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Entrepreneurship 3 Marks Question

Resource Mobilization · CBSE STD 12 Commerce (CBSE - English Medium). 135 questions.

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Question 13 Marks
State any two points of importance of Stock-Exchange from the viewpoint of entrepreneurs.
Answer
Importance of stock-exchange from the point of view of entrepreneur: (Any two)
  1. Recognition: Reputation of company is enhanced when the market value is published in important dailies.
  2. Wide market: Market for the securities of such companies is considerably widened.
  3. Higher share values: Demand for shares which have a premium value is always on an increase.
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Question 23 Marks
'Angel Investors' and 'Venture Capital' are the two sources of raising finance for an entrepreneur. Explain the concept of both the sources stating one distinguishing feature of each.
Answer
Angel investor: Is an affluent individual who provides capital for a Business start-ups and early stage companies using a high-risk, high-return matrix usually in exchange for convertible debt or ownership equity.Venture capital: Is a type of a private equity capital provided as seed funding to early-stage, high-potential, high risk, growth of companies/entrepreneurs.
Distinguishing feature: Angel investors participate in the management of the business, but venture capitalists do not take part in the management of the business.
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Question 33 Marks
Ganga Dhar was working as the production manager in a German company. The company was producing remote operated high-end kitchen equipment. He resigned from his job and returned to Patna, his hometown. In Patna, he met Aditya, his old friend, who had been managing his factory producing steel utensils with old technology. Ganga Dhar encouraged Aditya for the production of high-end kitchen equipment. He also promised to help Aditya by providing funds and his expertise so that the production unit run by Aditya can develop into a big production house and its investors may get high return on investments.Identify the kind of 'source of capital' provided by Ganga Dhar to Aditya and explain the same.
Answer
Angel investors.Features: (Any two)
  1. They are current or retired executives, business owners or high net worth individuals who have the knowledge, experience, and funds.
  2. They bear extremely high risk and expect a very high return.
  3. They provide proactive advice, guidance industry connections and mentoring start-ups in its early days.
  4. Their objective is to create great companies by providing value creation.
  5. They have a sharp inclination to keep abreast of current developments in a particular business arena.
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Question 43 Marks
State any two features of 'Factoring' as a source of finance.
Answer
Features of factoring:
  1. It is an arrangement where by the trade debtors (book debts) are assigned to the Bank or finance company.
  2. The payment is received against the debtor's balances in advance.
  3. It is usually not an option for a new venture.
  4. The factors not only have the task of collecting the cash, but they also carry the cash if the debtor does not pay up.
  5. The entrepreneur/company/firm interested in availing factoring service has to pay specified charges to the bank or finance company.
  6. When the amount to be advanced against debtors' balances to the entrepreneur/firm/company, is calculated, the bank or finance company keeps a margin for non-realisation of debts.
  7. It is a source of off-balance sheet finance.
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Question 53 Marks
In addition to purchasing fixed assets and current assets, finance is needed for many purposes. State any three such purposes.
Answer
Finance is also needed:
  1. For providing credit facilities to its customers.
  2. For maintaining appropriate level of inventory of raw materials as well as finished goods.
  3. For making payment of expenses as and when they are due to have sufficient cash to maintain liquidity.
  4. Repairs and renewal of machinery.
  5. For making appropriate payment of taxes.
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Question 63 Marks
What is meant by ‘seed capital’?
Answer
Seed capital: is defined as the financing of the internal product development or the capital provided to an entrepreneur to prove the feasibility of a project and quality for start-up capital.
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Question 73 Marks
Name any three Central level financing institutions and explain how they support entrepreneurs.
Answer
Three central level financing institutions supporting entrepreneurs:
  1. Industrial development bank of India. (IDBI).
  2. Industrial Finance Corporation of India. (IFCI).
  3. Industrial credit and Investment Corporation of India. (ICICI).
  4. Industrial Investment bank of India. (IIBI).
  5. Small industries development bank of India. (SIDBI).
  6. National small industries corporation limited. (NSIC).
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Question 83 Marks
State any two points of importance of Stock-Exchange from the view point of investors.
