Business Studies 6 Marks Question

A life insurance policy is a protection against the uncertainty of life that is death. It provides protection to the family a premature death of an individual. The various types of life insurance policies are as follows:
i. Term insurance policy: This policy is a pure risk cover with the insured amount to be paid only if the policyholder dies during the period of policy time. The intention of this policy is to protect the policy holder's family in case of death.
ii. Endowment policy: In this policy, the term policy is defined for a specified period like 15, 20, or 25 years. The insurance company pays the claim to the family of the assured on the event of his death within the policy term or on the event of the assured serving the policy term.
iii. Whole life policy: In this policy, the insurance company collects premiums for the insured for the whole life or till the time of his retirement and pays a claim to the family of the insured only after his death.
iv. Money-back policy: Money back policy provides money on occasions when the policyholder needs it for his personal reasons. The occasions may be marriage, education, etc. The money will be paid back to the policyholder in a specified direction. If the policyholder dies before the policy term, the sum assured will be given to his family. A portion of the assured amount is payable at regular intervals. On survival, the remainder of the sum assured is payable.
v. Annuities and pension: In an annuity, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect the insured against risk as well as provide money in the form of pension at regular intervals. Over the years, insurers have added various features to basic insurance policies in order to address the specific needs of a cross-section of people.

a. The funds required by the business to carry out its various activities is called business finance.
b. Finance is called the lifeblood of any business. The need for funds arises from the point when an entrepreneur decides to start a business. Funds are required to buy fixed assets like plant and machinery. Som e funds are also required for meeting day-to-day business operations, like purchasing raw materials, paying salaries to employees, bills and so on. Moreover, funds are needed for the expansion of a business.
c. The two types of funds on the basis of ownership, being discussed above are owned funds and borrowed funds. The difference between them is as follows:

S. No	Basis	Owned Funds	Borrowed Funds
1.	Meaning	The funds that are invested by the owners of an enterprise, like a sole proprietor or partners or shareholders of a company are known as owner's funds. It also includes retained profits.	The funds raised through loans or borrowings are known as borrowed funds.
2.	Time period	These funds remain invested in the business for a longer duration and is not required to be refunded during the life period of the business.	These funds are provided for a specified period, on certain terms and conditions and have to be repaid after the expiry of that period.
3.	Management and control	Such capital forms the basis on which owners acquire their right of control of management.	The providers of these funds do not acquire any right of control of management.

The various types of cooperative societies are described below:
i. Consumer's Cooperative Societies: It is formed by consumers for obtaining good quality products at reasonable prices. The society aims to achieve economy in operations by purchasing goods in bulk directly from the wholesalers and selling them directly to the members, thereby eliminating the middlemen.
ii. Producer's cooperative societies: It is formed by small producers, who desire to procure inputs for the production of goods to meet the demands of consumers. These societies enhance the bargaining power of small producers. Profits among the members are generally distributed on the basis of their contributions to the total pool of goods produced or sold by the society.
iii. Marketing cooperative societies: The members consist of producers who wish to obtain reasonable prices for their output through one centralised agency. These societies perform marketing functions like transportation, packaging, etc., and selling the output at the best possible price. Profits are distributed according to each member's contribution to the pool of output.
iv. Farmer's cooperative societies: This society is formed by farmers to jointly take up farming activities in order to gain the benefits of large scale farming and increase productivity by providing good quality seeds, fertilisers, machinery and other modern techniques for use in the cultivation of crops. Such a society is helpful in consolidating the uneconomic, fragmented and small land holdings into viable economic holdings.
v. Credit cooperative societies: Providing easy credit on reasonable terms to the members. Such societies provide loans to members out of the amounts collected as capital and deposits from the members and charge low rates of interest.
vi. Cooperative housing societies: Helps people with limited income to construct houses at reasonable costs. The members of these societies consist of people who are desirous of procuring residential accommodation at lower costs.

