERT Solutions Business Studies Class 12 Explanation 

The term ‘Business Studies’ is an umbrella term for a number of important concepts for everyday life. We come across this term frequently because business is a part-and-parcel of everyday life. While some of us are able to understand and apply the concepts of business to everyday life quite well, there are others who struggle to do so. They need to learn business concepts from scratch. Nonetheless, it is always better to learn about a subject in a systematic manner. 

This is because business is not simply transactional. Understanding merely  the concepts of buying and selling is not enough. One must also possess an understanding of people, expenditure, work, savings, investments, leisure, and travel. Business significantly affects our personal growth and livelihoods. To understand such a core concept of life itself, you need comprehensive and top-quality study materials. 

Extramarks brings to you the NCERT solutions of Class 12 Business Studies compiled by subject matter experts for a thorough understanding of business and all that it entails. From learning about the business environment to the various planning phases and the types of operations that take place, a number of crucial topics are covered. Each is also explained using relevant real-world examples for better grasp and understanding. These NCERT solutions will do more than help you score good marks; they will enable you to tackle the business affairs of your life well. 

NCERT Solutions of Class 12 Business Studies Overview 

Chapter 1 – Nature and Significance of Management 

In this chapter, you will learn about the definition and basics of business management along with the different concepts with special attention given to the traditional and modern concepts. 

Chapter 2 – Principles of Management 

This chapter thoroughly covers the various principles that business management follows. Each principle is explained with the help of real-world examples. 

Chapter 3 – Business Environment 

This is an interesting chapter explaining how a business environment is like and how everything within it operates. You will also learn about the characteristics of the business environment in this chapter. 

Chapter 4 – Planning 

This chapter defines business planning as defined by Fayol and then goes on to talk about the importance and features of planning. 

Chapter 5 – Organising

This chapter talks about the structure of an organisation as well as the meaning, importance, and process of organising for business success. 

Chapter 6 – Staffing 

This chapter covers the definition of staffing as well as its importance. Even Human Resources (HR) is discussed, making it an interesting chapter. 

Chapter 7 – Directing 

In this chapter, not only are the meaning and characteristics of direction covered, but also the process as well as its various principles.

Chapter 8 – Controlling 

Touching upon the topic of deviation as well, this chapter mainly discusses the connection between business planning and controlling. 

Chapter 9 – Finance and Management 

Covering the roles and objectives of financial management, this chapter mainly speaks about financial management. 

Chapter 10 – Financial Market 

This chapter offers much in terms of financial value. It covers sub-topics such as classifications and functions of financial markets as well as stock markets, floatation, etc. 

Chapter 11 – Marketing Management 

This chapter mainly defines and talks about concepts such as consumer, buying, selling, marketing, etc. 

Chapter 12 – Consumer Protection 

In this chapter, you will learn about the definition and meaning of  consumer, the importance of consumer protection, and how and through whom  the consumer can file a case against. This chapter also covers different kinds of consumer rights. 

Benefits of NCERT Solutions for Class 12 Business Studies 

  • The NCERT solutions cover very important questions that may be asked during Board examinations. 
  • Each chapter and concept is explained in a comprehensive manner using real-world examples for ease of understanding. 
  • These solutions also include questions and quizzes at the end to help with revision and assessing one’s progress and knowledge. 
  • The language is simple and easy-to-understand to enable a quick grasp of the concepts being discussed. 
  • Regular and consistent practice can help students score well and make the most of their everyday business affairs. 

Q.1 What is meant by capital structure?

Ans.

Capital structure refers to the mix between owners and borrowed funds. Owner’s funds consist of equity share capital, Preference share capital, Reserves & surplus. Borrowed funds consist of Debentures, Loans, Deposits, etc. A company needs to decide upon the optimum mix of these sources, which refers to the capital structure.

Q.2 Sate the two objectives of financial planning.

Ans.

The twin objectives of financial planning are:

(a) To ensure availability of funds whenever these are required: This includes a proper estimation of the funds required for different purposes such as for the purchase of long-term assets or to meet day-to-day expenses of business etc.

(b) To see that the firm does not raise resources unnecessarily: Excess fund is almost as bad as inadequate funding. Even if there is some surplus money, good financial planning would put it to the best possible use so that the financial resources are not left idle and don’t unnecessarily add to the cost.

Q.3 Name the concept of financial management which increases the return to equity shareholders due to the presence of fixed financial charges.

Ans.

The concept of financial management which increases the return to equity shareholders due to the presence of fixed financial change is called trading on equity.

Trading on equity refers to the increase in profit earned by the equity shareholders due to the presence of fixed financial charges like interest.

Q.4 Amrit is running a ‘transport service’ and earning good returns by providing this service to industries. Giving reason, state whether the working capital requirement of the firm will be‘less’ or ‘more’.

Ans.

Amrit requires a large amount of working capital.Apart from the investment in fixed assets every business organisation needs to invest in current assets.Working capital investment facilitates smooth day-to-day operations of the business.

Q.5 Ramnath is into the business of assembling and selling of televisions. Recently he has adopted a new policy of purchasing the components on three months credit and selling the complete product in cash. Will it affect the requirement of working capital? Give reason in support of your answer.

Ans.

Yes it will affect the requirement of working capital.

If the company purchases raw material on credit basis and sells finished goods on cash basis, it will have low working capital.

For example, just as a firm allows credit to its customers it also may get credit from its suppliers. To the extent it avails the credit on purchases, the working capital requirement is reduced.

Q.6 What is financial risk? Why does it arise?

Ans.

Proportion of debt in the total capital determines the overall financial risk. Financial risk is the situation that the company will not be able to meet its fixed financial charges. With higher degree of debt in the overall capital, i.e. high Debt Equity ratio, the overall cost of capital declines and profitability (EPS) increases. However, due to higher repayment and interest payment obligations, the financial risk increases.

Q.7 Define current assets? Give four examples of such assets.

Ans.

Current assets are the assets that can be readily converted into cash within 12 months. Debtors, B/R, stock, short term investments, etc. are some of the current assets. These assets shall be financed through current liabilities.

Q.8 What are the main objectives of financial management? Briefly explain.

Ans.

The primary objective of financial management is to maximise shareholder’s wealth. To achieve the wealth maximisation objective, management needs to achieve the following specific objectives:

  • Ensure availability of sufficient funds at reasonable cost and reasonable risk.
  • Effective utilisation of funds, to ensure returns are more than cost of funds.
  • Ensuring safety of funds by creating reserves, reinvesting profits, etc.
  • Avoiding idle finance, else it will unnecessarily add to cost of finance.

Q.9 Financial management is based on three broad financial decisions. What are these?

Ans.

Three broad financial decisions are:

(a) Investment Decision: The financial manager is required to study, analyse and evaluate various investment proposals and take decisions in the interest of the enterprise. These decisions, respectively, affect the liquidity and profitability of an enterprise.

(b) Financing decision: Financing decision involves determining the quantum of finance to be raised from various sources. It involves the identification of various available sources from were funds can be raised. The firm has to decide the proportion of funds to be raised from the various sources, depending on the risk and returns involved.

(c) Dividend decision: Financial management is also concerned with the appropriation of profits. The company has to meet various obligations out of its profit.

Q.10 Sunrises Ltd. dealing in readymade garments, is planning to expand its business operations in order to cater to international market. For this purpose the company needs additional Rs. 80,00,000 for replacing machines with modern machinery of higher production capacity. The company wishes to raise the required funds by issuing debentures. The

debt can be issued at an estimated cost of 10%.The EBIT for the previous year of the company was Rs.8,00,000 and total capital investment was Rs.1,00,00,000. Suggest whether issue of debenture would be considered a rational decision by the company. Give reason to justify your answer. (Ans. No, Cost of Debt (10%) is more than ROI which is 8%).

Ans.

A company can issue debenture for raising fund if the cost of the debt is less than cost of capital.

In this case, the cost of capital for sunrises limited is 10% for the total capital of ₹80,00,000, cost of capital will be ₹8,00,000.

As per the previous year earnings statement, the company had net earnings of ₹8,00,000 for the capital investment of ₹1,00,000.

So total return on investment:

ROI = Return/Investment

ROI = 8,00,000/1,00,00,000 = 8 percent

Under the assumption, that company will operate under the same efficiency, the additional investment of 80,00,000 will be having net ROI of 8% which will be 6,40,000 against the cost of debt 8,00,000.

As for the project the cost of is 10% which is generating ROI of 8%. It would not advisable decision for a company to issue debenture when cost of debt is higher than cost of capital.

Q.11 How does working capital affect both the liquidity as well as profitability of a business?

Ans.

Working capital is the excess of current assets over current liabilities. It affects both liquidity as well as profitability of a business.

Increase in working capital increases the liquidity of the business. But current assets have low returns so this decreases the profitability of the business.

Q.12 Aval Ltd. is engaged in the business of export of canvas goods and bags. In the past, the performance of the company had been upto the expectations. In line with the latest demand in the market, the company decided to venture into leather goods for which it required specialised machinery. For this, the Finance Manager Prabhu prepared a financial blueprint of the organisation’s future operations to estimate the amount of funds required and the timings with the objective to ensure that enough funds are available at right time. He also collected the relevant data about the profit estimates in the coming years. By doing this, he wanted to be sure about the availability of funds from the internal sources of the business.

For the remaining funds, he is trying to find out alternative sources from outside.

  1. Identify the financial concept discussed in the above paragraph. Also, state the objectives to be achieved by the use of financial concept so identified. (Financial Planning).
  2. ‘There is no restriction on payment of dividend by a company’. Comment. (Legal & Contractual Constraints)

Ans.

a)

The concept discussed is ‘Financial Planning’.

