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Non-institutional sources - short-term - class-XI

Description: non-institutional sources - short-term
Number of Questions: 26
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Tags: business studies sources of business finance - 2 commerce sources of business finance organisation of commerce and management business capital/finance
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Commercial papers provide _______ funds as compared to other sources.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. less

  2. more

  3. medium

  4. equal

Show answer
Correct Option: B
Explanation:
The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time. Commercial paper provides more funds as compared to other sources. 

A commercial paper is sold on an __________ basis and does not contain any restrictive conditions.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Secured

  2. Unsecured

  3. Both a and b

  4. None of the above

Show answer
Correct Option: B
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties.

Commercial paper is sold on an unsecured basis and does not contain any restrictive conditions. It is issued by one firm to another business firm, insurance companies, banks etc.

Which one of the following is not a merit of commercial paper?

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. A commercial paper is sold on an unsecured basis.

  2. As its is a freely transferable instrument, it has high liquidity.

  3. Only financially sound and highly rated firms can raise money through commercial papers.

  4. Companies can park their excess funds in commercial paper

Show answer
Correct Option: C
Explanation:

One of the demerits of commercial paper is that only financially sound and highly rated firms can raise money through commercial paper as it is an unsecured promissory note issued by a firm to raise funds for a short period of time.

The maturity period of a commercial paper usually ranges from ________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. 20 to 40 days

  2. 60 to 90 days

  3. 120 to 365 days

  4. 90 to 364 days

Show answer
Correct Option: D
Explanation:

Commercial paper is  issued by a firm to raise funds for a short period of time, the time can be ranging from 90 days to 364 days after which it has to be redeemed. Commercial paper is an unsecured promissory note.

Commercial paper may vary from _____ days to ______ days.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. 90, 150

  2. 90, 300

  3. 90, 364

  4. 90, 363

Show answer
Correct Option: C
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties. Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days.

The amount raised by commercial paper is generally very _______.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. large

  2. small

  3. equal

  4. both (a) and (b)

Show answer
Correct Option: A
Explanation:
Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days. It is issued by one firm to another business firm. The amount raised by commercial papers is very large as the debt is totally unsecured.

As commercial paper is a freely transferable instrument, it has ________ liquidity.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. High

  2. Low

  3. Medium

  4. Equal

Show answer
Correct Option: A
Explanation:

Commercial paper is an unsecured promissory note given by a firm to raise finances for a short period of time. 

Only financially sound and highly rated firms can raise money through commercial papers. The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time.

Commercial paper is an unsecured _________ note issued by the firm to raise funds for a short-term period.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Promissory

  2. Debit

  3. Credit

  4. Sales

Show answer
Correct Option: A
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties. Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days.

The regulation of commercial paper comes under the preview of the ____________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Central Bank

  2. Reserve Bank of India

  3. State Government

  4. Central Government

Show answer
Correct Option: B
Explanation:

Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days. It is issued by one firm to another business firm, insurance companies, pension funds, and banks. The amount issued by commercial papers is generally very large. The regulation of commercial paper comes under the purview of Reserve Bank of India.

Commercial Paper emerged as a source of __________ finance in our country in the early _________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. short-term, sixties

  2. short-term, seventies

  3. long-term, eighties

  4. short-term, nineties

Show answer
Correct Option: D
Explanation:

Commercial paper emerged as a source of short-term finance in our country in the early nineties. Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days.

The size of money that can be raised through commercial paper is ________ to the excess liquidity available with the suppliers of funds at a particular time.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. limited

  2. unlimited

  3. equal

  4. higher

Show answer
Correct Option: A
Explanation:

Commercial paper is an unsecured promissory note given by a firm to raise finances for a short period of time. 

The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time.

The articles of association contains the _________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. rules

  2. regulations

  3. by-laws

  4. all of the above

Show answer
Correct Option: D
Explanation:
Articles of Association are the rules regarding internal management of a company.These rules are subsidiary to the Memorandum of Association and hence, should not contradict or exceed anything stated in the Memorandum of Association. The Article of Association contains rules, regulations, by-laws, etc.

A commercial paper provides a __________ source of funds.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Smaller

  2. Continuous

  3. Larger

  4. None of the above

Show answer
Correct Option: B
Explanation:
A commercial paper provides a continuous source of funds. This is because their maturity can be tailored to suit the requirements of the issuing firm. Further, maturing commercial paper can be repaid by selling new commercial paper.

Which of the following is a limitation of commercial paper?

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. The size of money that can be raised through commercial paper is limited to the excess liquidity available with suppliers of funds at a particular time.

  2. A commercial paper is sold on an unsecured basis,

  3. As it is freely transferable instrument, it has high liquidity.

  4. It provides more funds compared to other sources.

Show answer
Correct Option: A
Explanation:

Commercial paper is an unsecured promissory note given by a firm to raise finances for a short period of time. Only financially sound and highly rated firms can raise money through commercial papers. 

The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time.

The cost of commercial paper to the issuing firm is ________ than the cost of commercial bank loans.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. lower

  2. higher

  3. equal

  4. none of the above

Show answer
Correct Option: A
Explanation:

Commercial Paper is issued by one firm to another business firm, Insurance company, pension funds and it is an impersonal method of raising finances. therefore the cost of commercial paper to the issuing firm is lower than the cost of commercial bank loans.

