Resources Mobilization Class 12 Entrepreneurship Important Questions
Please refer to Resources Mobilization Class 12 Entrepreneurship Important Questions with answers below. These solved questions for Chapter 6 Resources Mobilization in NCERT Book for Class 12 Entrepreneurship have been prepared based on the latest syllabus and examination guidelines issued by CBSE, NCERT, and KVS. Students should learn these solved problems properly as these will help them to get better marks in your class tests and examinations. You will also be able to understand how to write answers properly. Revise these questions and answers regularly. We have provided Notes for Class 12 Entrepreneurship for all chapters in your textbooks.
Important Questions Class 12 Entrepreneurship Chapter 6 Resources Mobilization
All Enterprise Marketing Class 12 Entrepreneurship Important Questions provided below have been prepared by expert teachers of Standard 12 Entrepreneurship. Please learn them and let us know if you have any questions.
Short Answer Type Questions
Question. Write a short note on IIBI.
Answer : Industrial Reconstruction Bank of India (IRBI) was transformed and renamed as Industrial Investment Bank of India Ltd or IIBI under the Companies Act, 1956 in March, 1997. It was initially setup by IDBI through Government of India in April 1971.
Its sole purpose was to rehabilitate poorly performing industrial companies.
Functions: It provides a wide range of products and services as specified below.
a. Assistance in term-loan for project finance.
b. Backing the financing of working capital or other short term loan to companies. This is usually for purchasing short duration non-project assets.
c. Capital market and money market instruments investments.
d. Dealing with equity subscription asset credit.
e. Equipment finance.
Question. Enumerate the types of Specialised Financial Institutions from were entrepreneur can access capital according to their need and requirements.
Answer : The following are the various specialized Financial institutions from where entrepreneurs can borrow capital to meet their needs and requirements.
1. At national level/All India development banks
a. Industrial Credit and Investment Corporation of India (ICICI)
b. Industrial Development Bank of India (IDBI)
c. Industrial Finance Corporation of India (IFCI)
d. Industrial Investment Bank of India Ltd.(IIBI)
e. National Bank for Agriculture and Rural Development (NABARD)
f. Small Industries Development Bank of India (SIDBI)
2. At state level
a. State Financial Corporation (SFCs)
b. Tourism Finance Corporation of India (TFCI)
c. State Industrial Development Corporations (SIDC)
Question. Explain the need and importance of Specialized Financial Institutions in India?
Answer : Specialized Financial Institutions (SFIs) provide developmental finance. Thus SFIs are the sources for the entrepreneurs to procure finance required to invest in fixed assets. Due to this reason, the SFIs are also called as Development Banks or Development Financial Institutions. Thus the SFIs play an important role and are very much need due to the following reasons.
a. Accommodate enough long-term funds in the required sectors as per the planned priorities as the industrial units and entrepreneurs.
b. Bring new and small entrepreneurs into the industry by providing the required finance to them.
c. Coordinate the underwriting of and direct subscription to the issue of shares and debentures in the capital market of the upcoming ventures.
c. Development of
◆Small scale industry
◆Projects in the backward areas
d. Establishing the enterprises that are in need of extremely huge finance and those that have lengthy gestation periods.
3. Facilitate the technical and managerial support to the entrepreneurs there by facilitating the
◆ execution of new enterprises that require finance.
Question. What are the responsibilities of governing body?
Answer : The responsibilities that the governing body possess are to look after
a. policy formulation
b. proper functioning of the exchange
c. possess wide range of powers like
◆Admit and expel members
◆By-laws, rules and regulations etc interpretation
◆Conduct the affairs related to the exchange
◆Electing the office bearers and set up committees
◆Finance and property (belonging to the exchange) management for the exchange
Question. What is a secondary capital market?
Answer : Secondary market, also known as old securities market or stock exchange, is the market in which the old securities (i.e. the market securities issued earlier) are bought and sold.