Difference between Co-operative society and Company:

Basis of difference	Co-operative society	Company
(i) Regulations	It is governed by the Co-operative Society Act, 1912.	It is governed by the Companies Act, 2013.
(ii) Transfer of share	The members of co-operative societies cannot transfer their shares.	Shares can be easily transferred in case of a public company but not in the case of a private company.
(iii) Aim	The main aim of a co-operative society is to render services to its members. The word cooperative means working together and with others for a common purpose	The main aim of a company is to earn profits.
(iv) Number of members	Minimum 10 members are required to form a co-operative society, while there is no limit on the maximum number of members.	For private company: Minimum-2, Maximum-200, For public company- Minimum-7, Maximum-No limit
(v) Control	Managed and controlled by the elected managing committee.	Managed and controlled by the Board of Directors.
(Vi) Government support	Support in the form of low taxes, subsidies, loans at a low rate of interest, etc are provided by the government.	No government support is provided to companies.

Countries trade with each other when, on their own, they do not have the resources, or capacity to satisfy their own needs and wants. By developing and exploiting their domestic scarce resources, countries can produce a surplus and trade this for the resources they need.
Clear evidence of trading over long distances dates back at least 9,000 years, though long- distance trade probably goes back much further to the domestication of pack animals and the invention of ships. Today, international trade is at the heart of the global economy and is responsible for much of the development and prosperity of the modern industrialised world.
Nations trade because of the following reasons:
a. Unequal distribution of natural resources: Resources are unequally distributed in natural resources. Some countries are abundant in one commodity and scarce in other, while the opposite is true for some other country. It makes a case for international trade and exchanging abundant commodity with scarce commodity by nations.
b. Unequal availability of factors of production: Different nations are endowed with different factors of production which includes land, labour, capital and entrepreneurship. For example, India is a labour abundant country. Therefore, it is advisable for India to produce such commodities which use labour-intensive methods and exchange it for those who use capital intensive methods. The USA is a capital abundant country. Therefore, nations need to trade..
c. Theory of Comparative Cost Advantage: Due to these factors, some countries are in an advantageous position in producing selected goods and services which other countries cannot produce that effectively and efficiently and vice-versa.
d. Geographical Specialisation: The international business as it exists today is the result of geographical specialization. Even within a country, each state specialises in those goods for which it is geographically more suitable.
e. Cost minimization principle of firms: Firms get involved in international business to minimize their costs and maximize their profits.

The initial six steps that he needs to take in order to import machinery are:
i. Trade inquiry and obtaining I.E.C. No.: Before starting the import procedure, he has to obtain an I.E.C. (ImportExport Code) number. This number is used in filling the formalities of the import procedures. To get this number, he has to apply to the regional Import-Export Licensing Authority in the prescribed form.
ii. Obtaining Registration Cum Membership Certificate (RCMC) and placing an order: He will get various benefits in the form of subsidies and exemption in excise duty, tax, etc. To get these benefits, they have to show RCMC. After getting the I.E.C. number, he will apply for RCMC.
The RCMC is issued by:
a. Import Promotion Council.
b. Federation of Indian Import Organisation.
c. Import Development Authority, etc. Along with the application, he has to submit a bank certificate and IEC number. If the authority is satisfied, then they will issue RCMC.
iii. Opening a letter of credit: Letter of credit is issued by his bank in favor of the exporter. In this letter, the bank undertakes a guarantee for making payment on his behalf. He will approach his bank and instructs the bank to issue a letter of credit in favor of the exporter. He will instruct the bank about the documents to be collected from the exporter before making payment.
iv. Arranging for finance: Importer makes arrangements for finance in advance to pay to the exporter on the arrival of goods at the port.
v. Receipt of shipment advice: After loading of goods on the ship, the overseas supplier dispatches shipment advice to the importer.
vi. Retirement of import documents: The overseas supplier prepares a list of necessary documents and handed over to the banker for their onward transmission and negotiation to the importer.