The objective of financial planning is to ensure that enough funds are available at right time. If adequate funds are not available the firm will not be able to honour its commitments and carry out its plans.

Financial planning includes a proper estimation of the funds required for different purposes such as for the purchase of long-term assets or meet day-to-day expenses of business etc.

Excess funding is almost as bad as inadequate funding. Even if there is some surplus money, good financial planning would put it to the best possible use so that the financial resources are not left idle and don’t unnecessarily add to the cost.

b)

There is no restriction on payment of dividend by a company.

Legal constraints: Certain provisions of the Companies Act place restrictions on payouts as dividend. Such provisions must be adhered to while declaring the dividend.

Contractual Constraints: While granting loans to a company, sometimes the lender may impose certain restrictions on the payment of dividends in future. The companies are required to ensure that the dividend does not violate the terms of the loan agreement.

Q.13 What is working capital? Discuss five important determinants of working capital requirement?

Ans.

Working capital is the excess of current assets over current liabilities. It is calculated by deducting current liabilities from current assets. If current assets are equal to current liabilities, it means that current assets are totally financed by current liabilities. If current assets are greater than current liabilities, then the excess is surely financed by non-current liabilities or long-term loans and share capital. Every business organisation needs to invest in current assets for the smooth functioning of day to day operations.
The important determinants of working capital requirement are:
(a) Nature of the business: In case of cash nature of business, inventories and book debts are lesser, so small working capital will be sufficient. On the other hand, trading and manufacturing business enterprises have larger stock and book debts, so their net working capital is higher.

(b) Technology and production cycle: In case of longer span of production cycle, higher working capital will be required. The quantum of working capital may be reduced by taking advance payment for goods, cash sales and improvement in production technology, etc.
At the same time, use of modern technology, machines and equipments makes the production process faster. Conversion of raw material into finished goods becomes quicker. Labour cost is reduced. As such working capital requirement becomes lesser.

(c) Trade/business cycle fluctuations: The operation of trade cycle results in boom, recession, depression and recovery in the economy. In boom situations, demand for goods increases resulting in the increase of price, production and expansion of business activities. It will require larger amount of working capital to meet the demand and for the modernisation of plant.
In case of depression and recession, business activities slow down, demand goes on a decline, low level of inventory is required, and debtors are also reduced. As such lesser working capital is required.

(d) Credit policy: Credit policy has dual effect on the quantum of capital. Firstly the credit terms allowed by firm to other firms and secondly the credit terms allowed by other firms to the firm. More credit sales will require more working capital and in the same way in case of cash sales, lesser working capital will be sufficient.
On the other hand, in case of liberal terms from the suppliers i.e. credit sales for longer duration or payment after sales, lesser working capital will be required and vice-versa.

(e) Growth prospects: Higher growth prospects is related to higher production and thus requires more amount of working capital.

Q.14 “Capital structure decision is essentially optimisation of risk-return relationship.” Comment.

Ans.

Capital structure is the combination of differ financial sources used by a company for raising funds. It means the ratio of debts to equity and the ratio of debt to total capitalisation. Funds can be either owner’s funds or borrowed funds. Owners funds are in the form of shares, retained earnings, etc. Borrowed funds constitute loans, debentures and bonds. Both the sources have risk and cost associated with them. Cost of debt is less as interest paid is a tax deductible expense but this puts an additional liability on the company to pay interest irrespective of profit or loss. But higher return can be achieved through debt at lower cost.

Raising funds through equity is costlier as it involves payment of dividend and also voting rights are provided to shareholders that affect the decision making of the organisation. Capitalisation is the sum total of debt and equity. The cost of procuring funds should be less. While borrowing funds, it should be kept in mind that the cost of servicing of debts would be reasonably low.

Q.15 “A capital budgeting decision is capable of changing the financial fortunes of a business.” Doyou agree? give reasons for your answer?

Ans.

The financial manager is required to study, analyse and evaluate various investment proposals and take decisions in the interest of the enterprise. Decisions for investments for a short term (regarding working capital) are called Working Capital decisions and those for long term (regarding investment in fixed assets/ branch) are called Capital Budgeting decisions. These decisions, respectively, affect the liquidity and profitability of an enterprise.

These decisions are very crucial for any business since they affect its earning capacity over the long run. The size of assets, the profitability and competitiveness are all affected by the capital budgeting decisions. Moreover, these decisions normally involve huge amounts of investment and are irreversible except at a huge cost. A bad capital budgeting decision normally has the capacity to severely damage the financial fortune of a selected or rejected. If there is only one project then its viability in terms of the rate of return viz., investment and its comparability with the industry’s average is seen.

Q.16 Explain the factors affecting dividend decision?

Ans.

Factors affecting the dividend decision are:

  1. Shareholder’s preference: Preference of shareholders should be kept in mind while deciding the dividend distribution or retention of profits. If shareholders in general desire that at least a certain amount is to be paid as dividend the companies are likely to declare the same. There are always some shareholders who depend upon a regular income from their investments.
  2. Taxation Policy: A dividend distribution tax is charged on companies, but dividend is tax free in hands of shareholders. Companies may pay lower dividends if tax rate is high & vice-versa, whereas, shareholders may prefer higher dividends.
  3. Earnings: Dividends are paid out of current and past earning. Therefore, earnings are a major determinant of the decision about dividend.
  4. Stability of Earnings: Other things remaining the same, a company having stable earning is in a position to declare higher dividends.
  5. Growth Opportunities: Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment.
  6. Access to Capital Market: Large and reputed companies generally have easy access to the capital market and therefore may depend less on retained earning to finance their growth. These companies tend to pay higher dividends than the smaller companies.

Stock Market Reaction: Investors, in general, view an increase in dividend as a good news and stock prices react positively to it. Similarly, a decrease in dividend may have a negative impact on the share prices in the stock market.

Q.17 Explain the term ‘Trading on equity’? Why,when and how it can be used by company.

Ans.

Trading on equity refers to the use of more debt along with equity shares in the capital structure with a view to increase earnings per share. This is possible only if the return on investment is greater than rate of interest on debt. Trading on equity refers to the additional profits that equity shares earn because of high degree of financial leverage, i.e., funds raised by issuing more debts. Difference between return on investment and rate of interest on debt increases, earning per share increases.

Let us understand through a practical example:

XYZ Ltd. requires ₹ 4,00,000 for a project. He has two options:

  1. Raise entire amount by issue of equity shares, or
  2. Raise ₹ 1,50,000 through issue of equity shares and ₹2,50,000 by issue of 10% debentures.

Also consider that tax rate is 30%.

The EPS in different options will be:

Particulars

Option (a)

Option (b)

Earnings before interest and tax 1,00,000 1,00,000
Less: Interest 25,000
Earnings before tax 1,00,000 75,000
Less: Tax @ 30% 30,000 22,500
Earnings after tax 70,000 52,500
Divide: No. of shareholders 40,000 15,000
Earnings per share 1.75 3.5

Option (b) has better EPS as it has the advantage of trading on equity. But this can be used only when the return on investment is higher than the rate of interest on debt.

Q.18 ‘S’ Limited is manufacturing steel at its plant in India. It is enjoying a buoyant demand for its products as economic growth is about 7–8 per cent and the demand for steel is growing. It is planning to set up a new steel plant to cash on the increased demand. It is estimated that it will require about Rs.5000 crores to set up and about Rs.500 crores of working capital to start the new plant.

a. Describe the role and objectives of financial management for this company.

b. Explain the importance of having a financial plan for this company. Give an imaginary plan to support your answer.

c. What are the factors which will affect the capital structure of this company?

d. Keeping in mind that it is a highly capital-intensive sector, what factors will affect the fixed and working capital. Give reasons in support of your answer.

Ans.

  1. Financial management is required to ascertain:
  1. Amount of fixed assets: Capital budgeting means taking investment decisions regarding the purchase of fixed assets. These decisions are very crucial for any business since they affect its earning capacity over the long run.
  2. Composition of funds used: Composition is the mix of short term and long term sources of finance used by the company.
  3. Debt equity proportion in the capital structure: Capital structure is the composition between owners’ funds and outsiders’ long-term funds. It tells how much amount has been invested by the owner of the business and how much amount has been borrowed from outside.
  4. Composition of current assets: Current assets are called gross working capital. Current assets include cash, debtors, stock and short-term investments.

The primary objective of financial management is to maximise shareholder’s wealth. To achieve the wealth maximisation objective, management needs to achieve the following specific objectives:

  • Ensure availability of sufficient funds at reasonable cost and reasonable risk.
  • Effective utilisation of funds, to ensure returns are more than cost of funds.
  • Ensuring safety of funds by creating reserves, reinvesting profits, etc.
  • Avoiding idle finance, else it will unnecessarily add to cost of finance.
  1. Financial planning will help the company to raise adequate funds. This will solve the problem of overcapitalization.
  • It will help to minimise wastage of time, efforts and money.
  • It will help the company to forecast more accurately.
  1. Factors that affect capital structure of the company are:
  1. Cash Flow Position: Size of projected cash flows must be considered before issuing debt. It must be kept in mind that a company has cash payment obligations.
  2. Interest Coverage Ratio (ICR): The higher the ratio, lower is the risk of company failing to meet its interest payment obligations
  3. Return on Investment (ROI): If the ROI of the company is higher, it can choose to use trading on equity to increase its EPS.
  4. Risk Consideration: Use of debt increases the financial risk of a business. Financial risk refers to a position when a company is unable to meet its fixed financial charges namely interest payment preference dividend and repayment obligations.
  5. Factors affecting fixed capital requirement are:
  6. Nature of Business: The type of business has a bearing upon the fixed capital requirement. A trading concern needs lower investment in fixed assets compared with a manufacturing organisation.
  7. Scale of Operations: A large organisation operating at a higher scale needs bigger plant, more space etc. and therefore, requires higher investment in fixed assets when compared with the smaller organisation.
  8. Choice of Technique: Some organisations are capital intensive whereas others are labour intensive. A capital intensive organisation requires higher investment in plant and machinery compared to others.
  9. Technology Up gradation: In certain industries, which employ higher technology, the assets become obsolete sooner. Consequently, their replacements become due faster, requiring higher capital requirement.
  10. Growth prospects: If an organisation has growth plans, it requires higher investment in fixed assets and consequently higher fixed capital, compared to organisations which do not have immediate expansion prospects.