Question. For what purpose is finance required right from the very beginning i.e. conceiving an idea?
Answer : Entrepreneurs will in in need of finance right from the point of conceiving an idea, for various requirements like
a. Acquire fixed assets
b. Be prepared to meet the unplanned/unexpected expenses.
c. Conduct Market investigations.
d. Develop the product
e. Encourage management to progress and create value
f. Establish or promote the business
g. Expand, diversify, improve and grow, h. Keep men and machines at work
Question. An entrepreneur is a person who bears the risks, unites various factors of production and carries out a creative innovation, and for doing all these, what is the basic requirement to be reached to this extent.
Answer : Finance is the essential requirement for the entrepreneurs to reach the extent of bearing the risk, bringing together different factors of production and implementing their creative ideas.
Long Answer Type Questions
Question. Explain how Capital markets are the most important source of raising finance for an entrepreneur.
Answer : Capital markets act as the vital sources of procuring finance for the entrepreneurs in the following ways.
a. They mobilize the financial sources throughout the nation.
b. They secure the required foreign capital
c. They know the process to accelerate the economic growth.
d. They make sure that the financial resources are allocated most effectively.
They achieve this by directing the financial resources either to the projects that are capable of returning maximum returns or to the underdeveloped priority areas that that are in need to promote balanced and diversified industrialization urgently.
Question. Write down the sectors of organized and un–organized market?
Answer : The various sectors of organized market are
a. Individual investors
b. Corporate investors
c. Institutional investors
d. Government bodies
e. Semi-Governmental agencies
f. International financial agencies
The various sectors of un-organized market are
a. Indigenous bankers b. Money lenders c. Finance Brokers
d. Non-regulated banking finance institutions like chit funds or Nidhis etc
Question. “An entrepreneur can raise the required capital in the primary market”.
Explain the various methods of raising the funds in the primary market by an entrepreneur.
Answer : The entrepreneurs have the option of raising the required funds through the following methods in the primary market.
1. Public Issue/Going Public: This is the method more popular. In this method a prospectus is prepared and issued to the public. The funds are collected from the public through this prospectus.
2. Rights Issue:
a. When additional finance is required, entrepreneurs follow the strategy named Rights issue where in they offer securities to the existing shareholders on a pro-rata basis. In other-words they give right on certain number of shares in proportion to the number of shares held by them currently.
b. The availability of the shares is communicated to the existing shareholders through a circular.
c. The existing share holders have the option to either acquire their shares or to not accept them.
d. If the shares are not accepted by the existing shareholders they are transferred to the other persons.
e. Rights issue is inexpensive as there is no involvement of
3. Private Placement: Entrepreneurs use private placement to raise funds from the institutional investors. These institutional investors are very limited in number.
Entrepreneurs belonging to both public and private limited sector utilize this option.
They issue different varieties of financial instruments to capitalize using private placement.
Private placement help the entrepreneurs to keep maintain business information confidentially and keep it from disclosing in the open market.
Different institutional investors are
a. Unit Trust of India
b. Life Insurance Corporation of India
c. General Insurance Corporation
d. Army Group Insurance
e. State Level Financial Corporations
4. Offers to the employees: Stock options or offering shares enable the employees to become share holders and share the profits of the company. When an employee opts for a stock option, the employee goes through an agreement to stay with the company for a specified period of time. If the employee leaves the company before the specified period or is fired, they’ll not be able to utilize their stock options. Availing the stock options requires the employees to stay with the company for a specified period of time after which they can purchase the stocks. They benefit from the stock options if the value of the share is increased during this period.
Question. While there are benefits to going public, at the same time additional obligations and reporting requirements on the companies and its directors means disadvantages too what are they? Explain.