Answer
Importance of stock exchange from the point of view of investors:
  • Dissemination of useful information: Stock exchange publishes useful information regarding price lists, quotations, etc., of securities through newspapers and journals. The interested persons buy and sell their securities on the basis of information provided by the stock exchanges.
  • Ready market: Persons desirous of converting their shares into cash may easily do so through a member of stock exchange.
  • Investors' interests protected: Stock exchanges formulate rules and regulations so that members may not exploit the investors.
  • Genuine guidance about the securities listed: The investors can safely depend upon the information provided by the stock exchanges.
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Question 93 Marks
Naveen after completing his M. Tech in Nano Technology wanted to start his own business. He thought to manufacture sophisticated instruments used in surgery. He knew that his knowledge of Nano Technology will help him in manufacturing these instruments. According to him such instruments will help the surgeons to operate upon the patients with accuracy, with minimum blood loss and quick post operation recovery; Such types of instruments are used in advanced countries only and there was a risk in marketing the same. The cost price of machinery required, for manufacturing such instruments was very high and more research was required in this field of Nano Technology. For seed funding, Naveen approached 'Himani Capital Ltd.' who finance such types of projects. 'Himani Capitals Ltd.' after analysing the proposal agreed to provide seed capital to Naveen.
Explain the different stages of 'Early stage financing' to seek venture capital finance after the one discussed above.
Answer
  1. Pre-start up and start up finance:
A business plan is presented by the entrepreneur to the VC firm. A management team is being formed to run the venture. If the company has a board of directors, a person from the VC firms will take seats at the board of directors. The VC firm monitors the feasibility of the product and the capability of the management team from the board of directors.
  1. Second round financing:
This is the first encounter with the rest of the market. The entrepreneur, at this stage, needs assistance from the Venture Capitalist for expansion, modernization, diversification so that the economies of scale and stability could be attained.
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Question 103 Marks
'For the smooth and orderly functioning of corporate sector in a free market economy, stock exchanges are indispensable because of different roles played by them for different groups.' Explain the importance of stock exchange to investors in the light of this statement.
Answer
Importance of stock exchange to investors: (Any three)
  1. Dissemination of Useful Information: Stock exchange publishes useful information regarding price lists, quotations, etc., of securities through newspapers and journals. The interested persons buy and sell their securities on the basis of information provided by the stock exchanges.
  2. Ready Market: Persons desirous of converting their shares into cash may easily do so through a member of stock exchange.
  3. Investors' Interests Protected: Stock exchanges formulate rules and regulations so that members may not exploit the investors.
  4. Genuine Guidance about the Securities Listed: The investors can safely depend upon the information provided by the stock exchanges.
  5. Barriers of Distance Removed: Stock exchange removes the barriers of distance in regard to securities listed there. Without stock exchange, the securities of a Delhi company may have a limited market in Delhi only.
  6. Knowledge of Profit or Loss on Investments: The investors can estimate the profit or loss on the total amount of investments in securities, by comparing the original amount invested and the price of securities on a particular day.
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Question 113 Marks
Give four names of supportive agencies who extend financial support, expertise and training to the Entrepreneurs.
Answer
  1. Small Industries Development Organisation.
  2. National Institute for Entrepreneurship and small Business Development.
  3. Entrepreneurship Development of India.
  4. Small Industrial Development Bank of India.
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Question 123 Marks
Explain 'Propensity for Risk-taking' and 'Faith and commitment to a planning paradigm' as entrepreneurial competencies.
Answer
Propensity of risk taking: Degree to which an entity is willing to take chances with respect to risk of loss. The entrepreneur takes risk according to the economic conditions, market, research, financial and human resource mobilisation etc.
Paradigm: Intellectual perception or view, accepted by an individual or a society as a clear example, model or pattern of how things work in the world. The Planning Paradigm refers to a general pattern which suggests how to progress from an abstract idea to achieving sustained stability growth and value added service.
