2nd PUC Preparatory examination Paper 2020

I. Answer any 10 of the following questions in a word or a sentence each. (1 x 10).

Q1. Which of the following is not a function of management?

a) Planning b) Organising c) Directing d) Co-Operating

Answer: d) Co-Operating

Q2. Dr. Kiran Mazumdar Shaw is the CEO of ………………….

Answer: Biocon Limited

Q3. Which of the following does not characterise the business environment?

a) Uncertainty b) Employees c) Relativity d) Complexity

Answer: b) Employees

Q4. Which Function of management involves decision making?

Answer: Planning

Q5. Name any one elements of delegation.

Answer: Responsibility, Authority, Accountability.

Q6. Is transfer and Promotion are the internal source of recruitment? (State True or False)
Answer: True

Q7. Which of the following is a financial incentive?

a) Promotion b) Stock Option c) Job Security d)Employee Participation

Answer: b) Stock Option

Q8. Expand CPM

Answer: Critical Path Method

Q9. What do you understand by capital structure?

Answer: Capital Structure is referred to as the ratio of different kinds of securities raised by a firm as long-
term finance.
Answer: Capital structure is the particular combination of debt and equity used by a company to funds its
on-going operations and continue to grow.
Answer: Capital structure refers to a company's outstanding debt and equity.

Q10. Name any one objective of SEBI.

Answer: The primary objective of SEBI is to protect the interest of people in the stock market and provide a
healthy environment for them.
Answer:
1. Protection: To guide, educate, and to protect the rights and interests of the investors.
2. Competitive and Professional: To make the intermediaries like merchant bankers, brokers etc.
competitive and professional by regulating their activities and developing a code of conduct.
3. Prevention of Malpractices: To prevent trading malpractices.
4. Balancing: To establish a balance between statutory regulation and self-regulation by the securities
industry.
5. Orderly Functioning: To promote orderly functioning of stock exchange and securities industry by
regulating them.

Q11. Give an example of marketing of services.

Answer: Marketing of Hotel, Marketing of Hospital, Marketing of Insurance etc.,

Q12. Name any one consumer organisation/NGO engaged in protecting and promoting consumers interest.
Answer: NGOs helping with Consumer Affairs
Common Cause, Delhi
Consumer Coordination Council Delhi
Consumer Education and Research Centre, Ahmedabad
Mumbai Grahak Panchayat
Karnataka Consumer Service Society
Voluntary Organisation in Interest of Consumer Education (VOICE), Delhi
Consumer Guidance Society of India (CGSI), Mumbai

II. Answer any ten of the following questions in 2 to 3 sentences each. (10x2)

13. Define Management.

Answer: "Management is the art of getting things done through people."
Answer: Management is a Process. Planning, Organising, Directing and Controlling.
14. What is Discipline according to Foyal?
Answer: Discipline. According to Fayol, “Discipline means sincerity, obedience, respect of authority &
observance of rules and regulations of the enterprise.” This principle applies that subordinate should
respect their superiors and obey their order. It is an important requisite for smooth running of the
enterprise.

15. State the meaning of scalar Chain?

Answer: Scalar chain is the formal line of authority which moves from highest to lowest rank in a straight
line. This chain specifies the route through which the information is to be communicated to the desired
location/person.

16. Write any two limitations of planning.

Answer:

a. Planning Creates Rigidity:

b. Planning Does Not Work in a Dynamic Environment:
c. Planning Involves Huge Costs:
d. Planning Reduces Creativity:
e. Planning is a Time-consuming Process:
 f. Planning Does Not Guarantee Success:

17. What does the span of management refers to?

Answer: The Span of Management refers to the number of subordinates who can be managed efficiently by
a superior. Simply, the manager having the group of subordinates who report him directly is called as the
span of management.

18. Give the meaning of Recruitment.

Answer: Recruitment refers to the overall process of attracting, shortlisting, selecting and appointing
suitable candidates for jobs (either permanent or temporary) within an organization.
Answer: the process of finding people to work for a company or become a new member of an organization.
Answer: the process of employing new people to work for a company or organization.