Factors affecting working capital requirement are:

  1. Nature of Business: The basic nature of a business influences the amount of working capital required. A trading organisation usually needs a lower amount of working capital compared to a manufacturing organisation.
  2. Scale of Operations: For organisations which operate on a higher scale of operation, the quantum of inventory, debtors required is generally high.
  3. Seasonal Factors: Most business have some seasonality in their operations. In peak season, because of higher level of activity, higher amount of working capital is required.
  4. Production Cycle: Production cycle is the time span between the receipt of raw material and their conversion into finished good Duration and the length of production cycle, affects the amount of funds required for raw materials and expenses.

Q.19 Under which consumer right does a business firm set up consumer grievance cell?

Ans.

Right to be Heard: The consumer has a right to file a complaint and to be heard in case of dissatisfaction with a good or a service. It is because of this reason that many enlightened business firms have set up their own consumer service and grievance cells.

Q.20 Which quality certification mark is used for agricultural products?

Ans.

The quality mark provided under the Act is known as “AGMARK” is used for quality certification mark for agricultural products.

Q.21 What is the jurisdiction of cases that can be filed in a State Commission?

Ans.

This is established by the State Government in the state. Only those complaints can be filed with State Commission where the value of goods or services and compensation claimed is between twenty lakhs to one crore. Also, appeals against the orders of any District Forum can be filed before the State Commission.

Q.22 State any two relief available to consumers under CPA.

Ans.

Relief available:

  • To replace the defective product with a new one, free from any defect.
  • To pay a reasonable amount of compensation for any loss or inquiry suffered by the consumer due to the negligence of the opposite party.
  • To refund the price paid for the product, or the charges paid for the services.

Q.23 Name the component of product mix that helps the consumer to exercise the right to information.

Ans.

Quality certification of the product helps the consumer to exercise the right to information.

Q.24 Enumerate the various Acts passed by the Government of India which help in protection of consumers’ interests.

Ans.

Various Acts passed by the Government of India which help in protection of consumers’ interests are:

  • Consumer Protection Act, 1986
  • Contract Act 1872
  • Sales of Goods Act, 1930
  • Agriculture Produce Act, 1937
  • Prevention of Food Adulteration Act, 1954
  • Essential Commodities Act, 1955

Q.25 What are the responsibilities of a consumer?

Ans.

A consumer should keep in mind certain responsibilities while purchasing, using and consuming goods and service.

The responsibilities that consumer needs to exercise while purchasing the ornaments are:

  • Should buy only standardized goods as they provide quality assurance.
  • Should read labels carefully so as to have information about prices, weight, manufacturing etc.
  • Should ask for cash memo on purchase of goods and services as it serves as a proof of the product.
  • Should learn about the risk associated with products and services and follow manufacturer’s instructions and use the products safely.

Q.26 Who can file a complaint in a consumer court?

Ans.

The following persons can file a complaint under Consumer Protection Act, 1986:

  • A consumer;
  • Any recognised voluntary consumer association whether the consumer is a member of that association or not;
  • The Central or any State Government;
  • One or more consumers, on behalf of numerous consumers having common interest;
  • Legal heir or representative in case of death of a consumer.

Q.27 FSSAI (Food Safety and Standards Authority of India) has made a proposal for hotels and other food outlets to declare the kind of oil/fat used in cooking each of the food items on their menus. Name and explain the Consumer Right being reinforced by this proposal.

Ans.

The consumer right being reinforced by this is ‘Right to be informed’.

The consumer has a right a complete information about the product he intends to buy including its ingredients, date of manufacture, price, quantity, directions for use, etc. It is because of this reason that the legal framework in India requires the manufactures to provide such information on the package and label of the product.

Q.28 Who is a consumer as per CPA?

Ans.

A consumer is one that buys good for consumption and not for the resale or commercial purpose.

Q.29 Explain the importance of consumer protection from the point of view of a business.

Ans.

Consumer protection is important for businesses due to following reasons:

  • Long term interest: It is the businesses’ long term interest to satisfy their customers. Satisfied customers lead to repeat sales, goodwill and thus lead to profit maximisation for the firm.
  • Business uses society’s resources: Business have a responsibility to supply such products and render such services which are in public interest.
  • Social responsibility: Business has social responsibility towards different interest groups, mainly consumers. Business needs to supply good quality products and reasonable prices to consumers.
  • Moral Justification: It is the moral duty of any business to take care of consumer interests and avoid any form of exploitation. Business must avoid any unscrupulous and unfair trade practices for their own interests.
  • Government Intervention: A business engaging in exploitative trade practice would attract government intervention, which can spoil the image of business. Thus, it should voluntarily not resort to such practices.

Q.30 Explain the rights and responsibilities of consumer?

Ans.

According to the provisions of the act consumers have been granted following six rights:

  • Right to safety: Certain goods may cause serious injuries. If there is any manufacturing defect in the goods, consumers have right to be protected against these fatal risks. The consumers protection act safeguards consumers’ interest.
  • Right to be informed: A consumer has the right to be informed about the quality, quantity and price of the product. He should also be informed about the ingredients of the product, date of manufacture and expiry, method of use, side effects of the commodity and precautions to be undertaken. The information should be written on the package or on the separate piece of paper.
  • Right to choose: The consumer has the right to choose the product of his choice out of the alternative products available. Manufacturers should offer a wide variety of products in terms of quality, brand, size, etc, so that consumers can make their choice.
  • Right to be heard: Every consumer must be granted right to be heard. He must be assured that its complaints and grievances about the product and services will be heard and attention paid to it.
  • Right to seek redressal: Consumers have the right to get their claims settled in their favour in case of being cheated and exploited by the producer. The government has set up many consumer courts for this specific purpose.
  • Right to consumer education: The consumer must be educated about the rights, he has been granted by the law to protect his interest.

A consumer should keep in mind the following responsibilities:

  • Be aware about various goods and services available in the market.
  • Buy only standardised goods as they provide quality assurance. Thus, look for ISI mark, FPO mark, Hallmark, etc.
  • Learn about the risks associated with products and services and follow manufacturer’s instructions.
  • Read labels carefully so as to have information about prices, net weight, manufacturing and expiry dates, etc.
  • Assert yourself to ensure a fair deal.
  • Be honest in your dealings. Choose only from legal goods and services and discourage unscrupulous practices like black-marketing, hoarding, etc.
  • Ask for a cash memo on purchase of goods or services.

Q.31 What are various ways in which the objective of consumer protection can be achieved?

Ans.

Ways in which the objective of consumer protection can be achieved are:

  • Consumer education: A consumer must be aware and educated about his rights and responsibilities. He must also be aware of relief available.
  • Formation of business associations: Associations such as FCCI and CII should be formed.
  • Self regulation by business: A business must realise that interest of consumers should be kept in mind at all the stages of product development and selling.

In India, several consumer organisations and non-governmental organisations (NGOs) have been set up for the protection and promotion of consumers’ interests. Consumer organisations and NGOs have undertaken various activities as part of the consumer movement.

They perform several functions like:

  • Creating awareness about consumer rights and educates the general public about consumer problems and remedies through seminars, workshops and training programmes.
  • Providing legal aid to consumers by way, of assistance in seeking legal remedy.
  • Filing complaints in relevant consumer courts n behalf of consumers and undertaking advocacy of consumers’ point of view as representative members of consumer protection councils and others official boards.
  • Arranging comparative testing of consumer products through their own testing apparatus or accredited laboratories so as to evaluate the relative qualities of competing brands and publish the test results for the benefit of consumers to become informed buyers.
  • Publishing periodicals and journals to disseminate information among readers about consumer problems, legal reporting and other emerging matters of interest.

Q.32 Explain the redressal mechanism available to consumers under the Consumer Protection Act, 1986.

Ans.

Following are three redressal forums set up to deal with consumer grievances and disputes:

District Forum:

  • This is established by the State Government in each district. The salient features of this Forum are as under:
  • It shall consist of a chairman and two members appointed by the State Government.
  • Only those complaints are filed where the value of goods or services and the compensation claimed is less than rupees twenty lakhs.
  • The consumer to whom the goods are sold or delivered can file a complaint.
  • The District Forum has to refer the complaint to the opposite party concerned, and send the sample of goods for testing in a laboratory.

State Commission:

  • This is established by the State Government in the state. The salient features of State Commission are as under:
  • It shall consist of a President who either is or has been a Judge of a High Court and two other Members. All the three shall be appointed by State Government.
  • Only those complaints can be filed where the value of goods or services and compensation claimed is between rupees twenty lakhs and rupees one crore. Also, appeals against the orders of any District Forum can be filed before the State Commission.

National Commission:

  • This is established by the Central Government. The salient features of the Commission are as under:
  • It shall consist of a President who either is or has been a Judge of a Supreme Court and four other members. All shall be appointed by the Central Government.
  • All complaints pertaining to those goods or services and compensation whose value is more than rupees one crore can be filed. Also, appeals against the order of any State Commission can be filed before the National Commission.