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Question 133 Marks
Name any four National-level specialised financial institutions.
Answer
National level specialised financial institutions:
IFCI, IDBI, ICICI, IIBI, SIDBI, NSIC.
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Question 143 Marks
Name and explain any three central level financing institutions supporting entrepreneurs.
Answer
Three central level financing institutions supporting entrepreneurs.
  1. Industrial development bank of India. (IDBI).
  2. Industrial Finance Corporation of India. (IFCI).
  3. Industrial credit and Investment Corporation of India. (ICICI).
  4. Industrial Investment bank of India. (IIBI).
  5. Small industries development bank of India. (SIDBI).
  6. National small industries corporation limited. (NSIC).
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Question 153 Marks
State any four powers of the Securities and Exchange Board of India.
Answer
For the discharge of its functions efficiently, SEBI has been vested with the following powers:
  1. To approve by-laws of stock exchanges, SEBI.
  2. To enquire the stock exchange to amend their by-laws.
  3. Inspect the books of accounts and call for periodical returns from recognized stock exchanges.
  4. Inspect the books of accounts of financial intermediaries.
  5. Compel certain companies to list their shares in one or more stocks exchanges.
  6. Levy fees and other charges on the intermediaries for performing its functions.
  7. Grant license to any person for the purpose of dealing in certain areas.
  8. Delegate powers exercisable by it.
  9. Prosecute and judge directly the violation of certain provisions of the Companies Act.
  10. Power to impose monetary penalties.
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Question 163 Marks
This is a market where there is an option to sell and buy new and old financial instruments. It facilitates the transferring of financial resources from surplus units to deficit units.
  1. Identify and define the market.
  2. Name the function of transferring of financial resources from surplus units to deficit units.
Answer
  1. Capital Market: A capital market may be defined as an organized mechanism meant for effective and smooth transfer of money capital or financial resources from the investors to the entrepreneurs. Here, productive capital is raised and made available for industrial purposes.
  2. Financial Intermediation.
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Question 173 Marks
‘Pipro Ltd.’ is a software company based in Bengluru, India. It is already listed at National Stock Exchange. In order to expand its business in northeast, under the ‘Look East Policy’ of the government, it needs financial resources.
State any two methods through which she can fulfill her financial requirements through Primary Market other than Public issue.
Answer
Two methods through which Pipro Ltd. can fulfil its financial requirements are:
Stock options:
  • These are the securities issued to the employees where in holder gets the right, but not the obligation, to purchase (or sell) securities at a specified price.
Private placement:
  • This involves issue of securities by a company to the institutional investors and some selective individuals.
  • It is quicker and the cheaper method of raising capital compare to a public issue.
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Question 183 Marks
From the given situations, identify and explain the method of floatation of new issues:
  1. ICICI is in need of additional capital for its new venture. It decides to raise funds by selling the issues mainly to General Insurance Corporation of India and Life-Insurance Corporation of India.
  2. Jay is holding 100 shares of a company. He has been given a privilege offer to subscribe to a new issue of the same company in proportion of his current shareholding with the company. Jay was unwilling to subscribe, so he renounced the offer in favour of Veeru who bought the shares.
  3. Gopal is working as the Regional Chairman in a well reputed Non-Banking Finance Company which is listed in Stock Exchange. As performance bonus, the company gave 25 equity shares to Gopal.
Answer
Private Placement.
  1. This involves direct issue of securities by a company to the institutional investors and some selective individuals like Unit Trust of India, Life Insurance Corporation of India, etc.
  2. It is quicker and the cheaper method of raising capital compare to a public issue.
Right Issue.
  1. This is a method to raise additional funds by company by offering shares first to its existing shareholders. The shares are offered on pro rata basis i.e. in the proportion to shares already held by them.
  2. The existing shareholders can also renounce their right in favour of another person, in case they are not willing to buy more shares.
  3. It is comparatively a cheaper method as there is no involvement of intermediaries like brokers, underwriters, etc.
Stock option or offer to employees.