Commercial paper is an __________ method of financing.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. personal

  2. impersonal

  3. nominal

  4. real

Show answer
Correct Option: B
Explanation:

Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period. It is issued by one firm to another business firm, insurance companies, pension funds, and banks. Hence, Commercial Paper is an impersonal method of financing.

Commercial papers represent a new financial instrument issued for the purpose of _______________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Project financing

  2. Working capital

  3. Leasing of plant and equipment

  4. Import of capital goods

Show answer
Correct Option: B
Explanation:

Commercial papers are short-term debt, unsecured instrument which is issued by the companies to meet their short term obligations that is to meet their working capital requirements. They are usually issued for 15 days to 1 year.

Identify the merit(s) of Trade credit.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. It reduces the capital requirement.

  2. It helps the business focus on core activities.

  3. It does not require any negotiation or formal agreement.

  4. All of the above

Show answer
Correct Option: D
Explanation:

Trade credit can be defined as delay of payment permitted by the creditor or supplier of raw materials, consumables etc. against the goods purchased from him. Merits of Trade credit are:a) It reduces the capital requirement.b) It helps the business focus on core activities.

c) It does not require any negotiation or formal agreement.

Likely disadvantage(s) of using trade credit include ___________.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Loss of goodwill

  2. Higher prices of raw materials

  3. The opportunity cost of discount

  4. All of the above

Show answer
Correct Option: D
Explanation:
Trade credit is issued when goods and services are traded on credit. It is offered by one seller to the other.Disadvantage(s) of using trade credit include:a) loss of goodwill
b) higher prices of raw materials
c) the opportunity cost of discount.

Trade Credit is a major source of _____ finance for most business whether small or big.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Receivables

  2. Fixed capital

  3. Working capital

  4. None of the above

Show answer
Correct Option: C
Explanation:

Trade credit can be defined as delay of payment permitted by the creditor or supplier of raw materials, consumables etc. against the goods purchased from him. Trade Credit is a major source of working capital finance for most business whether small or big.

Trade credit as a source of funds has certain limitations, which is/are ______________________.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Only limited amount of funds can be generated through trade credit.

  2. It is generally a costly source of funds.

  3. Availability of easy and flexible trade credit facilities may induce a firm to indulge in over-trading.

  4. All of the above

Show answer
Correct Option: D
Explanation:
Trade credit is issued when goods and services are traded on credit. It is offered by one seller to the other.a) Trade credit as a source of funds has certain limitations, which are:b) limited amount of funds can be generated through trade credit.
c) It is generally a costly source of funds.
Availability of easy and flexible trade credit facilities may induce a firm to indulge in over-trading.

Match the items of List-I with the items of List-II:

List-I List-II
(a) Trade credit and other payables that arise in the firm's day-to-day operations (i) Maturity Financing
(b) Financing and asset needs over time (ii) Factoring
(c) A tool for accelerating the collection from the customers (iii) Spontaneous financing
(d) Seeking financial service to finance on its debtor's balances (iv) Lockbox system
organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. $(a) - (iv), (b) - (iii), (c) - (ii), (d) - (i)$

  2. $(a) - (iii), (b) - (ii), (c) - (iv), (d) - (i)$

  3. $(a) - (ii), (b) - (iv), (c) - (i), (d) - (iii)$

  4. $(a) - (i), (b) - (ii), (c) - (iii), (d) - (iv)$

Show answer
Correct Option: C

Trade credit is commonly used by business organisations as a source of ___________ financing.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Short-term

  2. Long-term

  3. Medium-term

  4. Both A and C

Show answer
Correct Option: A
Explanation:

Trade credit is commonly used by business organisations as a source of short-term financing. Trade credits are generally a small amount of finances that are provided by the traders to another trader or a company to ensure smooth flow of trade cycle in the supply chain.

Trade credit is the credit extended by one _________ to another for the purchase of goods and services.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Retailer

  2. Wholesaler

  3. Customer

  4. Trader

Show answer
Correct Option: D
Explanation:

Trade credits are the credits granted to manufacturers and traders by the suppliers of raw materials. These credits are given to a trader from another trader to ensure the smooth running of trades in a business supply chain.

Trade credit is a convenient and continuous source of funds, which is one of the __________ of trade credit.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Limitations

  2. Merits

  3. Functions

  4. Objectives

Show answer
Correct Option: B
Explanation:

Trade credit is a short term source of finances where a trader credits finances to another trader for the smooth flow of business. Trade credit is a convenient and continuous source of funds as it is a short term credit and has a low amount value hence can be taken without long term financial plannings. This is one of the merits of trade credit.

Trade credit is needed to promote the ________ of an organisation.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Purchases

  2. Sales

  3. Drawings

  4. Capital

Show answer
Correct Option: B
Explanation:
Trade credit is commonly used by business organisations as a source of short-term financing. It is granted to those customers who have reasonable amount of financial standing and goodwill.If an organisation wants to increase
its inventory level in order to meet expected rise in the sales volume in the near future, it may use trade credit to, finance the same.
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