The relief available to the consumers is in the form of directions which can be issued by the Consumer Court, against the seller/manufacturer:

  • To remove the defects in goods or deficiency in service.
  • To replace the defective product with a new one.
  • To refund the price paid for the product or charges paid to the service.
  • To pay a reasonable amount of compensation for any loss or injury suffered by the consumer due to the negligence of the opposite party.
  • To discontinue the unfair/ restrictive trade practice and not to repeat it in future.
  • To withdraw the hazardous goods for sale.
  • To cease manufacture of hazardous goods and to desist from offering hazardous services.
  • To issue corrective advertisement to neutralize the effect of a misleading advertisement.

Q.33 Explain the role of consumer organisations and NGOs in protecting and promoting consumer’s interest.

Ans.

In India, several consumer organisations and non-governmental organisations (NGOs) have been set up for the protection and promotion of consumers’ interests. Consumer organisations and NGOs have undertaken various activities as part of the consumer movement.

They perform several functions like:

  • Creating awareness about consumer rights and educates the general public about consumer problems and remedies through seminars, workshops and training programmes.
  • Providing legal aid to consumers by way, of assistance in seeking legal remedy.
  • Filing complaints in relevant consumer courts n behalf of consumers and undertaking advocacy of consumers’ point of view as representative members of consumer protection councils and others official boards.
  • Arranging comparative testing of consumer products through their own testing apparatus or accredited laboratories so as to evaluate the relative qualities of competing brands and publish the test results for the benefit of consumers to become informed buyers.
  • Publishing periodicals and journals to disseminate information among readers about consumer problems, legal reporting and other emerging matters of interest.

Q.34 Mrs. Mathur sent a jacket to a laundry shop in January 2018. The jacket was purchased at a price of ₹4,500. She had previously sent the jacket

for dry cleaning with Shine Dry Cleaners and the jacket was cleaned well. However, she noticed that her jacket had white discoloration marks when she collected the jacket this time. On informing the dry cleaner, Mrs. Mathur received a letter confirming that discolouration indeed appeared after the jacket was dry cleaned. She contacted the dry cleaner multiple times and requested for compensation for discoloured jacket but to no avail. Upon Consumer court’s intervention, Shine Dry Cleaners agreed to compensate ₹2,500 to Mrs. Mathur for the discoloured jacket.

a. Which right was exercised by Mrs. Mathur at the first instance?

b. Name and explain the right which helped Mrs. Mathur to avail the compensation.

c. State which consumer responsibility has been fulfilled by Mrs. Mathur in the above case.

d. State any other two responsibilities to be assumed by the consumers

Ans.

a)

Right to seek Redressal right was exercised by Mrs. Mathur at the first instance.

b)

The consumer has a right to get relief in case the product or service falls short of his expectations. The consumer Protection Act provides a number of reliefs to the consumers including replacement of the product, removal of defect in the product, compensation paid for any loss or injury suffered by the consumer, etc.

c) Mr. Mathur file a complaint in an appropriate consumer forum in case of a shortcoming in the quality of service availed.

d)

Consumer responsibilities:

Be aware about various goods and services available in the market so that an intelligent and wise choice can be made.

Buy only standardised goods as they provide quality assurance. Thus look for ISI mark on electrical goods, FPO mark on food products, Hallmark on jewellery, etc.

Q.35 p style=”margin-left: 6px;”>State any two advantages of branding to marketers of goods and services?

Ans.

Branding implies giving a unique name, sign, symbol, or term for identification of a product. The following are the advantages of branding to the marketers:

  • Branding enables a firm to distinguish its products from the product of other firms.
  • It facilitates advertising of the product. A product with a generic name cannot be advertised.

Q.36 How does branding help in differential pricing?

Ans.

Branding enables a firm to charge different price for its products than that charged by its competitors. This is possible because, if customers like a brand and become habitual of it, they do not mind paying a little higher for it.

Q.37 What is the societal concept of marketing?

Ans.

According to societal concept of marketing the organisations must identify the needs of the market and the target consumers and deliver the desired results in an efficient manner. The organisation should identify not just the immediate needs of the market rather should aim at long –term well being of the consumers. Besides consumer satisfaction, organisations should aim at ecological, ethical and social aspects such as pollution, scarcity of resources etc.

Q.38 List the characteristics of convenience products.

Ans.

Convenience products refer to those products that are purchased frequently, immediately and with minimum time and effort.

The following are the characteristics of a convenience product:

  • Such products are easily available at convenient places with minimum time and effort wastage.
  • Convenience products are consumed frequently and have a continuous demand. Essential commodities come under the category of convenience products.
  • They are available in small units and low and standardised prices.

The competition in the market for such products is high. As such, heavy advertising is required for these products

Q.39 Enlist the advantages of packaging of consumer products.

Ans.

Packaging refers to the process of developing and designing the container for a product.

A good packaging has the following advantages:

  • It enables differentiation and identification of a product from other products.
  • It acts as a promotional tool. Use of colours, symbols, pictures, symbols in packaging helps in attracting the customers.
  • Appropriate packaging contributes to the convenience of handling the product.
  • It helps in protecting the quality of the product from any kind of damage, spoilage, breakage etc. particularly at the time of storage and transportation.

Q.40 What are the limitations of advertising as a promotional tool? Enlist.

Ans.

The following are the limitations of advertising as a promotional tool:

  • It lacks personal form of communication and hence is less forceful.
  • Evaluation regarding the effectiveness of the advertisement is very difficult to conduct.
  • Advertisements come in standardised form and cannot be moulded as per requirements of different groups of people.
  • Effectiveness of advertising is low as there can be numerous advertisements.

Q.41 List five shopping products purchased by you or your family during the last few months.

Ans.

  • Utensils
  • Clothes
  • Washing machine
  • Furniture
  • Grocery

Q.42 A marketer of colour TV having 20% of the current market share of the country aims at enhancing the market share to 50 per cent in next three years. For achieving this objective he specified an action programme. Name the function of marketing being discussed above. (Ans. Marketing planning.)

Ans.

Marketing Planning refers, a marketer is to develop appropriate marketing plans so that the marketing objectives of the organisation can be achieved.

For example, a marketer colour TV having 10% of the current market share in the country, aims at enhancing his market share to 50 per cent. In the next three years, he will have to develop a complete marketing plan covering various aspects like: Increasing the level of production, promotion of the products, etc. and specify the action programmes to achieve these objectives.

Q.43 What is marketing? What functions does it perform in the process of exchange of goods and services? Explain.

Ans.

Marketing refers to the process wherein the buyers and sellers interact with each other for purchase and sale of goods and services. Earlier, marketing had different approaches with respect to its definition.

  • It was sometimes described as post- production process that involves purchasing of the final products and sometimes, as a pre-production process that involves merchandising (designing) of the product. In reality, marketing is a much wider concept than this.
  • It consists of those activities that are involved in the process of exchange of goods and services between producers and consumers.
  • These activities are basically the functions performed under marketing. It involves planning and designing of the product, packaging and labeling of the product, standardising, branding, warehousing, transportation, advertising, priding and distribution.
  • It also includes activities that are performed even after the sale of product such as maintaining customer relations and collecting feedback.

Q.44 Distinguish between the product concept and production concept of marketing.

Ans.

Basis Production Concept Product Concept
Focus Is on quantity of product Is on quality of product
Means Through availability and affordability of product Through improvement of quality of products
Ends To earn profits through large volume of production To earn profits through quality of product

Q.45 Product is a bundle of utilities. Explain.

Ans.

When a customer decides to buy a product, his/her main focus lies on the utility which he/she receives while consuming it. A customer seeks different types of satisfaction from the product. Benefits derived from a product can be of three types – functional benefits, psychological benefits and social benefits.

  • For instance, when a customer purchases a car, it provides him functional utility as a means of transport. He also receives psychological benefits in the form of pride and self esteem that he has brought a car. Along with this come the social benefits in the form of acceptance by the peers.
  • Thus a product is said to be bundle of utilities and a buyer while buying a product values all kinds of utilities.

Q.46 What are industrial products? How are they different from consumer products?

Ans.

Industrial products refer to those products that are used as inputs for the production of other goods. Such goods are not meant for final consumption rather they are used as raw material and inputs by the manufacturers for the production of consumer goods. For example, machine, tools etc are industrial products.

Consumer products refer to those products that are used by ultimate customers for their personal consumption. For example, toothbrush, edible oil and detergents are consumer goods.

Difference between industrial product and consumers products are as follows:

Basis Industrial Products Consumer products
No. of customers Number of customers is limited. For example , oil seeds are used by the producers of mustard oil The number of customers is higher. For example, mustard oil in home is used by large number of customers.
Channel of distribution Such products require shorter channels of distribution such as direct selling or one level channel These products require longer channels before they reach the final consumer. For perishable commodities it is small
Location Industrial products remain concentrated only in those areas where industrial producing goods are located. Consumer products are readily and conveniently available.
Demand Demand for industrial products are derived demand based on the demand for consumer products. Demand of consumer product is not derived demand rather sets the basis for demand for industrial products.
Role of technical features in decision making Technical features play an important role while purchasing these products Such products do not involve any technical complexities in manufacturing. Technical features does not have much role in decision making while purchasing.

Q.47 Distinguish between convenience product and shopping product.

Ans.

Following are the difference between convenience product and shopping product –

Basis of difference Convenience product Shopping product
Demand These products have a continuous and frequent demand These products have a relatively less frequent demand
Nature of products Essential commodities come under the category of convenience goods Such goods are durable in nature
Unit of purchase and price These products are available in small units and have low unit price. These have low profit margin These products come in bigger units and have high unit prices. Profit margin is also high.
Nature of purchase Such products are bought without devoting much time and effort Such products are bought by consumers after devoting much time in comparing the price , quality etc of the product.
Example Soaps , medicines, newspapers, stationery items etc. Jewellery , furniture , clothes etc.

