Exam Question for Class 12 Entrepreneurship Chapter 6 Resources Mobilization

Please refer to below Exam Question for Class 12 Entrepreneurship Chapter 6 Resources Mobilization. These questions and answers have been prepared by expert Class 12 Entrepreneurship teachers based on the latest NCERT Book for Class 12 Entrepreneurship and examination guidelines issued by CBSE, NCERT, and KVS. We have provided Class 12 Entrepreneurship exam questions for all chapters in your textbooks. You will be able to easily learn problems and solutions which are expected to come in the upcoming class tests and exams for standard 12th.

Chapter 6 Resources Mobilization Class 12 Entrepreneurship Exam Question

All questions and answers provided below for Exam Question Class 12 Entrepreneurship Chapter 6 Resources Mobilization are very important and should be revised daily.

Very Short Answer Type Questions

Question. Name the stock exchanges were most of the stock trading in India is done.
Answer :
In India stock trading is done mostly in the following stock exchanges
a. Bombay stock exchange (BSE)
b. National Stock exchange (NSE)

Question. When was SIDBI established?
Answer :
SIDBI was established as wholly owned subsidiary of IDBI, in April, 1990 under the Small Industries Development Bank of India Act, 1990.

Question. What is the role of Specialized Financial Institutions in India?
Answer :
The specialized financial institutions play the role of
a. a promotional “mentor” and technical adviser
b. Also, they act as an important source of medium and long term financing to various types of upcoming and existing entrepreneurs.

Question. What is the alternate name of stock used by different people?
Answer :
a. Equity
b. Holdings
c. Scrip
d. Security
e. Share

Short Answer Type Questions

Question. Explain the objectives and functions of SIDC.
Answer :
Objective: To promote industrial development in the states where they are setup.
a. Allocate term finance to all the small, medium and large industrial enterprises established in the state.
b. Be a catalyst for the activities like underwriting and directly subscribing to the shares and debentures of industrial enterprises that are established in the state.
c. Collaborating with private entrepreneurs to establish industrial enterprises in fields of joint and assisted sectors.
d. Direct the operations like
◆Preparation of feasibility study
◆Conducting market surveys
◆Motivating the private entrepreneurs to start their ventures in the state
e. Ensure that the IDBI’s scheme of seed capital is implemented in the state.

Question. Write an explanatory note on the financing schemes of state level financial institutions and their importance in promotion of an entrepreneur in India.
Answer :
State Financial Corporations (SFCs) were established to meet the financial needs of small and medium enterprises through the State Financial corporations Act in 1951.
The act empowers state governments to establish a bank that cater to the development in their respective states. As of now there are 18 SFCs.
a. Arrange financial assistance to small and medium industrial companies. The companies that can benefit might be from the following wide range of sectors/types
◆Corporate sector
◆Co-operative sectors
◆Joint Hindu family business
◆Processing of goods
◆Generation or distribution of electricity
◆Repairs and maintenance of machinery
◆Setting up or development of an industrial area or industrial estate
b. Bring financial assistance in reach of those industrial concerns whose paid up share capital and free services is a maximum of ₹ 3 crores.
c. Contribute financial assistance to any single industry that fall into the corporate or co-operative sector at an average maximum value of ₹ 60 lakhs. For all other type of companies the maximum value is ₹ 30 lakhs.
d. Deal with providing long and medium-term loan repayment. The re-payment period in most cases is below 20 years.
e. Ensure that special emphasis is laid on the development of small scale industries and backward localities.
a. Act as an agent of
◆central government
◆state government
◆or any other financial institution in matters related to the grant of loan or business of IDBI, IFCI or other financial institution
b. Bear the responsibility of underwriting of
◆ or debentures by the industrial concern.
c. ◆Coordinate the grant of advances and loans or subscribe to the debentures of industrial concerns.
◆The maximum repayment period is 20 years.
◆There is provision to convert into shares or stocks of the company.
d. Development and promotion of industries through planning and assisting
e. Equip technical and administrative assistance to any industrial entity or individuals for
◆or expansion of any industry.
f. Facilitate the guarantee for the loans raised by industries. The maximum loan repayment should be 20 years.
g. Guaranteeing deferred payments pending from an industrial entity for buying capital goods in India.
h. Handle/own the subscription or purchasing of
◆or debentures of an industrial concern within the limit of 30 percent of the subscribed capital or 30 percent of paid up share capital and free reserve whichever is less