19. State the meaning of formal communication.

Answer: Formal communication refers to interchange of information officially.
Answer: The Formal Communication is the exchange of official information that flows along the different
levels of the organizational hierarchy and conforms to the prescribed professional rules, policy, standards,
processes and regulations of the organization.
Answer: The formal communication follows a proper predefined channel of communication and is
deliberately controlled.

20. Mention any two traditional techniques of controlling.

Answer: Traditional Techniques of Managerial Control: Traditional techniques are those which have been
used by the companies for a long time now. These include:

A) Personal Observation: This is the most traditional method of control. Personal observation is one
of those techniques which enables the manager to collect the information as first-hand information.
B) Statistical Reports: Statistical reports can be defined as an overall analysis of reports and data
which is used in the form of averages, percentage, ratios, correlation, etc., present useful information
to the managers regarding the performance of the organization in various areas.
C) Break-even Analysis: Breakeven analysis is a technique used by managers to study the relationship
between costs, volume & profits. It determines the overall picture of probable profit & losses at
different levels of activity while analyzing the overall position.
D) Budgetary Control: Budgetary control can be defined as such technique of managerial control in
which all operations which are necessary to be performed are executed in such a manner so as to
perform and plan in advance in the form of budgets & actual results are compared with budgetary
standards.

21. Give the meaning of Investment Decision with an example.

Answer: The Investment Decision relates to the decision made by the investors or the top level
management with respect to the amount of funds to be deployed in the investment opportunities. Simply,
selecting the type of assets in which the funds will be invested by the firm is termed as the investment
decision. These assets fall into two categories:
Long Term Assets: Example, Capital Budgeting
Short-Term Assets: Example, Working capital management

22. What is money market?

Answer: Money Market can be understood as the market for short term funds, wherein lending and
borrowing of funds varies from overnight to a year. It is an important part of the financial system that helps
in fulfilling the short term and very short term requirements of the companies, banks, financial institution,
government agencies and so forth.

23. Write any two difference between selling and marketing.

Answer: Distinction between Selling and Marketing
SELLING, Emphasis is on the product.
MARKETING, Emphasis is on the customer wants.
SELLING, Company first makes the product and then figures out how to sell it.
MARKETING, Company first determines customer wants and then figures out to make it.
SELLING, Management is sales volume oriented.
MARKETING, Management is profit oriented.
SELLING, Profit through Sales Volume
MARKETING, Profits through Customer Satisfaction
SELLING, Planning is short-run-oriented, regarding today products and markets
MARKETING, Planning is long-run oriented regarding new products, tomorrow’s markets, and future
growth.
SELLING, Let the buyer be aware.
MARKETING, Let the seller be aware.
SELLING, Product first then customer.
MARKETING, Customer first then the product.

24. State any two Directions which can be issued by the consumer court to the opposite party.
Answer: If the Consumer Court is satisfied with the genuineness of the complaint, it can issue one or more
of the following directions to the aggrieved party as reliefs:

(i) To remove the defect in goods or the deficiency in service.

(ii) To replace the defective product with a new one, free from any defect.
(iii) To refund the price paid for the product.
(iv) To pay punitive damages in appropriate circumstances.
(v) To pay adequate costs to the appropriate party.

III. Answer any 7 of the following questions in 10-12 sentences each. Each question carries 4
marks.

25. Explain any four natures of the principles of management.

Answer: The main features of management principles are as follows:

A) Universal application: The principles of management are universal in nature that means they can
be applied to all types of organisations irrespective of their size and nature. Their results may
vary and application may be modified but these are suitable for all kinds of organisations.
B) General guidelines: Management principles are not static or absolute statements. These cannot
be applied blindly in all the situations. The applicability of management principles depends on
conditions and nature of organisation.
C) Flexibility: Management principles can be applied differently under different conditions. Some
changes can be made in application of principles according to the requirement of the company.
 These are not set of rigid statements. These can be modified by the managers who are using
them.
D) Behavioural in nature: Management principles are formed to guide and influence the behaviour
of employees. These principles insist on improving relationship between superior, subordinates
and all the members of organisation. They also establish relations between human and material
resources.

