It is an internal source, which does not involve any cost of floatation and the uncertainties of
external financing. In fact, it is regarded as the most dependable source of long-term finance. It
also strengthens the firms equity base, which enables to bo
loans can also be secured by companies from ICICI. In the context of the emerging competitive
scenario in the finance sector, ICICI has merged with ICICI Bank Ltd., with effect from 3
May 2002. Consequent upon the merger, the ICICI groups financing and ba
not in a position to pay interest and dividends at a fair rate. Such a situation may be caused by the
(a) Excessively high price paid for the purchase of goodwill and other fixed assets.
(b) Underutilisation of production capacity.
2. Liquidity requirement: The payment of dividend involves out flow of cash. At times, a
company may have high profits but not much cash. In such a situation, it may not declare high
rate of dividend. Even otherwise, liquidity requirement for ensuring tim
You know that every business unit whether it is an industrial establishment, a trading concern or
a construction company needs funds for carrying on its activities successfully. It requires funds to acquire
cash sale of goods, and is re-invested in current assets. It keeps on revolving from cash to current
assets and back again to cash.
It should be noted that a part of working capital is of a permanent nature because depending on
the volume of business cert
12. State the long term sources of foreign funds to Indian companies.
Ans: External sources, Internal sources, and Non-resident Indians (NRIs)
13. In which year a leasing company was established first time in India?
Ans: Chidambaram Group in 1973 in Chenn
2. Cost of debt: If the rate of interest on borrowings is lower than the expected rate of return on
capital employed, and then debt may be preferred. With lower cost of debt financing, the
overall cost of financing is reduced and the return on equity capi
payout as part of their agreement. The companies have to adhere to such limits. In any case, the
Company Law has provided certain rules to be followed while deciding on the amount to be
distributed as dividend. For example, capital profits are not to be u
(c) It caters to exclusively to the wealthy investors.
(d) It ensures minimum return on equity.
(e) It keeps in view the legal constraints.
(f) It has rigidity and firmness and does not change with changed conditions.
Ans: (a) Yes
(b) No It involves minim
(b) Treasury Bill: A treasury bill is a promissory note issued by the RBI to meet the short-term
requirement of funds. Treasury bills are highly liquid instruments that mean, at any time the
holder of treasury bills can transfer of or get it discounted fr
(ii) The facility for convenient purchase and sale of securities at the stock exchange provides
support to new issue market. This helps in promotion and expansion of industrial activity,
which in turn contributes, to increase in the rate of industrial gro
11. Give two examples for current liabilities?
Ans: Creditors, bills payables
12. If the actual rate of return is equal to cost of capital in the company is known as?
Ans: Proper capitalisation
13. Who gets fixed dividend irrespective of profits of the co
(c) State Industrial Development Corporation
(d) Global Depository Receipt
(e) Foreign Direct Investment
(f) American Depository Receipt
25. Which method of long-term financing, Public Deposit or Retention of Profits, are being
referred to, in each of the
Sources of Long-term Finance
In the previous lesson you learnt about the various methods of raising long-term finance. Normally
the methods of raising finance are also termed as the sources of finance. But, as a matter of fact, the
promoted by the leading financial institutions in India. It was incorporated in 1992 and commenced
operations in 1994. This stock exchange has a corporate structure, fully automated screenbased trading and nation-wide coverage.
Another stock exchange that
3. What is the meaning of the term insurance? Explain its importance.
Ans: The term insurance refers to a contract between two parties, one known as insured and the other
insurer. The document containing the contract is known as Insurance Policy. The pers
Short Answer Type Questions
1. Describe any two types of banks?
Ans: There are various types of banks operate in our country to meet the diverse financial needs of
customers. These can be categorised as per their functions.
(a) Commercial bank
goods. He may provide facilities for mixing, blending and packaging of goods for convenience
in handling and sale.
g) Transportation: In some cases warehouses provide transport arrangement to the bulk
depositors. It collects goods from the place of produc
rails transport is economical and safe. In India, railways are owned by government of India
and most commonly used mode of goods transport
(c) Water Transport: Water transport refers to movement of goods and passengers on waterways
by using various means
enquiries, settle terms and conditions, place orders and send confirmation. It has helped in the
growth of national as well as international trade.
(b) Mobility of Labour: People who have gone for employment to places away from their
homes and families ar
(ii) Lending Money: The second important function of a commercial bank is lending of
money to the public as well as to the business houses. It takes the form of loans and
advances to the customers at the prescribed rates of interest. Loans are granted for
19. What is meant by buying and selling of goods and services?
20. What is the trade that takes place within the boundaries of the country?
Ans: Internal trade
21. What is the trade that takes place between two or more than two countries?
7. Explain the different types of financial requirements in a business.
Ans: In every business activity money is an important as well as essential component. Now let us see
the nature and type of financial requirement of the business enterprises.
customers account after deducting some discount. The amount of discount is charged on the
basis of the interest for the period of bill. On maturity of the bill, the payment is received by the
bank from the drawee.
3. Give two merits and two limitations of
20. Which bank is established to regulate and control the banks within the country?
Ans: Central bank (RBI)
21. Which bank is called a government bank?
22. Which bank prints currency notes?
23. What is the name of central bank in India?
7. List the various needs of the business for which funds are required.
Ans: (a) To purchase fixed assets
(b) To meet day-to-day expenses
(c) To fund business growth
(d) To bridge time gap between production and sales.
(e) To meet contingencies
(f) To ava
2. Foreign Investments: The foreign investments in our country are generally done in the form
of foreign direct investment (FDI) or through foreign collaborations. The foreign direct investment
usually refers to the subscription by the foreigners to share
of trading at stock exchanges and the corresponding rise or fall in the prices of securities
reflects the investors assessment of the economic and business conditions in a country, and
acts as the barometer which indicates the general conditions of the at