Q.48 Describe the functions of labeling in the marketing of products.

Ans.

In the marketing process, labeling plays an important role in packaging of the product. Label on a product provides detailed information about the product, its contents, methods of use etc. the various functions performed by a label are as follows:

  • Describe the product and specify its content: One of the most important functions of labels is that it describes the product, its usage, caution in use etc.
  • Identification of the product or brand: A label helps in identifying the product or brand e.g. we can easily pick our favorite soap from a number of packages only because of its label.
  • Grading of products: Label helps in grading the product into different categories. Sometimes marketers assign different grades to indicate features or quality of the product e.g. different type of tea is sold by some brands under yellow, red and green label categories.
  • Help in promotion of products: An important function of label is to aid in promotion of the products. A carefully designed label can attract customers to purchase that product. Some labels provide promotional messages, some show discount or other schemes.
  • Providing information required by law: Another important function of labeling is to provide information required by law. E.g. the statutory warning on the package of cigarette or pan masala – ‘smoking is injurious to health’ or ‘chewing tobacco causes cancer’.

Q.49 Discuss the role of intermediaries in the distribution of consumer non-durable products.

Ans.

The term channels of distribution refer to transfer of goods from place of production to the place where they are consumed.

The following are the different functions of intermediaries in the distribution of consumer non durable products:

Arrangement: an intermediary receives the supply of goods from various sources. He then sorts these goods into homogenous groups based on their characteristics such as size, quality etc. For instance, an electronic goods seller receives supply of different electronic goods and then sorts them based on their functions.

Collection: An intermediary maintains large stock of goods so as to ensure easy flow of supply. For instance, an electronic goods seller maintains large stock of each type of electronic item.

Allocation and Packing: This function includes breaking the larger stock into smaller units. For instance each electronic and their spare parts are packed separately.

Building Variety: An intermediary acquires various goods from different sources and assembles them at a single place. Thus it maintains a variety of goods. He procures the products and then sells them in different combinations as desired by the consumers. For instance, a television and a video player are preferred together by most of the people. Thus, the retail can sell a combination of both.

Promotion of product: They assist in the promotion activities, undertaken by the manufacturers. For example, the manufacturers use advertising for the promotion of their product. The intermediaries can aid this process by putting banners and displays. For example an electronic goods retailer puts up banners for various products highlighting their features.

Mediation: Middle men perform the function of setting a deal that can satisfy both the producers and consumers. They negotiate the price, quality, quantity etc. for efficient transfer of ownership so as to satisfy the needs of both the parties.

Bearing risk: Risk taking is the basic responsibility of the intermediaries. Intermediaries acquire goods from the producers and keep them in their possession till the final sale. Suppose a retailer acquires large quantity of sugar. After a period of time, the price of sugar rises which reduces its demand. Thus the retailer may lose out as the stock remain unsold.

Q.50 Explain the components of physical distribution.

Ans.

The main components of physical distribution are:

Order processing Processing of order comprises number of steps such as placement of order, transmission of order by the intermediaries to the manufacturer, maintenance of inventory as per requirement, delivery of goods etc. As all such processes take time a physical distribution system should be such that it should ensure speedy and proper order processing.

Transportation of products Transportation of goods refers to physical movement of goods from the place where they are manufactured to the place where they are consumed. To make the goods physically available to the consumers they must be transported from the place of production to the place of consumption.

Warehousing Warehousing refers to the process of storing the produced goods before the final act of sale. If a company has a larger number of warehouses, it will be able to readily provide goods on time at different locations. Maintaining warehouses involves costs.

Maintenance of inventory The firms maintain inventory so as to ensure timely supply of products. Similar to warehousing, maintenance of inventory shares a positive relation with customer service.

Q.51 Define advertising? What are its main features? Explain.

Ans.

Advertising can be defined as the paid form of non personal presentation and promotion of ideas, goods or services by an identified sponsor.

Following are the important features of Advertising:

Non-Personal: Advertising is a non-personal form of presenting information regarding a product, service or idea. There is no face to face contact. The advertisement is directed to a large number of persons simultaneously.

Identified Sponsor: Advertising is done by an identified seller or the manufacturer who makes efforts for getting the product or service advertised and also bears all its costs.

Paid form: Advertising is a paid for of communication. Sponsor has to bear the cost of advertising the product to the target customers.

Q.52 Discuss the role of ‘sales promotion’ as an element of promotion mix.

Ans.

Sales promotion refers to the incentives that are offered to the buyers so as to encourage them to purchase the product. It includes activities such as offering discounts, gifts, free samples etc. Such activities supplement other promotional activities undertaken by the company such as advertising and direct selling. They increasingly attract the customers and induce them to immediately purchase the product. Such activities are especially useful at the time of the launch of the product. They bring an initial boost to sales.

Following sales promotion techniques employed by manufacturers are:

Samples: Free samples are distributed in small packs to stimulate consumers. It can be done on a door-to-door basis, by demonstrations or inserting in another packet containing a similar product. For example, shampoo pouches are given free with tooth paste.

Coupons: Sometimes in the packet of a product there will be a discount coupon for the next purchase For example, Reliance Textiles distribute discount coupons to their shareholders. Discount coupons are also printed in certain advertisements appearing in magazines. They have to be presented to the retailer while buying the product.

Product combinations: Offering another product free, as a gift, with the purchase of a product, e.g., a milk shaker along with Nescafe, or mugs with Bournvita, or a pen stand along with a packet of chips. They are effective in getting new consumers for the product. Such incentives are opted by companies to attract more customers and boost its sales.

Q.53 As the marketing manager of a big hotel located at an important tourist destination, what societal concerns would be faced by you and what steps would you plan to take care of these concerns? Discuss.

Ans.

Marketing refers to the process wherein buyers and sellers interact with each other for purchase and sale of goods and services. It comprises of a range of activities such as planning, designing the product, packaging and labeling of the product, pricing and distribution and also after sale services such as maintaining customer relations and collecting feedback.

Selling on the other hand, refers to the promotion activities undertaken for the sale of goods and services. Such promotion activities can be in the form of advertising, publicity, etc. Through the process of selling, product is converted into cash. Thus selling can be regarded as part of marketing.

Following are the difference between selling and marketing:

Basis of Difference Selling Marketing
(1) Focus Selling focuses on seller’s needs i.e., increase in the sales volume. Marketing focuses on customers’ needs and desires i.e., consumer satisfaction.
(2) Scope Selling is a narrower concept. Selling is a part of marketing. Marketing is a wider concept. Marketing includes selling.
(3) Basis It is based on profit through sales volume. It is based on profit through consumer satisfaction.
(4) Approach It is a fragmented approach to achieve short term goals. It is an integral approach to achieve long term goals.
(5) Process It is concerned with the goods already produced. It begins before the production and continues even after the sale has been completed.
(6) Supremacy Producer is considered kingpin of market. Consumer is considered king pin of market.

Q.54 What information is generally placed on the package of a food product?

Design a label for one of the food products of your choice.

Ans.

The following are the information placed on the package of a food product:

  • Name of the product.
  • Graphic symbolising the product.
  • Content /ingredient of the product.
  • Direction to use.
  • Special features of the product.
  • Caution if any, to be taken.
  • Date of manufacture.
  • Date of expiry.

Q.55 For buyers of consumer durable products, what ‘customer care services’ would you plan as a manager of a firm marketing new brand of motorcycle. Discuss.

Ans.

The following are the customer care services for marketing new brand of motorcycle:

  • easy monthly installment.
  • extended warranty periods.
  • free first service.
  • 0% finance scheme.

Q.56 What is the marketing concept? How does it help in the effective marketing of goods and services?

Ans.

Marketing concept of marketing management lays emphasis on customer satisfaction; It believes that customer satisfaction plays a vital role in the success of any organisation. In the long run, any organisation can survive and maximise profits only if it identifies customer needs and effectively work towards fulfilling them. This concept identifies the fact that people purchase a product for satisfaction of specific needs such as functional, social, psychological needs. Any organisation must aim towards identifying such needs and satisfy them in an effective manner. That is it must take all decisions based on needs and requirements of the customer. An organisation works and sells not according to what it has but according to what the customers wants.

The marketing concept is based on the following points:

  • The effort of all marketing activities must be directed towards a particular segment of market or group of customers.
  • The organisations must clearly identify the needs and requirement of the target customers.
  • It should develop such products and services that satisfy the needs of the customers.
  • It should not just independently work towards customer satisfaction but should also aim at satisfying the customers better than its competitors.
  • The main aim of all marketing is profit.

Marketing concept helps in effective marketing of goods and services. If all marketing activities are directed towards customer satisfaction, marketing of goods and services would take place in an effective manner. If decisions of production, pricing, designing, etc are based on needs of the customers, selling would not be a problem.

Q.57 What is marketing mix? What are its main elements? Explain.

Ans.

Marketing mix refers to the set of marketing tools that are used to achieve various objectives of marketing. In the process of marketing, market offering plays a pivotal role. For effective marketing, an organisation must decide the various features of the products such as its size, quality, local of sale etc. Such decisions are affected by large number of factors.

These can be broadly divided into two:

controllable factors and non controllable factors.