26. Briefly explain any four challenges that were to be faced by business and industry due to changes
in government policy.
Answer: challenges faced by business and industry due to changes in government policies are as follows

1) Increasing Competition: As a result of liberalisation, privatisation and globalisation number of

players Increased in all sectors and increased competition for everyone.
2) More Demanding Customers: Increased competition in the market gives the customer wider choices
in purchasing better quality of goods and services, which makes them more demanding
3) Rapidly Changing Technological Environment: New technologies help to improve machines, process
products and services. The rapidly changing technological environment creates tough challenges
before smaller firms.
4) Need for Developing Human Resource: The new market conditions require people with higher
competence and greater commitment. Hence, the need for developing human resources emerged.

27. Explain any four importance of planning.

Answer: Planning can be defined as “thinking in advance what is to be done, when it is to be done, how it is
to be done and by whom it should be done”.
Importance/Significance of Planning:

a) Planning provides Direction: Planning is concerned with predetermined course of action. It provides
the directions to the efforts of employees. Planning makes clear what employees have to do, how to
do, etc. By stating in advance how work has to be done, planning provides direction for action.
b) Planning reduces over lapping and wasteful activities: if the managers, non-managers and all the
employees are following course of action according to plan then there will be integration in the
activities. Plans ensure clarity of thoughts and action and work can be carried out smoothly.
c) Planning Promotes innovative ideas: Planning requires high thinking and it is an intellectual
process. So, there is a great scope of finding better ideas, better methods and procedures to perform
a particular job. Planning process forces managers to think differently and assume the future
conditions. So, it makes the managers innovative and creative.
d) Planning Facilitates Decision Making: Planning helps the managers to take various decisions. As in
planning goals are set in advance and predictions are made for future. These predictions and goals
help the manager to take fast decisions.

28. Explain the merits of external sources of recruitment.

Answer: The merits of external sources include the following:

a) Fresh talent and skill comes into the organisation.

b) New employees may try to change old habits.
c) New employees may be selected according to the terms and conditions of the organisation.
 d) Highly qualified and experienced employees may help the organisation to come up with better
performance.
e) Since persons are recruited from a large market, the best selection can be made. In other words, the
recruiter has a wide range of candidates to choose from.
f) External sources provide the requisite type of personnel for an organisation, having the required
skill.
g) External sources of recruitment are economical because potential employees do not need extra
training for developing their skills.

29. Briefly explain the limitations of controlling.

Answer: Limitations of Controlling
Although controlling is an important function of management, it suffers from the following limitations.

a) Difficulty in setting quantitative standards: Control system loses some of its effectiveness when
standards cannot be defined in quantitative terms. This makes measurement of performance and
their comparison with standards a difficult task. Employee morale, job satisfaction and human
behaviour are such areas where this problem might arise.
b) Little control on external factors: Generally an enterprise cannot control external factors such as
government policies, technological changes, competition etc.
c) Resistance from employees: Control is often resisted by employees. They see it as a restriction on
their freedom. For instance, employees might object when they are kept under a strict watch with
the help of Closed Circuit Televisions (CCTVs).
d) Costly affair: Control is a costly affair as it involves a lot of expenditure, time and effort. A small
enterprise cannot afford to install an expensive control system. It cannot justify the expenses
involved. Managers must ensure that the costs of installing and operating a control system should
not exceed the benefits derived from it.

30. Explain any four factors affecting financing decisions.

Answer: Factors affecting financing decisions are as follows:

a) Cost of Funds: Different financial sources have different cost like interest on debt, dividend of
shares. A company chooses a source which proves to be the cheapest.
b) Risk: From companies point of view debt is more risky than equity,. So, company should analyse its
financial risk bearing capacity and choose a source accordingly.
c) Floatation Cost: Higher the floatation cost of a source, less attractive it appears to the management.
d) Cash Flow position: A stronger cash flow position makes debt financing more viable that funding
through equity.
e) Level of Fixed Operating Cost: If a business has high fixed operating costs (For example, rent,
insurance premium etc.), it should opt for less fixed financing cost (interest) by using less debt
financing. Similarly if fixed operating cost is less, more debt financing can be done.
f) Control Consideration: Issue of more equity may lead to dilution of managements control over the
business companies which may afraid them of a takeover bid. So it may prefer debt to equity.
g) State of capital markets: A depressed capital market makes issue of equity, shares difficult and less
attractive source finance in comparison to debt. Similarly a rising capital market makes equity more
viable source of finance than debt.
h) Return on Investment: lf the ROI for a company is higher, it will use more debt to take advantage of
trading on equity.
 i) Tax Rate: Since interest is a tax deductible expense, a higher tax rate makes debt relatively cheaper
and increases its attraction vise-visa equity.
j) Flexibility: If a firm uses its debt potential to the full capacity, it losses flexibility to issue further
debt. To maintain flexibility, it must maintain some borrowing power to take care of unforeseen
circumstances.
k) Regulatory Framework: Different sources of finance have different regulatory framework
provided by the law. The relative ease with which these norms can be met has a good effect on the
choice of the source of finance.

31. Briefly explain any four factors affecting working capital requirement of an organisation.
Answer: FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

a) NATURE OF THE INDUSTRY / BUSINESS: The management of working capital is completely

different from industry to industry. A simple comparison of the service industry and manufacturing
industry can clarify the point. In the service industry, there is no inventory and therefore, one big
component of working capital is already avoided. So, the nature of the industry is a factor in
determining the working capital requirement.
b) SEASONALITY OF INDUSTRY AND PRODUCTION POLICY: Businesses based on seasons like
manufacturing of ACs whose demand peaks in summer and dips in winter. The requirement of
working capital will be more in summer compared to winter if they are produced in the fashion of
their demand. The policy of producing throughout the year can smoothen the fluctuation of the
working capital requirement.
c) COMPETITION: If the industry is competitive, quick response to customer needs is compulsory and
therefore a higher level of inventory is maintained. Liberal credit terms are also mandatory with
good service to survive in the market. So, higher the competition, higher would be the requirement
of working capital.
d) PRODUCTION CYCLE TIME: The production cycle time refers to the time required for converting the
raw materials into finished goods. Higher, this time, higher would be the time of blocking funds in
the working capital.
e) CREDIT POLICY: Liberal credit policy demands a higher level of working capital and tight credit
policy reduces it.
f) GROWTH AND EXPANSION: Some industries are static and others are growing. Obviously, growing
industry grows the requirement of working capital also as compared to static industry.
g) SHORTAGE OF SUPPLY OF RAW MATERIAL: If the raw material supply is not smooth for any reason,
companies tend to store more of raw materials than needed and that increased requirement of
working capital.

32. Explain the types of channels of distribution.

Answer: A distribution channel is a chain of businesses or intermediaries through which a good or service
passes until it reaches the final buyer or the end consumer.
Types of Distribution Channels: Channels of distribution can be divided into the direct channel and the
indirect channels.

1) Direct Channel or Zero-level Channel (Manufacturer to Customer)

Direct selling is one of the oldest forms of selling products. It doesn’t involve the inclusion of an
intermediary and the manufacturer gets in direct contact with the customer at the point of sale. Some
examples of direct channels are peddling, brand retail stores, taking orders on the company’s website, etc.
Direct channels are usually used by manufacturers selling perishable goods, expensive goods, and whose
target audience is geographically concentrated. For example, bakers, jewellers, etc.

2) Indirect Channels (Selling Through Intermediaries)

When a manufacturer involves a middleman/intermediary to sell its product to the end customer, it is said
to be using an indirect channel. Indirect channels can be classified into three types:

a) One-level Channel (Manufacturer to Retailer to Customer): Retailers buy the product from the
manufacturer and then sell it to the customers. One level channel of distribution works best for
manufacturers dealing in shopping goods like clothes, shoes, furniture, toys, etc.
b) Two-Level Channel (Manufacturer to Wholesaler to Retailer to Customer): Wholesalers buy the
bulk from the manufacturers, breaks it down into small packages and sells them to retailers who
eventually sell it to the end customers. Goods which are durable, standardised and somewhat
inexpensive and whose target audience isn’t limited to a confined area use two-level channel of
distribution.
c) Three-Level Channel (Manufacturer to Agent to Wholesaler to Retailer to Customer): Three level
channel of distribution involves an agent besides the wholesaler and retailer who assists in
selling goods. These agents come handy when goods need to move quickly into the market soon
after the order is placed.