Answer : The entrepreneur has to endure the following additional obligations and reporting requirements too when they go public
a. Adhere strictly to the rules and regulations laid out by the governing bodies and need to closely observe them.
b. Becomes more vulnerable to an unwelcome/hostile takeover
c. Costs are increase as the company has to comply with higher levels of reporting requirements.
d. Demand/Need to maintain more dividend and profits.
e. Enhanced/increased accountability to public share holders.
f. Following the public offer, the entrepreneur is likely to lose some control.
g. Growth of media interest results in a loss of privacy.
Very Long Answer Type Questions
Question. Explain the importance of Stock Exchange from the viewpoint of companies.
Answer : The following is the significance of the stock exchange from the view point of the companies.
1. Recognition: The market values of the companies’ shares are published in various media channels like newspapers, magazines and websites. This increases the reputation of good companies/entrepreneurs.
2. Wide market: The securities of some companies are listed in multiple stock exchanges, there by widening the market for the securities of that company. Due to this the companies will be able to reach more number of investors who are willing to invest in the company and this helps is procuring large capital funds.
3. Higher share value: Investors prefer to buy shares that have some premium value and hence there is demand for such shares. Due to increase in the demand, the price of the shares increase further.
Question. Explain the importance of Stock Exchange from the viewpoint of society.
Answer : 1. Rapid capital formation: When the companies are performing well in the stock market, they lure the investors to invest in their securities. Thus the investments in corporate and government sectors is increased. In addition to this, the income from these securities can be further invested. Thus there is a surplus flow of funds and this leads to rapid capital formation.
2. Economic development: As the funds are easily mobilized, the production is boosted and this brings additional capital. This in-turn lead to economic development.
3. National Projects: As stock exchanges promote capital formation, it becomes easier to start projects that bring National Prosperity.
Question. Write down the features of stock exchanges.
Answer : The following are the features of the stock exchange
a. Association of persons: A stock exchange is an association of persons or body of individuals which may be registered or unregistered.
b. Barometer of finances: Stock exchanges are the financial barometers and indicate the development of the national economy. The index of stock exchange reflects the stability and industrial growth.
c. Central Government Recognition: As stock exchange is an organized market, it requires recognition from the Central Government.
d. Deals in second hand securities: Stock exchanges deal with the bonds, debentures, shares and other such securities which are already issued by the companies. In other words,
they deal with the existing or second hand securities and hence they are called as secondary market.
e. Effect of transactions only through members: All the transactions in securities at the stock exchanges are effected only through its authorized brokers and members. They will not allow the outsiders or direct investors to enter the trading circles. It is only through the authorized brokers that the investors have to buy and sell the securities.
f. Facilitate dealings only in listed securities: A stock exchange has its own official list of securities. Investors can buy and sell only these securities through this stock exchange. Securities which are not part of this official list are called as unlisted securities. The unlisted securities cannot be traded in the stock exchange.
g. Governs/works as per the rules: The investors can carry out the buying or selling transactions at the stock exchange subject to the rules and regulations of the stock exchange and the SEBI guidelines. There is no relaxation of these rules and regulations under any circumstances.
h. Handles/regulates trade in securities: Stock exchanges neither buy nor sell any securities themselves. They just provide the required infrastructure and the facilities to the brokers and its members to perform the trading of securities. Thus stock exchanges handle or regulate the trading activities and ensure that the trade is free and fair.
i. It is market for securities: Stock exchange is market where in securities of
◆Non-government bodies are bought and sold.
j. Specific Location: It is the place where authorized brokers come together on working days. They meet on the floor of market called trading circles and do trading. The prices of various securities being traded are displayed on the electronic boards. The market is closed after the working hours. The working of stock exchange is conducted and controlled through computers and electronic system.
Question. Explain objectives and three important functions of NABARD.
Answer : The following are the objectives and functions of NABARD.
Objectives of NABARD:
a. Allocate direct lending to any institution as approved by the central government.
b. Bank will play the role of financing institution
◆for industrial credit like long-term, short-term
◆for the promotion of activities in rural regions.