Controllable factors are those which can be influenced at the level of the firm. For example whether the drink will be packed in glass bottles or plastic cans, what will be the brand name of the drink, what will be its price, what distribution network will be used, how the advertisement will be etc is decided at the level of marketing manager of the firm. But there are certain factors which affect the decisions but are not controllable at the firm’s level. These are called environmental variables. For example – the political factors such as government policy on whether to allow any technical or financial collaboration in the area of soft drink, production or economic factors such as rate of inflation prevailing in a given period or a credit policy of the central bank affecting the total availability of money in the market, all of which affect the sale of a particular product but cannot be controlled from within. To be successful, the decisions regarding ‘controllable factors’ are to be taken keeping the environmental variables into consideration.

The controllable variables become the marketing tools which are constantly shaped and reshaped by marketing managers to achieve marketing success. For example a firm can reshape a market offering by bringing in a change in any of the variables under its own control like change in price or product feature etc. Thus from a number of alternatives available a firm can choose a particular combination to develop a market offering.

Thus marketing mix is described as the set of marketing tools that a firm uses to pursue its marketing objectives in a target market.

The following are the elements of marketing mix:

Place or physical distribution mix refers to the activities relating to making the products available to the customers at the right place and at the right time. Physical distribution mix consists of two things; physical distribution and channels of distribution. Physical distribution includes all those activities involved in moving products or service from producer to consumer. It includes activities such as – Order processing, Transportation, warehousing, Inventory control, etc. The channels of distribution are those routes through which goods move from the producer to the ultimate consumer. These channels of distribution consists of middlemen such as wholesalers retailers, agents.

Product means goods or services or anything of value and satisfies needs of a customer. For example, car, soap, toothpaste, etc are products. In marketing, a product relates not just to the physical product but it also includes the satisfaction of various needs and utilities of the consumer. For example, toothpaste is bought for whitening teeth, strengthening gums etc. product also includes after sales services such as taking feedback, redressing consumer complaints etc. Important decisions regarding a product relate to its designing, quality, features, labelling, branding and packing.

Promotion deals with informing and persuading the customers regarding the firm’s product. Promotion mix refers to the activities relating to persuading and motivating customers to buy the product. Promotion mix involves decision with respect to:

  • Advertising
  • Personal selling
  • Publicity
  • Sales promotion.

Price is defined as the amount of money paid by a buyer in consideration of the purchase of a product or service.

The factors considered in the pricing decision are:

Product Cost: It sets the minimum price level at which product would be sold. It includes cost of producing, selling and distributing, along with a reasonable profit margin for the manufacturer.

Competition: If there is no competition the business firm can fix the price freely. But if there are competitors in the market the firm must consider the factor before fixing the price. Higher competition in the market leads to lower pricing due to fear of losing customers to competitors.

Q.58 How does branding help in creating product differentiation? Does it help in marketing of goods and services? Explain.

Ans.

Branding implies giving unique name, sign, symbol or term for the identification of a product. Through branding a firm differentiates its products from that of other similar products. A marketer has to decide whether the firm’s products will be marketed under a brand name or a generic name. Generic name refers to the name of the whole class of the product. If products were sold by generic names, it would be very difficult for the marketers to distinguish their products from that of their competitors. Thus most marketers give a name to their product which helps them in identifying and distinguishing their products from the competitors’ products.

It helps in marketing of goods and services in the following ways:

Enables Marking Product Differentiation – Branding helps a firm in distinguishing its product from that of its competitors.

Helps in Advertising and Display Programmers’ – Branding helps in advertising and display programs.Without a brand name, the advertiser can only create awareness for the generic product and can never be sure of the sale for his product.

Differential Pricing: Branding helps a firm to charge different price for its products than that charged by its competitors. This is possible because if customers like a brand and become habitual of it, they do not mind paying a little higher for it.

Ease in Introduction of New Product: If a new product is introduced under a known brand, it is likely to get off to an excellent start. Thus, many companies with established brand names decide to introduce new products in the same name. For example, Samsung extended the brand name of its Television to Washing Machines and other durable products, like Microwave oven.

Q.59 What are the factors affecting determination of the price of a product or service?

Ans.

Price’ is defined as the amount of money paid by a buyer in consideration of the purchase of a product or service. Pricing plays an important role in the marketing of tools.

The following are the factors that determine price of a product or service:

Product Cost: One of the most important factor affecting price of a product or service is its cost. This includes the cost of producing, distributing and selling the product. The cost sets the minimum level or the floor price at which the product may be sold. At the time of introducing a new product or while entering a new market, the products may be sold at a price, which does not cover all the costs. But in the long run, a firm cannot survive unless at least all its costs are covered. There are broadly three types of costs: viz., Fixed Costs, Variable Costs and Semi Variable Costs. Fixed costs are those costs, which do not vary with the level of activity of a firm. Those costs which vary in direct proportion with the level of activity are called variable costs. Semi variable costs are those costs which vary with the level of activity but not in direct proportion with it. For example, compensation of a sales person plus a commission of 5 per cent on sales. With an increase in the volume of sales, the total compensation will increase but not in direct proportion with the change in the volume of sale. Total Costs are the sum total of the fixed, variable and semi-variable costs for the specific level of activity, say volume of sales or quantity produced.

The Demand and Utility: The price must reflect the interest of both the parties to the transaction—the buyer and the seller. The buyer may be ready to pay up to the point where the utility from the product is at least equal to the sacrifice made in terms of the price paid. The seller would, however, try to at least cover the costs. According to the law of demand, consumers usually purchase more units at a low price than at a high price. The price of a product is affected by the elasticity of demand of the product. The demand is said to be elastic if a relatively small change in price results in large change in the quantity demanded. In the case of inelastic demand, the total revenue increases when the price is increased and goes down when the price is reduced. If the demand of a product is inelastic, the firm is in a better position to fix higher prices.

Extent of Competition in the Market: The lower limit and the upper limit where the price would settle down is affected by the nature and the degree of competition. The price will tend to reach the upper limit in case there is lesser degree of competition while under conditions of free competition, the price will tend to be set at the lowest level.

Legal Regulations: In order to protect the interest of public against unfair practices in the field of price fixing, Government can intervene and regulate the price of commodities. Government can declare a product as essential product and regulate its price.

Pricing Objectives: Pricing objectives are another important factor affecting the fixation of the price of a product or a service. If the firm decides to maximise profits in the short run, it would tend to charge maximum price for its products. But if it is to maximise its total profit in the long run, it would opt for a lower per unit price so that it can capture larger share of the market and earn greater profits through increased sales.

Apart from profit maximisation, the pricing objectives of a firm may include:

Obtaining Market Share Leadership: If a firm’s objective is to obtain larger share of the market, it will keep the price of its products at lower levels so that greater number of people are attracted to purchase the product.

Surviving in a Competitive Market: If a firm is facing difficulties in surviving in the market because of intense competition or introduction of a more efficient substitute by a competitor, it may resort to discounting its products or running a promotion campaign to liquidate its stock.

Attaining Product Quality Leadership: In this case, normally higher prices are charged to cover high quality and high cost of Research and Development.

Methods of Marketing: Price fixation process is also affected by other elements of marketing such as distribution system, quality of salesmen employed, quality and amount of advertising, sales promotion efforts, the type of packaging, product differentiation, credit facility and customer services provided.

Q.60 What do you mean by ‘channels of distribution’? What functions do they play in the distribution of goods and services? Explain.

Ans.

Channels of distribution refer to the individuals, institutions, agents who facilitate the process of distribution. As the potential consumers are spread over a larger geographical area, it becomes difficult for the producers or the manufacturers to directly contact the customers for the sale of their products. Here channels of distribution play an important role. They facilitate the transfer of goods from the place of production to the place where they are consumed. For example, for a manufacturer of sugar in Punjab, it would be difficult to contact the customers in other parts of the country. To ease the process, it would sell its products to the wholesalers who in turn would sell it to the retailers. The retailers then finally sell the products to the customers. Channel of distribution also reduces the efforts of the customers by offering various goods and services at a convenient single location. For example at a retail store a customer can get a wide variety of goods.

The following are the functions of channels of distribution.

Arrangement: An intermediary receives the supply of goods from various sources. He then sorts these goods into homogenous groups based on their characteristics such as size, quality etc. For instance, an electronic goods seller receives supply of different electronic goods and then sorts them based on their functions.

Collection: An intermediary maintains large stock of goods so as to ensure easy flow of supply. For instance, an electronic goods seller maintains large stock of each type of electronic item.

Allocation and Packing: This function includes breaking the larger stock into smaller units. For instance each electronic and their spare parts are packed separately.

Building Variety: An intermediary acquires various goods from different sources and assembles them at a single place. Thus it maintains a variety of goods. He procures the products and then sells them in different combinations as desired by the consumers. For instance, a television and a video player are preferred together by most of the people. Thus, the retail can sell a combination of both.

Promotion of product: They assist in the promotion activities, undertaken by the manufacturers. For example, the manufacturers use advertising for the promotion of their product. The intermediaries can aid this process by putting banners and displays. For example an electronic goods retailer puts up banners for various products highlighting their features.

Mediation: Middle men perform the function of setting a deal that can satisfy both the producers and consumers. They negotiate the price, quality, quantity etc. for efficient transfer of ownership so as to satisfy the needs of both the parties.

Bearing risk: Risk taking is the basic responsibility of the intermediaries. Intermediaries acquire goods from the producers and keep them in their possession till the final sale. Suppose a retailer acquires large quantity of rice. After a period of time, the price of rice rises which reduces its demand. Thus the retailer may lose out as the stock remains unsold.

Q.61 Explain the major activities involved in the physical distribution of products.

Ans.

Physical distribution refers to movement of products from the place of production to the place of consumption. The following are the major activities involved in the physical distribution of products:

Processing of order: Processing of order comprises number of steps such as placement of order, transmission of order by the intermediaries to the manufacturer, maintenance of inventory as per the requirement, delivery of goods etc. As all such processes take time, a physical distribution of system should be such that it should ensure speedy and proper order processing and customer satisfaction.