  1. These are the securities issued to the employees where in holder gets the right, but not the obligation, to purchase (or sell) securities at a specified price.
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Question 193 Marks
Abhiraj Ltd., an Indian company, started functioning in 1999 and was registered under the Companies Act, 1956. The Securities and Exchange Board of India performed one of its functions and conducted investigations against Abhiraj Ltd. The investigations resulted into the fact that the company did not follow the proper procedure. Therefore the Securities and Exchange Board of India imposed penalty upon the company.
  1. Identify the function being performed by the Securities and Exchange Board of India (SEBI).
  2. Can Abhiraj Ltd. appeal against SEBI’s decision? If yes, where?
Answer
  1. Quasi Judicial and Quasi Executive.
  2. Yes, Abhiraj Ltd. can appeal against SEBI’s decision to Securities Appellate Tribunal.
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Question 203 Marks
'Bid' and 'Bid 'Quantity' are common terms related to stock market trading. What do they mean?
Answer
The buying price of the share is called as the 'Bid' price.The total number of shares available for buying is called 'Bid Quantity'.
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Question 213 Marks
Why capital markets are the most O important source of raising finance for the entrepreneurs?
Answer
Capital markets are considered as the most important source of raising finance for the entrepreneurs as this market can:
  1. Mobilize the financial resources on a E nation-wide scale.
  2. Secure the required foreign capital and know-how to promote economic growth at a faster rate.
  3. Ensure the most effective allocation of the mobilized financial resources by directing the same either to such projects which are capable of the highest yield or to the underdeveloped priority areas where there is an urgent need to promote balanced and diversified industrialization.
The needs of entrepreneurs who actually use the savings for productive purposes are varied.
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Question 223 Marks
Name some Institutional investors to whom entrepreneurs can raise funds by selling the issues.
Answer
Entrepreneurs, herein, raise funds by selling the issues mainly to the institutional investors like:
  1. Unit Trust of India.
  2. Life Insurance Corporation of India.
  3. General Insurance Corporation of India.
  4. Army Group Insurance.
  5. State Level Financial Corporations, etc.
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Question 233 Marks
Explain the regulatory functions of NABARD.
Answer
NABARD is empowered to undertake inspection of RRBs and Cooperative Banks, other than the Primary Cooperative Banks.
  1. Toopen a new branch, a recommendation of NABARD is imperative by RRBs or Cooperative Banks to seek permission from RBI.
  2. RRBs and Cooperative Banks, along with RBI, are required to file returns and documents with NABARD.
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Question 243 Marks
Apart from investing funds, they also provide proactive advice Who are they' in the above A sentence? In which business do they'invest funds?
Answer
'They are angel investors'. Angel investors generally provide capital for a business start-up and early stage companies having a high-risk, high-return matrix,
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Question 253 Marks
Answer each of these questions in about fifty words:
For what purpose is finance required right from the very beginning i.e. conceiving an idea?
Answer
Promote or establish the business
To acquire fixed assets
Encourage management to make progress and create value
Develop product
Make market investigations
Expand, diversify, improve and grow.
Be enough to meet unexpected/unplanned business expenses.
Keep men and machine at work
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Question 263 Marks
How venture capital can best be characterized as a long-term investment discipline?
Answer
Venture capital can best be characterized as a long-term investment discipline, usually occurring over a five-year period that helps in the creation of
  1. Early-stage companies.
  2. The expansion and revitalization of existing businesses, and.
  3. The financing of leveraged buyouts of existing divisions of major or privately owned enterprises.
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Question 273 Marks
Answer each of these questions in about fifty words:
Who manages SEBI?
Answer
SEBI is managed by its members, which consists of following:
  1. Chairman who is nominated by Union Government of India.
  2. Two members, i.e. Officers from Union Finance Ministry.
  3. One member from Reserve Bank of India.
  4. The remaining 5 members are nominated by Union Government of India, out of them at least 3 shall be whole-time members.