Functions of NABARD:
1. Credit functions:
a. Short-term credit to
◆State Cooperative Banks
◆Regional Rural Banks
◆Other financial institutions approved by RBI for the following purposes
◆Financing seasonal agricultural operations
◆Marketing of crops
◆Production Procurement and Marketing of cooperative weavers and rural artisans societies and individuals.
◆Production and marketing activities of industrial cooperatives.
b. Medium-term credit to
◆State Cooperative Banks
◆State Land Development Banks
◆Regional Rural banks
◆and Other approved financial institutions approved by RBIto convert the short term loans to medium term loans for approved agricultural requirements.
c. Long-term credit to
◆State Land Development Banks
◆State Cooperative banks
◆Regional Rural Banks
◆and Other approved financial institutions
d. Refinance to
◆small-scale industries located in rural areas.
2. Developmental Functions
a. Acts as an agent to the Government and RBI in the transaction of business in relevant areas and provide facilities for training, research and dissemination of information in rural banking and development
b. Be the coordinator for the operations of rural credit institutions
c. Contribute to the share capital of eligible institutions.
d. Develop the expertise to deal with agricultural and rural problem so that it can help in rural development efforts
e. Equip the provision of direct loans to centrally approved cases.
3. Regulatory Functions:
a. Authorized to undertake the inspection of RRBs and Cooperative banks, excluding the Primary Cooperative Banks
b. Branch opening requires a recommendation of NABARD. This is imperative by RRBs or Cooperative Banks to take permission from RBI.
c. Collect the file returns and documents from
Question. Hari is an entrepreneur who wants to start an amusement park in Indore. He knows that needs a huge amount of initial capital. According to you which of the financial institution will be more suitable to him? Suggest and Explain why?
Answer : Tourism Finance Corporation of India (TFCI) provides financial assistance to enterprises for setting up the development of tourism related projects like amusement park etc. So, Hari should approach TFCI for procuring the funds for starting this amusement park. In addition to this TFCI assists with a capital cost of ₹ 1 crore which best suits for ventures like an amusement park etc. There were more than 2000 projects that were benefited from the finance aid provided by TFCI. Due to these reasons Linden should approach TFCI for getting the required capital.
Question. Discuss the advantages and disadvantages of financial institutions for an entrepreneur.
Advantages of financial institutions for an entrepreneur:
1. It is easy to procure loans from the financial institutions.
2. Less time consuming.
3. Option of subscribing to the shares and debentures either directly or through underwriting.
4. The financial institutions also play the role of mentor and technical advisor to a wide range of upcoming and existing entrepreneurs.
5. The are very important sources of long term financing
6. Availability of very long term loans.
7. Possibility of getting finance for both new and small industrial units
8. Certain financial institutions focus on the development of specific sectors. If the enterprise being established matches this sector, then getting finance is very easy.
9. They promote the systems that are in alignment with the national priorities.
10. They assist in the formation, expansion and modernization for the industrial units.
11. Certain financial institutions target specifically rural sectors for the development of the rural areas.
Disadvantages of financial institutions for an entrepreneur:
1. Procuring finance for terms beyond 20 years is very difficult.
2.Sometimes it is difficult to get loans for business concerns that fall into specific sectors.
3. Interest rates are high and sometimes it is possible to lose collateral.
4. Sometimes the loans are made available in 2 or more terms. The entrepreneurs have to seek other sources for the rest of the amount till it is sanctioned from the bank.
5. Sometimes it is possible to lose some control on the enterprise as the financial institutions get involved and take the position of important stakeholders.
Question. How NABARD is different from TFCI.
Answer : The following are the differences between NABARD and TFCI.
1. Started for promoting agriculture and other rural small scale industries sector.
2. Provides short, medium and long term and refinance facilities.
3. Coordinates the operations of the rural credit institutions.
4. Contributes to the share capital.
5. Authorized to perform regulatory functions.
1. Started for promoting the tourism industry.
2. Provides medium term loans.
3. Provides the advisory services
4. No share capital participation.
5. Works independently.