Transportation of products: Transportation of products refer to the physical movement of goods from the place where they are manufactured to the place where they are consumed. To make the goods physically available to the customers, they must be transported from the place of production to the place of consumption.

Warehousing: Warehousing refers to the process of storing the produced goods before the final act of sale. If a company has a larger number of warehouses, it will be able to provide goods on time at different locations.

Maintenance of inventory: The firms maintain inventory so as to ensure timely supply of products. Similar to warehousing, maintenance of inventory shares a positive relation with customer service. Maintenance of inventory also involves cost as a huge amount of capital remains tied up in the stock unless it is sold. A firm’s decision to maintain inventory is based on several factors such as how well the distribution system responds to the orders and the deliveries, cost involved in holding the inventory, firms’ objectives etc.

Q.62 ‘Expenditure on advertising is a social waste.’ Do you agree? Discuss.

Ans.

Advertising is criticized on the grounds that it unnecessarily adds to the cost of the company, weakens social values and aggravates, builds up consumer needs and desires for multiple products. However, some people think that advertisement through greater sales bring down the cost and aids the process of growth.

The following points helps in judging whether advertising can be considered as a waste.

Higher cost: advertisement expenses adds to the cost of the company. The companies pass on these increased prices on the customers in the form of higher prices. However the supporters of advertisement argue that advertisement in fact brings down the per unit cost of production. This is because through advertisement greater number of customers will be attracted towards the product which in turn implies an increase in the demand for the product. In response to the increase in demand, manufacturers increase production. With increase production, the per unit cost of production comes down.

Weakens social values: One of the major criticism to advertising is that it weakens social value and instead promotes materialism in the society. Advertisement attracts customers through new products and induces them to purchase it. With increased knowledge about the availability of the new products, customers feel dissatisfied about what they currently have. Hence they end up buying even what is not required. Such a process of discontentment and purchase of new product is never ending and materialism increases. On the other hand it is argued that advertisement just informs the buyers about the availability of various products and the final decision to purchase the product lies with the customers.

Creates confusion: it is often argued that a number of advertisement on similar products confuse the customers. For example a number of advertisement on different toothpaste claim for healthy, strong and white teeth by their use. With numerous advertisement, the customers get confused as to which brand he should buy. Supporters of advertisement do not agree on this and argues that advertisement provides choice to the customers.

Promotes inferior goods: It is argues that products of inferior quality and superior quality are advertised. However such claims are partially true as quality is a relative concept. What can be inferior to one customer can be superior to another. Hence advertisement promotes all kinds of goods and customers purchases them if it suits them.

Objectionable advertisement: It is said that often advertisement undermine social values and are in bad taste. Sometimes, languages, images and content of the advertisement may not appeal to the society at large. On the other hand it is argued that good or bad taste is a subjective phenomenon and varies from person to person. What may be accepted by one, may be offensive for other.

Thus it can be said that expenditure on advertisement though draws criticism but the objections are not entirely true.

Q.63 Distinguish between advertising and personal selling.

Ans.

Advertising is an impersonal, paid form of communication used by the marketers for the promotion of goods and services. On the other hand personal selling involves direct communication of the seller with the potential customers.

The following are the differences between advertising and selling-

Basis of difference Advertising Personal selling
Personal vs impersonal It is an impersonal form of communication where the seller communicates with customers through various mediums such as TV, newspapers, etc. It is a personal form of communication where the seller directly interacts with the potential customers.
Reach Advertising has a broader reach as the advertisement reaches a large number of people simultaneously It has a narrower reach as only a few people can be contacted directly.
Flexibility It is inflexible as advertisements are standardised and cannot be adjusted as per the requirements of different customers It is flexible as the seller can adjust the message as per the requirements of different customers.
Target group It is more suitable where marketing has to be done to a large number of people . It is more suitable when marketing is to be done for a few selected consumers. For example if marketing is to be done for intermediaries and retailers, personal selling is more useful.
Cost involved As advertising reaches the masses simultaneously, the cost per person is low. Personal selling is relatively more expensive.
Time involved Advertising reaches large number of people simultaneously. Thus it can cover the entire market in a short period of time Through personal selling only few people can be contacted at a time, it takes a lot of time and effort to cover the entire market.
Customer feedback Through advertising feedback and reactions of the customers cannot be judged As the seller directly contacts the customers he can get the feedback from customers directly.
Medium of communication It involves communication through mass media such as television, newspaper, radio etc. It is through personal communication through sales persons
Objective The main objective of advertising is to create interest of the customers towards the product The basic objective of personal selling is to create awareness about the product and induce decision making.

.

Q.64 </strong>Explain the factors determining the choice of channel of distribution.< >

Ans.

Channels of distribution refer to the individuals, institutions, agents who facilitate the process of distribution. As the potential consumers are spread over a larger geographical area, it becomes difficult for the producers or the manufacturers to directly contact the customers for the sale of their products. Here channels of distribution play an important role. They facilitate the transfer of goods from the place of production to the place where they are consumed. For example, for a manufacturer of sugar in Punjab, it would be difficult to contact the customers in other parts of the country. To ease the process, it would sell its products to the wholesalers who in turn would sell it to the retailers. The retailers then finally sell the products to the customers. Channel of distribution also reduces the efforts of the customers by offering various goods and services at a convenient single location. For example at a retail store a customer can get a wide variety of goods.

The following are the functions of channels of distribution.

Arrangement: An intermediary receives the supply of goods from various sources. He then sorts these goods into homogenous groups based on their characteristics such as size, quality etc. For instance, an electronic goods seller receives supply of different electronic goods and then sorts them based on their functions.

Collection: An intermediary maintains large stock of goods so as to ensure easy flow of supply. For instance, an electronic goods seller maintains large stock of each type of electronic item.

Allocation and Packing: This function includes breaking the larger stock into smaller units. For instance each electronic and their spare parts are packed separately.

Building Variety: An intermediary acquires various goods from different sources and assembles them at a single place. Thus it maintains a variety of goods. He procures the products and then sells them in different combinations as desired by the consumers. For instance, a television and a video player are preferred together by most of the people. Thus, the retail can sell a combination of both.

Promotion of product: They assist in the promotion activities, undertaken by the manufacturers. For example, the manufacturers use advertising for the promotion of their product. The intermediaries can aid this process by putting banners and displays. For example an electronic goods retailer puts up banners for various products highlighting their features.

Mediation: Middle men perform the function of setting a deal that can satisfy both the producers and consumers. They negotiate the price, quality, quantity etc. for efficient transfer of ownership so as to satisfy the needs of both the parties.

Bearing risk: Risk taking is the basic responsibility of the intermediaries. Intermediaries acquire goods from the producers and keep them in their possession till the final sale. Suppose a retailer acquires large quantity of rice. After a period of time, the price of rice rises which reduces its demand. Thus the retailer may lose out as the stock remains unsold.

Q.65 What is a Treasury Bill?

Ans.

Treasury bill is the short term instrument which the Central Government issues to the financial institutions or the general public in order to meet its short term financial needs. Its maturity period cannot be more than a year. It is issued by the RBI on behalf of the government.

Q.66 Name the segments of the National Stock Exchange (NSE).

Ans.

National stock exchange: It started operations in 1994, with trading on the wholesale debt market segment. The NSE was setup by leading financial institutions, banks, insurance companies and other financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the exchange.

Q.67 State any two reasons why investing public can expect a safe and fair deal in the stock market. (Point w.r.t safety of Transactions – Functions of the Stock Exchange).

Ans.

The membership of a stock exchange is well-regulated and its dealings are well defined according to the existing legal framework.

This ensures that the investing public gets a safe and fair deal on the market.

Q.68 What is the common name for Beneficiary Owner Account, which is to be opened by the investors for trading in securities?

Ans.

A beneficial owner is a person who enjoys the benefits of ownership even though title to some of property is in another name.

The investor has to give details of his demat account and instruct his depository participant to take delivery of securities directly in his beneficial owner account.

Q.69 Name any two details that need to be provided by the investor to the broker while filling a client registration form.

Ans.

While filling a client registration form, the details provided by the investors to the broker are:

  • PAN Number
  • Date of birth and address
  • Bank account details
  • Depository account details
  • Client code number in the client registration form.

Q.70 What are the functions of Financial Market?

Ans.

Functions of financial markets are:

Mobilisation of Savings: It gives savers the choice of different investments and thus helps to channelise surplus funds into the most productive use.

Facilitate Price Discovery: In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

Provide Liquidity to Financial Assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required.

Reduce the Cost of Transaction: Financial markets provide valuable information about securities helps to save time, effort and money.

Q.71 “Money Market is essentially a Market for short term funds.” Discuss.

Ans.

Money market is a market which deals in monetary assets whose period of maturity is up to 1 year. This makes these assets highly liquid.

Thus, money market helps in raising short term funds, for meeting temporary shortages in cash and also for temporary deployment of excess funds available, for earning returns.

Important money market instruments are:

  • Call money
  • Treasury Bills
  • Commercial Papers
  • Certificate of Deposit
  • Commercial Bills

Q.72 Distinguish between Capital Market and Money Market.

Ans.

Difference between Capital Market and Money Market:

Basis

Capital Market

Money Market

Meaning

The market dealing in the long term funds is known as capital market.

The market dealing in short term funds is known as money market.

Amount of Investment expenditure

Not huge as value of securities is less

Huge as instruments are expensive

Major Participants

Companies, stock exchanges, commercial banks, financial institutions, retail investors, etc

RBI, Commercial banks, non-banking finance companies, mutual funds, etc

Securities traded

Equity shares, debentures, bonds, etc

Treasury bills, commercial bills commercial paper, call money, etc

Safety

Risky in terms of both capital invested & returns thereon

Much safer, since for short period & issued by banks, government etc.

Rate of interest

Rate of interest in this market is generally higher

Rate of interest is generally low

Q.73 What are the functions of the Stock Exchange?

Ans.

The functions of a stock exchange are:

Providing liquidity and marketability of securities – Stock exchange creates continuous market for buying and selling of securities by giving chance to investors for investing and disinvesting their securities.

Pricing of securities – Stock exchange is a mechanism of constant valuation through which the prices of the securities are determined. The share prices are determined by the forces of demand and supply.

Safety of transactions – Stock exchange ensures fair and safe deal on the market as only listed companies can trade their securities through this.

Contributes to Economic Growth – Stock exchange helps investors in investing and reinvesting their savings. This helps in channelising the savings in productive use which in turns lead to capital formation and economic growth.

Spreading of equity cult – Stock exchange ensures wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investment.

Q.74 What are the objectives of SEBI?

Ans.

The objectives of SEBI are:

  • To regulate stock exchanges through framing of rules and regulations and code of conduct to regulate intermediaries such as brokers, bankers, underwriters, etc.
  • To keep a check on the activities of the brokers and other middlemen in order to regulate any unfair trade practices in the capital market.
  • To protect the rights and interests of investors, particularly individual investors and to guide and educate them.
  • To prevent trading malpractices and achieve a balance between self regulation by the securities industry and its statutory regulation.
  • To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers etc., with a view to making them competitive and professional.

Q.75 State the objective of NSE?

Ans.

NSE was set up with the following objectives:

  • Providing a fair, efficient and transparent securities market using electronic trading system.
  • Establishing a nationwide trading facility for all types of securities.
  • Enabling shorter settlement cycles and book entry settlements.
  • Meeting international benchmarks and standards.
  • Ensuring equal access to investors all over the country through an appropriate communication network.

Q.76 Name the document prepared in the process of online trading of securities that is legally enforceable and helps to settle disputes/claims between the investor and the broker.

Ans.

Contract note prepared in the process of online trading of securities that is legally enforceable and helps to settle disputes/claims between the investor and the broker.

This is an important document as it is legally enforceable. A unique order number is assigned to each transaction by the stock exchange and is printed on the contract note.

Q.77 Explain the various Money Market instruments.

Ans.

Call Money: Call money is short term finance repayable on demand with a maturity period of one day to fifteen days, used for inter bank transactions. It is a method by which banks borrow from each other to maintain the cash reserve ratio. Cash reserve ratio is the minimum cash balance which banks have to maintain. The interest rate paid on call money loans is known as the call rate.

Treasury Bill: Treasury bill is the short term instrument which the Central Government issues to the financial institutions or the general public in order to meet its short term financial needs. Its maturity period cannot be more than a year. It is issued by the RBI on behalf of the government.

Commercial Paper: Commercial papers are those unsecured promissory notes which are issued by reputed companies. Their buyers are banks, insurance companies, unit trust and firms. The minimum face value of a commercial paper is five lakh rupees. It is used to meet the demand of a short term seasonal need and requirement of working capital.

Certificate of Deposit: refers to a time deposit or fixed deposit which can be sold in the secondary market. Only a bank can issue Certificate of Deposit.

Commercial Bill: A commercial bill is a bill of exchange used to finance the working capital requirements of business firms.

Q.78 Explain the recent Capital Market reforms in India.

Ans.

Capital market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested. It can be divided into two parts: a. Primary Market and b. Secondary market. First stock exchange was set up in India in 1875 that was later named as Bombay Stock Exchange. After the reforms of 1991, Stock market in India acquired three tier systems: Regional stock exchange, national stock exchange and OTCEI.

Regional stock exchange: First regional stock exchange was set up in Ahmadabad. Later on stock exchanges were set up in Calcutta, Madras, Delhi, Hyderabad and Indore. Currently there are 22 regional stock exchanges.

National stock exchange: It started operations in 1994, with trading on the wholesale debt market segment. The NSE was setup by leading financial institutions, banks, insurance companies and other financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the exchange.

Over the counter exchange of India: It was set-up to provide small and medium companies an access to the capital market for raising finance in a cost effective manner. It is defined as a place where buyers seek sellers and vice-versa and then attempt to arrange terms and conditions for purchase/sale acceptable to both the parties.

Q.79 Explain the objectives and functions of the SEBI.

Ans.

SEBI was set up in 1988 to regulate the functions of the securities market with a view to promote their orderly and healthy development, to provide adequate protection to investors and thus, create an environment to facilitate mobilisation of adequate resources through the securities market.

Objectives of SEBI:

  • To regulate stock exchanges through framing of rules and regulations and code of conduct to regulate intermediaries such as brokers, bankers, underwriters, etc.
  • To keep a check on the activities of the brokers and other middlemen in order to regulate any unfair trade practices in the capital market.
  • To protect the rights and interests of investors, particularly individual investors and to guide and educate them.
  • To prevent trading malpractices and achieve a balance between self regulation by the securities industry and its statutory regulation.
  • To regulate and develop a code of conduct and fair practices by intermediaries like brokers,
  • merchant bankers etc., with a view to making them competitive and professional.

Functions of SEBI:

Protective Functions.

  • To prohibit fraudulent and unfair trade practices in the securities market.
  • To prohibit insider.
  • To educate investors.
  • To promote fair practices and code of conduct in securities market.

Developmental Functions:

  • To promote training of intermediaries of the securities market.
  • To develop capital markets by adapting a flexible approach.

Regulatory functions:

  • SEBI has framed rules and regulations and code of conduct to regulate the intermediaries such as brokers, bankers, underwriters etc.
  • Controlling insider trading and takeover bids.
  • It registers the working of mutual funds.
  • It conducts inquiries and audit of stock exchange.
  • Prohibition of fraudulent and unfair trade practices.

Q.80 India’s largest domestic investor life Insurance Corporation of India has once again come to government’s rescue by subscribing 70% of Hindustan Aeronautics’ ₹4,200-crore initial public offering.

a. Which market is being reflected in the above case?

b. State which method of floatation in the above identified market is being highlighted in the case? (Primary Market)

c. Explain any two other methods of floatation. (Private Placement, Offer through prospectus, offer for sale).

Ans.

a)

Primary market is being reflected in the above case. It is a market for creation and exchange of financial assets. It helps in mobilisation and channelizing the savings into most productive uses.

These markets also helps in price discovery and provide liquidity to financial assets.

b)

Right issue method of floatation is identified in this case.

This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered the right to buy new shares in proportion to the number of shares they already possess.

c)

The other method of flotation is ‘Private Placement’.

Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue.

Offer for Sale: Under this method, securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. In this case a company sells securities enables at an agreed price to brokers who, in turn, resell them to the investing public.

Q.81 lalita wants to buy shares of Akbar Enterprises, through her broker kushvinder. She has a Demat Account and a bank account for cash transactions in the securities market. Discuss the subsequent steps involved in the screen-based trading for buying and selling of securities in this case.

Ans.

The following steps are involved in the screen-based trading for buying and selling of securities:

Step 1: If an investor wishes to buy or sell any security he/she has to first approach a registered broker or sub-broker and enter into an agreement with him. The investor has to sign a broker-client agreement and client registration form before placing an order to buy or sell securities.

Step 2: The investor has to open a demat account or beneficial owner account with a DP for holding and transferring securities in the demat form.

Step 3: The investor than places an order with the broker to buy or sell shares.

Step 4: The broker than will go on-line and connect to the main stock exchange board and match the share and best price avialble.

Step 5: When the shares can be bought or sold at the price mentioned. It will be communicated to the broker’s terminal and the order will be executed electronically.

Step 6: After the trade has been executed, within 24 hours the broker issues a contract note. This note contains details of the number of shares bought/sold, the price and the brokerage charges.

Step 7: Now the investor has to deliver the shares sold or pay cash for the shares bought.

Step 8: Cash is paid or securities are delivered on pay-in-day, which is before the T+2 day as the deal has to be settled and finalised.

Step 9- On the T+2 day, the exchange will deliver the share or make payment to the other broker. This is called Pay-out-day.

Step 10: The broker can make delivery of shares in demat form directly to the investor’s demat account.

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FAQs (Frequently Asked Questions)
1. How many chapters are covered in the NCERT Solutions for Class 12 Business Studies?

A total of 12 chapters are covered in the NCERT solutions for Class 12 Business Studies.

2. What is the best way to study the NCERT solutions?

The best way to use the NCERT Solutions to study is to first go through each chapter thoroughly and familiarise yourself with it. Once that is done, you can start practicing the questions at the end and answering quizzes, which should help you score good marks in your examination.

3. Ideally, when should I begin with self-assessment?

Self-assessment should begin once you’re done with thoroughly studying, practising, and even revising the syllabus. This is because only then will you be able to answer all the questions and even time yourself to see if you possess the necessary time management skills. 

4. What are some tips for scoring well in CBSE Class 12 examinations?

Some ways in which you can guarantee yourself good marks in your CBSE Class 12 examinations are by studying well in advance, creating a timetable and dedicating enough time to each subject, revising each topic and concept thoroughly, taking regular mock tests through sample papers, and revising your examination paper once done.

5. How many books are there for the CBSE Class 12 Business Studies examination?

As per the CBSE Board, there are two recommended books for Class 12 Business Studies paper. In total, the two books cover 12 chapters, all of which are covered in the NCERT solutions of Class 12 Business Studies