33) Briefly explain any four objections against advertising.

Answer: Objections against advertising

1) Advertising leads to higher cost of goods: Product generously spend huge money on advertising.
This ultimately increases the cost of goods and the consumer has to bear the burden of huge
expenditure. Thus, the consumers are heavily taxed due to the heavy expenditure on advertising.
2) Advertising is an exaggeration of facts: Most of the advertisements are misleading and untrue.
They contain all claims and exaggeration of facts. Such exaggerated advertising amounts to
swindling.
3) Advertising is unproductive: It is often argued that advertising is unproductive since it does not
produce any tangible products.
4) Vulgar and silly: Some of the advertisements are offensive to public decency. They are vulgar and
silly in nature.

34. Explain any four rights of consumers.

a) RIGHT TO SAFETY: According to the Consumer Protection Act 1986, the consumer right is referred
to as ‘right to be protected against marketing of goods and services which are hazardous to life and
property’. This right is applicable across all the domains having serious effect on the health of the
consumers or their well-being.
b) RIGHT TO INFORMATION: The right to information is defined as ‘the right to be informed about the
quality, quantity, potency, purity, standard and price of goods or services, as the case may be so as to
protect the consumer against unfair trade practices’ in the Consumer Protection Act of 1986.
c) RIGHT TO CHOOSE: The definition of Right to Choose as per the Consumer Protection Act 1986 is
‘the right to be assured, wherever possible, to have access to a variety of goods and services at
competitive prices’. For regulating the market place, there is just one factor required and that is
competition.
 d) RIGHT TO BE HEARD: As stated in the Consumer Protection Act 1986, ‘the right to be heard and to
be assured that consumer’s interests will receive due consideration at appropriate forums’ is the
definition of the right to be heard. This right helps to empower the consumers of India for putting
forward their complaints and concerns fearlessly and raising their voice against products or even
companies and ensure that their issues are taken into consideration as well as handled
expeditiously.
e) RIGHT TO REDRESSAL: The right to seek redressal against unfair trade practices or restrictive trade
practices or unscrupulous exploitation of consumers’ is referred to as the right to redressal
according to the Consumer Protection Act 1986.
f) RIGHT TO CONSUMER EDUCATION: The right of every Indian citizen to have education on matters
regarding consumer protection as well as about her/his right is regarded as the last right provided
by the Consumer Protection Act 1986. The right makes sure that the consumers in the country have
informational programs and materials which are easily accessible and would enable them to make
purchasing decisions which are better than before.

IV. Answer any 4 of the following questions in 20-25 sentences each. Each question carries 8
marks.

35. Briefly explain the characteristics of management.

Answer: Characteristics of Management

a) Universal: All the organizations, whether it is profit-making or not, they require management, for
managing their activities. Hence it is universal in nature.
b) Goal Oriented: Every organization is set up with a predetermined objective and management helps
in reaching those goals timely, and smoothly.
c) Continuous Process: It is an ongoing process which tends to persist as long as the organization
exists. It is required in every sphere of the organization whether it is production, human resource,
finance or marketing.
d) Multi-dimensional: Management is not confined to the administration of people only, but it also
manages work, processes and operations, which makes it a multi-disciplinary activity.
e) Group activity: An organization consists of various members who have different needs,
expectations and beliefs. Every person joins the organization with a different motive, but after
becoming a part of the organization they work for achieving the same goal. It requires supervision,
teamwork and coordination, and in this way, management comes into the picture.
f) Dynamic function: An organization exists in a business environment that has various factors like
social, political, legal, technological and economic. A slight change in any of these factors will affect
the organization’s growth and performance. So, to overcome these changes management formulates
strategies and implements them.
g) Intangible force: Management can neither be seen nor touched but one can feel its existence, in the
way the organization functions.
h) Interconnected: All the functions, activities and processes of the organization are interconnected to
one another. And it is the task of the management to bring them together in such a way that they
help in reaching the intended result.

