Business And Commerce — Part 2 MCQs with Explanations

Investment in Equity shares is most risky. The higher the volatility of a stock, or any asset, the higher its risk. Unit trusts that invest only in equities are higher risk than those that invest in other assets. Their prices move further and the chance of loss is higher.

Debentures is not an ownership security. A debenture is a type of debt instrument that is not secured by collateral and usually has a term greater than 10 years. Debentures are backed only by the creditworthiness and reputation of the issuer. Both corporations and governments frequently issue debentures to raise capital or funds.

In Debentures, interest / dividend is payable even if the company does not earn profit. No matter what happens – profit or loss, a firm needs to pay interest to its debenture holders/lenders. Only when a company makes a profit, a dividend is distributed.

Debentures cannot be registered. A debenture is issued to the general public by an organization

The ‘Ploughing Back of Profits’ is a management policy under which all profits are not distributed amongst the shareholders, but a part of the profit is ‘Ploughed back’ or retained in the company.

According to Companies Act 1956, no public limited company or which is a subsidiary of a public company can issue deferred shares.

Public limited companies may issue share warrants. Warrants are sold by companies as a way to raise capital. Although a company could sell stock to raise money, the Securities and Exchange Commission regulates the number of shares a company is allowed to issue. Some companies will issue warrants as a way to sweeten a deal during a takeover or restructuring.

A bearer of a share warrant of a company is not a member of the company. But if the articles of association of the company provide it, then the bearer is deemed to be the member of the company.

Bank overdraft is a good source of finance for Short term. An overdraft facility allows the business to spend more money than is deposited in the bank account. The amount of the overdraft will rise and fall as funds are deposited and spent from the account.

The most important economic function of new issue market is to provide facilities for converting saving into investments.

Investors in securities are components of organized sector of stock exchange. The organised sector of the capital market comprises all the term-lend­ing financial institutions (or development banks or non-banking financial institutions, like 1DB1, ICICI, etc.), banks with their me­dium-term and their merchant banking divi­sions or subsidiaries, LIC, GIC, UTI and the stock exchanges (an essential component of the capital market).

Stock exchange placing methods is not used for raising capital through the sale of new securities. The companies raise money in the primary market through securities such as shares, debentures, loans and deposits, preference shares etc. Let us take a look the various methods of how new securities are floated in the primary market.

The most common method used for marketing of new securities is direct sale to public through prospectus.

The first stock exchange was set up in India in Bombay. The Bombay Stock Exchange (BSE) is the first and largest securities market in India and was established in 1875 as the Native Share and Stock Brokers' Association.

The stock market in each country now is governed/controlled by the corresponding governing bodies in that country. Ex: SEC (Securities Exchange Commission) for USA , SEBI (Securities & Exchanges Board of India) for India. Earlier Stock Exchanges in India were continued to be regulated directly by the Government of India. In the year 1988 the Government of India constituted SEBI to act as the independent regulator of Stock exchanges, the primary market, Mutual Funds etc. Securities Scam of 1990-91 mastered by the stockbroker Harshad Mehta, exposed by journalist Sucheta Dalal, prompted Government to make SEBI a statutory and autonomous regulatory board with responsibilities, to cover both development & regulation of the market.

A speculator who applies for new share is a stag. An investor or speculator who subscribes to a new issue, expecting the price of the stock to rise immediately upon the start of trading is known as a stag. The sole aim of a stag is to sell the shares soon after allotment to realise a quick profit.

Dealings in stock exchanges can be done by public only through brokers. A stockbroker is a professional who executes buy and sell orders for stocks and other securities on behalf of clients. A stockbroker may also be known as a registered representative, investment adviser or simply, broker.

Members of Bombay stock exchange are unofficially classified into brokers and tarawaniwalas. In India there are two types of members in the Mumbai stock exchange. They are called Brokers and Tarawaniwalas. All this is done unofficially. The Tarawaniwalas act both as jobbers and brokers. A tarawaniwala makes transactions on his behalf like a jobber but he may also act as a broker on behalf of the public.

Speculation in stock exchange means buying and selling securities in the hope of making profile due to change in prices.

Bear speculators expect fall in the prices of securities in the near future. A bear is a pessimistic speculator who expects a sharp fall in the prices of certain securities. He enters into selling contracts in certain securities on a future date. If the price of the security falls as he expects he shall get the price difference.

Arbitrage speculative activities is based on disparity in quoted prices in different markets. Arbitrage has the effect of causing prices in different markets to converge.

A transfer signed by the transferor, but with a blank for the name of the transferee is called a blank transfer. In a blank transfer neither the transferee’s name and signature nor the date of sale are filed in the transfer form. The transferee is at liberty to sell it again without filling his name and signature to a subsequent buyer.

When a right to sell a security is acquired, it is known as put option. In finance, a put or put option is a stock market device which gives the owner the right, but not the obligation, to sell an asset (the underlying), at a specified price (the strike), by a predetermined date (the expiry or maturity) to a given party (the seller of the put).

Stock exchange deals with the second hand securities. In short it deals with existing or second hand securities and hence it is called secondary market. Allows dealings only in listed securities : In fact, stock exchanges maintain an official list of securities that could be purchased and sold on its floor.

Dividend and interest are debited to profit and loss account. Debentures interest is a business expensed and therefore, it is a charge against profit and as such profit and loss account is debited with the total amount of interest payable during the accounting year whether the company has earned the profit or not.

The price of a share quoted in the stock exchange is cum, dividend when it is inclusive of dividend declared.

SEBI came into force in 1992. Securities and exchange Board of India (SEBI) was first established in the year 1988 as a non-statutory body for regulating the securities market. It became an autonomous body by The Government of India on 12 May 1992 and given statutory powers in 1992 with SEBI Act 1992 being passed by the Indian Parliament.

Indexing is an important method of maintaining account books. Indexes are used to quickly locate data without having to search every row in a database table every time a database table is accessed.

A certain percentage of the sum assured is paid periodically according to the terms of policy is known as Money-Back Policy.

Margin trading is called to buying of shares by taking money from brokers. Buying on margin means to borrow money from a broker (similar to a loan) to purchase stock. The investor can take position in the market by paying an initial margin of 50 per cent (your own money), while the broker could finance the balance 50 per cent.

The primary aim of co-operative is to serve the members. The main purpose of a Co-operative Society is to provide service to its members. It also provides better quality goods to its members and the general public.

A sleeping partner is one who contributes capital. A sleeping partner is a partner who 'sleeps', that is, he does not take active part in the management of the business. Such a partner only contributes to the share capital of the firm, is bound by the activities of other partners, and shares the profits and losses of the business.

The principle of indemnity does not apply to Life and Personal Accident insurance. According to the principle of indemnity, the purpose of an insurance contract is to bring back the insured to the same financial position as he or she was before the loss occurred to him or her (because of a mishap). But in case of life insurance, life of a person can not be brought back.

In vertical filing system, files or folders are kept in standing upright position.

The primary function of an office is making, using and preserving records. Processing and arranging information It is the most significant function of an office. The information collected and recorded cannot be readily used for the decision making and other purposes in the organization. Therefore it must be processes and arranged.

Decentralization of authority means departmentalizing activities. Departmentalization involves dividing an organization into different departments, which perform tasks according to the departments' specializations in the organization. Departmentalization as a means of structuring an organization can be found in both public and private organizations.

Vertical filing methods are recommend for a large size undertaking. Vertical filing indicates the vertical position of the files. The files are kept in a standing position under this method. Vertical filing method is developed to overcome the difficulties of horizontal filing.

Planning and control are administrative functions of an office. Organizing the office on modem lines involves performing the management functions of planning, organizing, directing and controlling. In other words, the office work must be properly planned, organized and then executed according to the plan.

Office location is an important consideration for setting up an office. Various factors should be considered while selecting the location for office. Nature of business, nearness, infrastructure, cost, law etc, are the main factors that affect selection of office location.

Guarantee for employer for the loss out of employee's dishonest is Fidelity insurance. A Fidelity Insurance policy covers losses sustained by the employer as a result of an act of forgery, fraud or dishonesty from an employee.