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Question 283 Marks
Financial GamingGoogle purchased Motorola Mobility for 9800000000 (in USD), Microsoft Corporation purchased Skype for 8500000000 (in USD) and Nokia handset and Service business for 720000000 (in USD) as notable merges and amalgamation of 2011 because latters were in financial crisis and formers were financial strong looking for expansion strategies.
What is the reason for the above mergers and acquisitions?
Answer
The companies Motorola Mobility, Skype, and Nokia handset and Service business were in financial crisis and Google and Microsoft were looking for expansion strategies.
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Question 293 Marks
Why primary market is also known as new issue market? Give one reason.
Answer
When for the first time, entrepreneur for the purpose of obtaining capital funds decides to issue securities to the public its first sale is in the primary market. Therefore, primary market is also known as new issue market.
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Question 303 Marks
By offering shares to its employees, what values are promoted by a company?
Answer
By offering shares to its employees through employees stock option plan, the values being promoted by a company are as follows:
  1. Recognising and rewarding the hardwork put in by employees.
  2. Promoting equitable distribution of income by giving employees a share in the profits of the company.
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Question 313 Marks
What is the need of finance?
Answer
Finance is needed for the following reasons:
  1. Meeting fixed capital requirement.
  2. Meeting working capital requirement.
  3. For growth and expansion.
  4. For diversification.
  5. For technology upgradation.
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Question 323 Marks
At present, many venture capital companies have been set-up in India, in both the public and the private sector. Name any two such institutions.
Answer
Two such institutions are:
  1. Gujarat Venture Finance Limited.
  2. National Venture Fund for Software and IT industry.
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Question 333 Marks
For all entrepreneurs/ all enterprises at all times, how different sources are differently related?
Answer
We are even aware that not all of them are equally appropriate to all enterprises at all times as these different sources carry very different:
  1. Obligations.
  2. Responsibilities.
  3. Opportunities.
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Question 343 Marks
Answer each of these questions in about fifty words:
What is the need of finance?
Answer
  1. Finance is one of the important prerequisites to start an enterprise.
  2. It helps an entrepreneur to arrange all other required resources together like, personnel, machines, materials, methods, land, etc. to start up the business systematically.
  3. It helps an entrepreneur to start and run his business activities smoothly and convert a dream into reality.
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Question 353 Marks
Name some Institutional investors to whom entrepreneurs can raise funds by selling the issues.
Answer
Entrepreneurs, herein, raise funds by selling the issues mainly to the institutional investors like:
  1. Unit Trust of India.
  2. Life Insurance Corporation of India.
  3. General Insurance Corporation of India.
  4. Army Group Insurance.
  5. State Level Financial Corporations, etc.
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Question 363 Marks
Answer each of these questions in about fifty words:
Entrepreneur can use the capital raised for a variety of purposes, what are they?
Answer
Entrepreneur can use the capital raised for a variety of purposes including:
  1. Growth and expansion.
  2. Retiring existing debt.
  3. Corporate marketing and development.
  4. Acquisition capital.
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Question 373 Marks
Answer each of these questions in about fifteen words:
Name the stock exchanges were most of the stock trading in India is done.
Answer
Most of the stock trading in India is done on NSE and BSE.
The BSE is the Bombay Stock Exchange and the NSE is the National Stock Exchange.
The BSE is situated at Bombay and the NSE is situated at Delhi.
These are the major stock exchanges in the country.
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Question 383 Marks
For what purpose is finance required right from the very beginning, i.e. conceiving an idea?
Answer
Right from the very beginning, i.e. conceiving an idea, finance is required to:
  1. promote or establish the business.
  2. Acquire fixed assets.
  3. make market investigations.
  4. Develop product.
  5. keep men and machines at work.
  6. Encourage management to make progress and create value.
  7. Expand, diversify, improve and grow.
  8. To be able to meet unexpected business expenses.
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Question 393 Marks
“Stock exchange is a market where it sell all types of securities. Do you agree?
Answer
No, I do not agree. Stock exchanges maintain an official list of securities that could be purchased and sold on its floor. Securities which do not figure in the official list of stock exchange are called unlisted securities. Such unlisted securities cannot be traded in the stock exchange.