36. What is Organising? Explain the importance of organising.

 Answer: Organizing is the process of defining and grouping activities, and establishing authority
relationships among them to attain organizational objectives. Organizing creates the framework needed
to reach a company's objectives and goals.
Importance of Organising:

a) Efficient Administration: It brings together various departments by grouping similar and related jobs
under a single specialization. This establishes coordination between different departments, which leads
to unification of effort and harmony in work. It creates the mechanism for management to direct and
control the various activities in the enterprise.
b) Resource Optimization: Organizing ensures effective role-job-fit for every employee in the
organization. It helps in avoiding confusion and delays, as well as duplication of work and overlapping of
effort.
c) Benefits Specialization: It is the process of organizing groups and sub-divide the various activities and
jobs based on the concept of division of labour. This helps in the completion of maximum work in
minimum time ensuring the benefit of specialization.
d) Promotes Effective Communication: Organizing is an important means of creating coordination and
communication among the various departments of the organization. It specifies the channel and mode of
communication among different members.
e) Creates Transparency: Organizing fixes the authority-responsibility among employees. This brings in
clarity and transparency in the organization.
f) Expansion and Growth: When resources are optimally utilized and there exists a proper division of
work among departments and employees, management can multiply its strength and undertake more
activities.

37. Briefly explain the important steps in the process of selection.

Answer: The important steps in the process of selection are as follows

a) Preliminary Screening: It helps the manager eliminate unqualified or unfit Job seekers based on
the information supplied In the application forms.
b) Selection Tests: An employment test is a mechanism that attempts to measure certain
characteristics of individuals These range from aptitudes, such as manual dexterity, to Intelligence
to personality.
c) Employment Interview: Interview is a formal, in depth conversation conducted to evaluate the
applicant’s suitability for the Job
d) Reference and Background Checks: Many employers request names, addresses and telephone
numbers of references for the purpose of verifying information and gaining additional on an
applicant.
e) Selection Decision: The final decision has to be made among the candidates who pass the tests.
Interviews and reference checks
f) Medical Examination: Before the candidate is given a job offer he/she is required to go through a
medical test.
g) Job Offer: Job offer IS made through a letter of appointment/confirm hiS acceptance Such a letter
generally contains a date by which the appointee must report on duty.
h) Contract of Employment: After the job offer has been made and candidate accepts the offer. Certain
documents need to be executed by the employer and the candidate. There is also a need for,
preparing a contract of employment It Includes job title, duties responsibilities, date when
continuous employment starts etc.
38. Explain briefly the principles of directing.
Answer: Principles of Directing

a) Maximum Individual Contribution: One of the main principles of directing is the contribution of
individuals. Management should adopt such directing policies that motivate the employees to
contribute their maximum potential for the attainment of organizational goals.
b) Harmony of Objectives: Sometimes there is a conflict between the organizational objectives and
individual objectives. For example, the organization wants profits to increase and to retain its major
share, whereas, the employees may perceive that they should get a major share as a bonus as they
have worked really hard for it.
c) Unity of Command: This principle states that a subordinate should receive instructions from only
one superior at a time. If he receives instructions from more than one superiors at the same time, it
will create confusion, conflict, and disorder in the organization and also he will not be able to
prioritize his work.
d) Appropriate Direction Technique: Among the principles of directing, this one states that appropriate
direction techniques should be used to supervise, lead, communicate and motivate the employees
based on their needs, capabilities, attitudes and other situational variables.
e) Managerial Communication: According to this principle, it should be seen that the instructions are
clearly conveyed to the employees and it should be ensured that they have understood the same
meaning as was intended to be communicated.
f) Use of Informal Organization: Within every formal organization, there exists an informal group or
organization. The manager should identify those groups and use them to communicate information.
There should be a free flow of information among the seniors and the subordinates as an effective
exchange of information are really important for the growth of an organization.
g) Leadership: Managers should possess a good leadership quality to influence the subordinates and
make them work according to their wish. It is one of the important principles of directing.
h) Follow Through: As per this principle, managers are required to monitor the extent to which the
policies, procedures, and instructions are followed by the subordinates. If there is any problem in
implementation, then the suitable modifications can be made.