Question. Describe the form of assistance provided by SIDBI to the industrial concern.
Answer :
a. Allocate finances for the promotion, financing and development of small-scale industries in India. This is channelized through the following routes.
◆Direct assistance
◆Indirect assistance
b. Bring about the initiation of the technological up-gradation and/or modernization of existing units.
c. Create channels for marketing of SSI sector products in India and abroad and opens up new markets.
In addition it has taken over the responsibility of allocating the following two funds.
a. Small Industries development fund
b. Small Industries development Assistance Fund
i. Financial assistance to SSS
ii. Refinance loans and advances
iii. Discount and re-discount bills arising from sale of machinery to or its manufacture by industrial units
iv Refinance assistance for
◆setup new venture
◆diversification of existing units for all the activities.
V Seed capital/loan assistance through specified lending agencies.
Vi Grant direct assistance and refinance loans.
Vii Provide venture capital assistance
viii Leasing and factoring to small-scale units

Question. What is the need of finance?
Answer :
Finance is needed by the entrepreneurs because it is the primarily required means for establishing the enterprise. Finance helps in the formation of the new enterprise and to exploit the opportunities to grow and expand the enterprise. It is required for various activities 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. State some mushrooming sources of raising finance in the business.
Answer : The following are some of the mushrooming sources of raising finance in the business
1. Capital Markets: A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.
2. Angel investors: Angel investor, also known as business angel or informal investors is a wealthy person who can provide the capital for starting an enterprise or for the initial stage operations of an enterprise. They usually have high-risk, high-return matrix. In return they expect convertible debt or ownership equity in the enterprise.
3. Venture capital: This source is a kind of private equity capital and supplies seed & funding while staring up the enterprise. Suitable for high potential, high risk, growth-up enterprises run by the entrepreneurs who are in need of necessary experience and finances to implement their ideas.
4. Specialized financial institutions: These specialized financial institutions provide the finance to
a. Small and medium sized concerns
b. New enterprises established by the new entrepreneurial groups
c. Specific industries that are in need of finance to implement modernization
d. Enterprises established to implement innovations and new technological developments
e. Enterprises in need of huge funds to sustain long gestation period
f. Enterprises established in backward regions
In addition to this, the entrepreneurs can also procure the finance from the following specialized financial institutions (SFIs), as per their needs.
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)

Long Answer Type Questions

Question. State the nature of money market. Who are the major participants in the money market?
Answer :
Money market is an element of the financial market which is involved in the lending and borrowing of short term loans. The loan term should be less than or equal to 365 days. Money market is the means though which the short term monetary transactions are dealt with in the economy.
The major participants in the money market are
a. Banks
b. Brokers
c. Corporate Investors
d. Government
e. Mutual funds
f. Non – Banking Finance Companies (NBFCs)
g. Provident Funds
h. Public sector undertakings (PSUs)
i. Reserve Bank of India (RBI)

Question. What do you understand by capital market? How can the capital market in India be broadly classified into different categories?
Answer :
A capital market is an organized means meant for effective and smooth mobilization of the money capital or financial resources from the investors to the entrepreneurs. In capital markets production capital is raised and it is made available to the entrepreneurs to be used in the establishment or operations of their enterprises.
The capital markets are broadly classified in India into the follow broad categories.
Organised Sector:
a. Individual investors
b. Corporate investors
c. Institutional investors
d. Government bodies
e. Semi-Governmental agencies
f. International financial agencies
Un-organized sector:
a. Indigenous bankers
b. Money lenders
c. Finance Brokers
d. Non-regulated banking finance institutions like chit funds or Nidhis etc

Question. What is meant by primary market? Briefly explain the concept of ‘Right Issue for existing companies’?
Answer :
Primary market is the market whose sole purpose is to enable the transfer of resources
a. from the savers
b. to the entrepreneurs who are looking for the funds for the purpose of
i. Setting up new enterprises
ii. Expansion
iii. Diversification from the savers to the entrepreneurs who are in
Rights Issue that is implemented by the established companies:
1. 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.
2. The availability of the shares is communicated to the existing shareholders through a circular.
3. The existing share holders have the option to either acquire their shares or to not accept them.
4. If the shares are not accepted by the existing shareholders they are transferred to the other persons.
5. Rights issue is inexpensive as there is no involvement of
◆ Agents
◆ Brokers
◆ Prospectus
◆ Underwriters
◆ Enlistment etc.