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Question 403 Marks
What are the demerits of availing venture capital for an entrepreneur?
Answer
Venture capital investors more or less become the non-working partners and obtain many times the returns for the investments they have made. Also, they may sometimes interfere in the day-to-day working of the enterprise.
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Question 413 Marks
How the prices of different securities traded are shown in the stock market?
Answer
The price of different securities traded are shown on electronic boards.
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Question 423 Marks
How do primary and secondary markets promote capital formation?
Answer
In the primary market the flow of funds is from savers to investors, that directly promotes capital formation. At the same time secondary market enhances the marketability of securities and thereby provides liquidity to investments. It indirectly promotes capital formation.
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Question 433 Marks
Give the various sources of raising finance through new issue.
Answer
The various sources are as follows:
  1. Public issue 1.
  2. Right issues.
  3. Private placement.
  4. Offer to employees.
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Question 443 Marks
How stock options lead to enable employees to become shareholders and share the profits of the company?
Answer
Employee Stock Option Scheme (ESOS) is an option provided to the employees to buy company's share, mostly as a preferential price which is less than the market price. By opting to buy the stock option, the employees become shareholders of the company and become entitled to share the future profits of the company. ESOS is offered to employees to increase their motivation level and to retain them in the company.
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Question 453 Marks
Answer each of these questions in about fifteen words:
How will you differentiate between financial market with other market? Give one difference.
Answer
Financial market is a market in which people and entities can trade financial securities (stocks and bonds), commodities (including precious metals or agricultural goods), and others like crude oil etc. at prices that reflect supply and demand. Market refers to the aggregate ofpossible buyers and sellers of a certain good or service and the transactions between them.
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Question 463 Marks
How can an entrepreneur raises funds by selling the issue mainly to the institutional investors?
Answer
Private placement is a mode of financing through which entrepreneur raise funds by selling the issue mainly to institutional investors like:
  1. Unit Trust of India
  2. Life Insurance Corporation of India
  3. General Insurance Corporation of India, etc.
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Question 473 Marks
Why does an entrepreneur needs second-round financing?
Answer
At this stage, the idea has been transformed into a product and is being produced and sold.
The entrepreneur, at this stage, needs assistance from venture capitalist for expansion, modernisation and diversification.
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Question 483 Marks
What is pro-rata allotment and how to calculate the amount of it? Give one example.
Answer
Pro-rata allotment of shares is opted by the Company when there is an oversubscription. The excess application money is adjusted towards the sum due on allotment.We calculate the amount of Pro-rata in the following way:
Suppose X Ltd. invited applications for 1,00,000 shares and received applications for 1,50,000 shares. In this case the pro-rata is calculated as,
$\frac{\text{1,50,000}}{1,00,000}=3:2.$
Hence the Pro-rata is 3 : 2.
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Question 493 Marks
Answer each of these questions in about fifteen words:
Enumerate the types of Specialised Financial Institutions from were entrepreneur can access capital according to their need and requirements.
Answer
A. At national level/ All India development banks
  1. Industrial Development Bank of India (IDBI).
  2. Small Industries Development Bank of India (SIDBI).
  3. Industrial Finance Corporation of India (IFCI).
  4. Industrial Credit and Investment Corporation of India (ICICI).
  5. National Bank for Agriculture and Rural Development (NABARD).
  6. Industrial Investment Bank of India Ltd. (IIBI).
B. At state level
  1. State Financial Corporation (SFCs).
  2. Tourism Finance Corporation of India (TFCI).
  3. State Industrial Development ,Corporations (SIDC).
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Question 503 Marks
Answer each of these questions in about fifteen words:
What is a secondary capital market?
Answer
Any transaction in shares or debentures subsequent to its primary offering is called “Secondary Transaction”. Thus, the secondary capital market, which is also known as old securities market or stock exchange deals-with buying and selling of old securities i.e. the market securities issued earlier are sold by existing investors in this market.
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