39. Bring out the difference between Capital Market and Money Market.
Answer: Top 10 Difference between Money Market and Capital Market

Basis Money Market Capital Market

Meaning A random course of financial A kind of financial market where the

institutions, bill brokers, money company or government securities are
dealers, banks, etc., wherein generated and patronised for the
dealing on short-term financial intention of establishing long-term
tools are being settled is referred finance to coincide the capital
to as Money Market. necessary is called as Capital Market.

Nature of Informal Formal

Market

Financial Commercial Papers, Treasury Bonds, Debentures, Shares, Asset

Tools Certificate of Deposit, Bills, Trade Securitization, Retained Earnings,
 Credit, etc., Euro Issues, etc.,

Organizations Commercial bank, bill brokers, The stock exchange, Commercial

non-financial institutions, the banks, non-banking organisations like
central bank, acceptance houses, insurance companies etc.,
and so on.

Risk Factor Low High

Liquidity High Low

Purpose To achieve short term credit To achieve long term credit

requirements of the trade. requirements of the trade.

Time Horizon Within a year More than a year

Merit Rises liquidity of capitals in the Mobilization of Economies in the

market. market.

Return on Less High

Investment

40. What is price? Explain the factors affecting price determination.

Answer: Price refers to the economic value (i.e. Monetary Value) of a product or service which a buyer pays
to the seller.
Factors affecting price determination are as follows.
i. Organizational Objectives: The marketers should set the prices as per the organizational goals. For
instance, an organization has set a goal to produce quality products, thus, the prices will be set according to
the quality of products. Similarly, if the organization has a goal to increase sales, then the reasonable prices
have to be set to increase the demand of the product.
ii. Costs: The marketers analyze the costs before setting the prices to minimize losses. Costs include cost of
raw materials, selling and distribution overheads, cost of advertisement and sales promotion and office and
administration overheads.
iii. Legal and Regulatory Issues: The legal and regulatory laws set prices on various products, such as
insurance and dairy items. These laws may lead to the fixing, freezing, or controlling of prices at minimum
or maximum levels.
iv. Product Characteristics: Include the nature of the product, substitutes of the product, stage of life-cycle
of the product, and product diversification.
v. Competition: The organization matches the prices with the competitors and adjusts the prices more or
less than the competitors. The organization also assesses that how the competitors respond to changes in
the prices.
vi. Pricing Objectives: Based on the objectives of the company, it fixes the prices. For instance, an
organization has a pricing objective to increase the market share through low pricing. Therefore, it needs to
set the prices less than the competitor prices to gain the market share.
vii. Price Elasticity of Demand: Refers to change in demand of a product due to change in price.
viii. Competitor’s pricing Policies: Influence the pricing policies of the organizations. The price of a
product should be determined in such a way that it should easily face price competition.
ix. Distribution Channels: Implies a pathway through which the final products of manufacturers reach the
end users. If the distribution channel is large, price of the product will be high and if the distribution channel
is short, the price of the product will be low. Thus, these are the major factors that influence the pricing
decisions.

V. Answer Any Two of the following questions. Each Question carries 5 marks.

41. Show the different elements of Business Environment that influence the success of business
enterprises with neat diagram.

42. As a manager of an organisation, what are the modern techniques of controlling you would like
to adopt?

Answer: As a manager of an organisation, I would like to adopt the following techniques of controlling.
a) Return on investment
b) Ratio Analysis
a. Liquidity ratio
b. Solvency ratio
c. Profitability ratio
d. Turnover ratio
c) Responsibility Accounting
a. Cost or expense centres
b. Revenue Centres
c. Profit Centres
d. Investment Centres
d) Management Audit
e) Network Techniques: (PERT and CPM).

43. As a Financial consultant, Give the list of any ten factors which Affect the choice of capital
structure.
Answer: The various factors which influence the decision of capital structure are:
a) Cash Flow Position:
b) Interest Coverage Ratio (ICR):
c) Debt Service Coverage Ratio (DSCR):
d) Return on Investment:
e) Cost of Debt:
f) Tax Rate:
g) Cost of Equity:
h) Floatation Costs:
i) Risk Consideration:
j) Flexibility:
k) Control: