Answer: With the issue of debentures, the capacity of a company to further borrow funds reduces. Companies generally invite public deposits for a period up to three years. On the basis of period, the different sources of funds can be categorized into three parts. (I) Equity shares are suitable for investors who are willing to assume risk for higher returns; (ii) Payment of dividend to the equity shareholders is not compulsory. The preference shareholders enjoy a preferential position over equity shareholders in two ways: In other words, as compared to the equity shareholders, the preference shareholders have a preferential claim over dividend and repayment of capital. The above NCERT CBSE and KVS worksheets for Class 11 Business Studies will help you to improve marks by clearing Business Studies concepts and also improve problem solving skills. While the depositors get higher interest rate than that offered by banks, the cost of deposits to the company is less than the cost of borrowings from banks. However, NRI source of finance is costlier. CBSE Class 11 Business Studies Notes Maths Notes Accountancy Notes Sociology Notes. Though banks have started extending loans for longer periods, generally such loans are used for medium to short periods. (iii) Insurance: It provides a cover against the loss of goods, in the process of transit, storage, theft, fire and other natural calamities. Meaning, Nature and Significance of Business Finance. 15. International Source of Finance After the new economic policy of liberalisation or globalisation. Candidates can also check out the Key Points, Important Questions & Practice Papers for various Subjects for Class 11 in both Hindi and English language form the link below. Such capital forms the basis on which owners acquire their right of control of management. For long term finance, sources such as issue of shares and debentures are more appropriate. TOPIC – Sources of Business Finance. Financial Institutions Public financial institutions are referred to as lending institutions. Different business units need varying amount of fixed capital depending on various factors such as the nature of business, etc. Where the funds are required for a period of more than one year but less than five years, medium-term sources of finance are used. This is known as retained earnings. But schools, business books, and academic settings are not the only ones that use business case studies. Under recourse factoring, the client is not protected against the risk of bad debts. Any person who is interested in depositing money in an organisation can do so by filling up a prescribed form. Each share has its nominal value. RBSE Class 11 Business Studies Chapter 5 Short Answer Type Questions (SA – II) Question 1. (I) Preference shares provide reasonably steady income in the form of fixed rate of return and safety of investment; (ii) Preference shares are useful for those investors who want fixed rate of return with comparatively low risk; (iii) It does not affect the control of equity shareholders over the management as preference shareholders don’t have voting rights; (iv) Payment of fixed rate of dividend to preference shares may enable a company to declare higher rates of dividend for the equity shareholders in good times; (v) Preference shareholders have a preferential right of repayment over equity shareholders in the event of liquidation of a company; (vi) Preference capital does not create any sort of charge against the assets of a company. Identify in the following cases factor affecting the choice of capital: Raj an has an option of taking … Free PDF download of NCERT Solutions for Class 11 Business Studies Chapter 8 Sources of Business Finance solved by Expert Teachers as per NCERT (CBSE) Book guidelines. Privacy Policy, Social Responsibilities of Business and Business Ethics. Debentures are an important instrument for raising long term debt capital. CBSE guide notes are the comprehensive notes which covers the latest syllabus of CBSE and NCERT. The profit available for ploughing back in an organization depends on many factors like net profits, dividend policy and age of the organization. CLASS –XI . It is issued by one firm to other business firms, insurance companies, pension funds and banks. They enjoy the reward as well as bear the risk of ownership. Borrow Fund The second source of funding to a busin… A company can issue different types of debentures (see Box C and D). 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