Question. When an entrepreneur decides to go public and become a public company,he/she tends to be in advantageous positions and get many benefit out of it .
Explain the benefits.
Answer :
Entrepreneurs have the following advantages of raising the funds through the capital market.
a. Acquisition capital to buy a competitor or another business or supplier.
b. Business debt that is existing can be repaid with the acquired capital and there by saving on the interest (if any)
c. Corporate marketing and development to increase the sales and revenues 
d. Development and expansion/growth of the business more rapidly
In addition to the above advantages they’ve the following additional advantages too.
a. Acquisitions and Mergers: The entrepreneurs can use the public stock option to grow the enterprise through acquisitions and mergers.
b. Benchmark trading price: The trading price of a public company’s stock act as a benchmark of the offer price of the other securities.
c. Capital Formation: It becomes easier to raise the capital later due to the extra liquidity for the investors.
d. Dilution: Dilution of ownership is less as compared to the IPO.
e. Eased out/reduced business requirements: Going for an IPO requires
significant earnings. But going public does not require significant earnings and hence it is easier.
f. Higher Valuations: As compared to the private companies, public companies have higher valuation.
g. Incentives: Stock options and stock incentives attract the employees a lot.
h. Liquidity: Public companies provide liquidity for
◆and Minority investors
i. Increased prestige: Increased prestige in the eyes of the
◆financial investors

Very Long Answer Type Questions

Question. Explain the importance of Stock Exchange from the viewpoint of investors.
Answer : 1. Dissemination of useful information:
Stock exchanges publish useful information related to securities like the price lists, quotations etc in various channels like newspapers, magazines, journals, websites etc. Investors heavily depend on this information published by the stock exchanges to buy and sell their securities
2. Ready market: Shareholders can sell their shares and convert them to cash through a member of the stock exchange.
3. Investors’ interests protected: Stock exchanges formulate the rules and regulations. This will avoid frauds and protect the investor interests.
4. Genuine guidance about the securities listed: The information published by the stock exchanges is trustworthy and the investors can safely depend upon this information.
5. Barriers of distance is removed: Stock exchanges provide an opportunity to the investors to participate in the shares of any company regardless of the location. Thus an investor has an opportunity to invest without any distance barriers.
6. Knowledge of profit or loss on investments: The price of the securities is live and up-to-date which helps the investors to get an instant estimate of whether their securities are running with profit or loss and decide whether to retain or sell the securities.

Question. Rahil (Finance) and Anushk (HR) are doing MBA (IIM Indore) While reading the newspaper Anushk saw the heading Sensex goes up. But last week the heading was different that Sensex goes down , now some confusion was going on his mind, immediately asked his Friend Rahil the same? Now according to you how Rahil will clear confusion of Anushk? Explain and give value points
Answer :
SENSEX is the short name for S&P BSE SENSEX(S&P Bombay Stock Exchange Sensitive Index) also called as BSE 30 is an index of how the wellestablished 30 companies listed on the Bombay Stock exchange are performing. These 30 companies are from various industry sectors.
This index represents health of the India’s economy. When most of these stocks are performing well their prices increases and the SENSEX goes up and vice versa. Last week there was a dip in the prices and hence the SENSEX has gone down and this week their prices are increased and hence the SENSEX has gone up.
The value points from this case study are:
a. Awareness of surroundings b. Enthusiasm
c. Knowledge Sharing d. Communication
e. Cooperation f. Willingness to help

Question. Explain the functions of stock exchange.
Answer :
The following are the various functions of stock exchange.
a. Acts/Serves as economic barometer: Stock exchanges act as an index indicating the health of the companies and national economy. In other-words it acts as a barometer indicating the economic conditions/situation and serves as the pulse of economy or economic mirror.
b. Bank Lending facilitation: Banks get the information related to the prices of the quoted securities from the stock exchanges. So, they offer loans to customers against the corporate securities as they know the value or price of these securities. This is a very big convenience to the owners of securities.
c. Continuous and ready market securities: Stock exchange act as a central market for buying and selling securities. It provides ready and continuous platform for buying and selling securities. Buyers and sellers strongly believe that they would be able to perform the transactions at any time (during the stock exchange working hours)
d. Deals/regulates company management: Stock exchanges mandate that the companies should comply with the rule and regulations laid out. The companies will be under the vigilance of stock exchange authorities.
e. Examines or checks on brokers: Stock exchanges control the activities of brokers and there by prevent any fraud activities or malpractices by the brokers. If any of the brokers are found to be overcharging or not providing accurate information, their licence may be cancelled.
f. Facilitates public borrowing: Stock exchanges also provide the platform for buying and selling of government securities. This makes it easy for the government to raise public debts quickly.
g. Gathering/raising new capital by the entrepreneurs: The companies will be able to easily gather or raise new capital through stock exchanges for the purpose of development expansion.
h. Healthy Speculation: Stock exchanges keep a check on the speculation and regulates it at healthy levels. This provides more business to the exchange. The speculation is also under control and there by preventing any danger to the investor and growth of corporate sector.
i. Intensifying capital formation: Stock exchanges promote the habit of saving, investing and risk taking among the investors and there by converting their savings into profitable and safe investments. This accelerates the capital formation as the investors will be more willing to invest their money in companies.
j. Justice through Safety and security in dealings: The stock exchanges work under the control of the provisions of the Securities Control (Regulation) Act. Due to this the investor confidence is grown. Also, the fraudulent practices are under check and there by ensuring safety, security and justice in dealings.
k. Facilitates evaluation of securities: Stock exchanges help in the evaluation of industrial securities. They thoroughly analyze the demand and supply position and publish the share prices. The investors will thus be able to know the true worth of their holdings at any time.

Question. Explain the main objectives and functions of ICICI.
Answer :
Main Objectives of ICICI:
a. Assist in the
◆and modernization of industrial entities in the private segment.
b. Bring private capital (both Indian and foreign) into these industries by stimulating and promoting
c. Coordinate the provision of technical and managerial help in order to increase production and there by increasing employment opportunities.
Functions of ICICI:
a. Allocate medium and long-term loans in Indian and foreign currency to import capital equipment and technical services. The aim is to allocate these loans for the purchase of fixed assets like
◆ Machinery
b. Become the guarantor for the loans raised from private sources. This is applicable for deferred payments too.
c. ◆Consultancy services
◆technical assistance
◆managerial assistance is provided to industrial entities to start new projects.
d. Direct subscription to the new issues of shares. Most of the times taking up the underwriting.
e. Equipment and other asset lease to industrial entities. In this cases the assets will be under the ownership of ICICI and will be leased to the industrial concerns for rent.
f. Facilitate merchant banking services
g. Gives/sanctions a minimum loan of ₹ 5 lakhs and a maximum loan of ₹ 1 crore to a business entity.

HOTs Questions

Question. “TFCI is playing vital role in the development of entrepreneurship in modern economy”. Comment.
Answer :
Yes. TFCI was born with this sole objective in mind. It is a specialized all-India development financial institution to serve the needs to the needs of the tourism industry.
The following are its functions through which it helps in the development of entrepreneurship in today’s economy.
a. Advisory and merchant banking services provision in this field.
b. Billions of rupees (5.2 billion)were sanctioned as assistance to more than 2000 projects in the recent 5 years. Due to these more than 12,000 hotel rooms came into existence and around 23,000 people got jobs.
c. Capital cost to be eligible under this scheme should be more than 1 crore.
However, they consider small projects also.
d. Deals with providing financial assistance to enterprises for setting up or the development of tourism related projects, facilities and services such as
◆Amusement parks
◆Air Services
◆Convention halls
◆Cultural centers
◆Education and Sports
◆Entertainment centers
◆Holiday resorts
◆Rope ways
◆Sports facilities
◆Tourism emporium
◆Tourism operating agencies
Thus there is wide range of new ventures financed by TFCI and as the tourism sector has multitude of opportunities and is growing industry in the modern times, TFCI  plays a critical role in the development of modern economy.

Question. Assuming that you wish to start a small scale industry for manufacturing and selling detergent powder, discuss how would you seek support of financial institutions.
Answer :
Due to the less complicated process of manufacturing, the manufacture of detergent power falls under small-scale industries. The following are the various options available for procuring the finance for small scale industries.
a. Angel Investors: Angel investors will be willing to invest in this manufacturing concern, as the market is huge and once established the returns would be high. So, this option can be used by the entrepreneurs. The angel investors not only provide funds but they also provide expertise and mentor the entrepreneurs.
b. Venture Capitalist: As the manufacturing concern is going to be started (as it is a startup), the entrepreneurs can approach the venture capitalist. In addition venture capitalist help the new entrepreneurs to realize their dreams.
c. State financing corporations: State financing corporations provide financing help to the small and medium enterprises engaged in the manufacture etc. So, the entrepreneurs can approach these financial institutions.

Question. Distinguish between ICICI and SIDBI.
Answer :
The following are the differences between ICICI and SIDBI.
1. ICICI was established in 1995 as a joint stock company in the private sector. All its share capital came from
a. banks
b. insurance companies
c. foreign institutions including world bank At present it has the following major share holders

a. General Insurance corporation of India and its subsidiaries
b. Life insurance corporation of India
c. Unit Trust of India
Their total share capital in ICICI is approximately 50%, all put together.
1. SIDBI was established in April 1990 as a wholly owned subsidiary of IDBI under the Small Industries Development Bank India Act, 1990
2. Its objective is to help the industrial units in the private sector in the
◆and modernization
2. To assist in the technology upgrade during the starting stage and/or modernization of existing business entities.
3. It stimulates and promotes the investment of private capital in the industrial units both from India and abroad.
3. It broadens the channels for marketing of SSI sector products both in India and abroad.
4. To facilitate
◆technical assistance
◆managerial assistance
◆consultancy services and to increase production and to create more employment opportunities.
4. To promote employment oriented industries
5. It owns certain assets and lease them to industrial entities.
5. It provides leasing and factoring to small-scale business units
6. It gives medium and long-term loans in Indian and foreign currency for importing capital equipment and technical services.
6. Provides direct assistance and refinance loans. These loans are extended by primary Lending Institutions for financing the export of products manufactured by industrial concerns in small scale sector.

Question. Company A goes for public issue of 10,000 shares @ ₹ 10 each. Application were received for only 5,000 shares. Can the company proceed with the process of issuing shares.
Answer : SEBI has issued a guideline where if a company receives less than 90% of the issued amount from the public subscription and development from underwriters, in less than 120 days from the initial issue date, the applicants should be refunded with the subscribed amount. Even if the development is under dispute, the applicants should be refunded with the subscribed amount if this criteria is not met.
If there is any development to be received from the underwriters and if it is not received within 120 days of the issue of prospectus, the applicants should be refunded with the subscribed amount. However, in this case no interest is required to be paid. But if this amount is not returned in the next 10 days (after completion of 120 days), the directors of the company will be jointly liable to repay that money including interest after completion of 130 days.
In this case, after closing the subscription list, if refunds are not paid within 8 days, the company should refund all the amount and interest within 10 weeks In the given scenario only 50% of the issued shares are subscribed. Hence the company should not proceed with the issuing of shares and should return the share amount to the subscribers as specified above.

Question. Why primary market is also known as new issue market? Give one reason.
Answer :
The entrepreneurs have high dependency on primary markets though the initial issues to generate funds. When the entrepreneurs decide to issue securities to the public so as to procure capital funds they do it in the primary market for the first time. As this is done for the first time such “issues of securities” are also known as “new money issues”. Consequently the primary market is also known as new issue market

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