Kerala SET Paper 2 Mock Test - 4 (Commerce) - KTET MCQ

For the purpose of extending rural banking and agro finance, the NABARD Refinances the banks extending rural finance. NABARD's refinance is available to State Co-operative Agriculture and Rural Development Banks (SCARDBs), State Co-operative Banks (SCBs), Regional Rural Banks (RRBs), Commercial Banks (CBS), and other financial institutions approved by RBI. While the ultimate beneficiaries of investment credit can be individuals, partnership concerns, companies, State-owned corporations, or co-operative societies, production credit is generally given to individuals.

CA 2013 required all companies to file the following additional declarations with the Registrar of Companies prior to commencement of business or exercising any borrowing power: 

(i) declaration by a director that minimum paid-up share capital has been paid; and 

(ii) company has filed verification of registered office. The CA Amendment 2015 has removed the above requirements and deleted Section 11 of CA 2013. This reduces the filings to be made by companies in India.

The correct answer is C. K. Prahlad.

Key Points "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits" has been written by C.K. Prahalad. The book, published in 2004, explores the idea that the world's poor can be considered as a lucrative market for businesses, and by addressing their needs and creating products and services tailored for them, both social and economic goals can be achieved. Prahalad suggests that businesses can play a crucial role in poverty alleviation while also generating profits by engaging with the large and untapped market represented by the world's poor.

Additional Information

"The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits" is a book written by C.K. Prahalad, an influential management thinker and professor of corporate strategy. The book, first published in 2004, introduces the concept of the "Bottom of the Pyramid" (BoP) as a significant yet underserved market segment comprising the world's poor.

Key points and details from the book include:

• Bottom of the Pyramid (BoP):

Prahalad argues that the traditional view of the world's poor as passive recipients of aid should be reconsidered. Instead, he sees them as an untapped market, constituting a potential source of innovation, growth, and profits for businesses.

• Market Potential:

Prahalad contends that there is a vast market opportunity at the bottom of the economic pyramid. Despite their low individual purchasing power, when aggregated, the purchasing power of the poor is substantial. He advocates for businesses to develop products and services that are affordable, accessible, and sustainable for this market.

• Role of Business in Poverty Alleviation:

The book challenges businesses to go beyond traditional corporate social responsibility (CSR) initiatives and philanthropy. Prahalad argues that by addressing the needs of the poor and integrating them into the market, businesses can contribute to poverty alleviation while simultaneously creating value for themselves.

• Innovative Business Models:

Prahalad highlights examples of companies that have successfully implemented innovative business models to serve the BoP market. These include products such as affordable healthcare, telecommunications, and financial services designed to meet the unique needs of low-income consumers.

• Co-Creation and Partnerships:

Prahalad emphasizes the importance of involving the poor as active participants in the design and development of products and services. Co-creation and collaboration with local communities are seen as key elements for success.

• Sustainability and Inclusivity:

The book argues that sustainable business practices and inclusive growth strategies are essential for long-term success. It promotes the idea that businesses can achieve economic prosperity while contributing to the well-being of society.

IFC encourage the growth and development of Public Sector Enterprises in member countries statements is false.

The International Finance Corporation (IFC) is an international financial institution that offers investment, advisory, and asset management services to encourage private-sector development in less developed countries. The IFC is a member of the World Bank Group and is headquartered in Washington, D.C. in the United States.

A ‘Holder in due course’ of a Negotiable Instrument can sue on the instrument in his own name.

Key PointsSection 9 of Negotiable Instrument Act 1881 defines holder in due course as:

• “Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee thereof before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

Important Points

• A holder in due course of a negotiable instrument is a person who acquires the instrument in good faith, for value, and without notice of any defects or problems with the instrument.
• Such a holder has certain privileges and rights under the law, including the ability to sue on the instrument in their own name.
• This means that the holder can enforce the rights under the instrument without needing to involve the original parties to the instrument.
• The holder in due course is also protected from any defences or claims that may have been available against the original parties to the instrument.

Capital budgeting is a process used to determine whether an organization's long-term investments are worth the funding of cash through the firm's capitalization structure. It is a method of estimating the financial ability of capital investment over the lifespan of the investment.

Key Points

Weighted Average Cost of Capital (WACC):

• WACC is referred to as a company's cost of capital.
• When each category of cost of capital employed is calculated proportionately then it is known as the Weighted Average Cost of Capital.
• The purpose of WACC is to the determine cost of capital structure based on the proportion of debt, equity, and preference stock it has.
• The company pays interest on its debts, a fixed yield on its preferred stock, and give a dividend to its equity holders.
• WACC is used as a hurdle rate in order to accept or reject a capital budgeting proposal.
• After accepting the proposal using this method, financing activities take place in the proportions specified, which leads to yield more returns on the basis of the cost spent on that project, which ultimately helps the firm to see an increase in the market price of its stock.

Therefore, both Assertion and Reason are true, and also Reason is the correct explanation of Assertion.

Important Point

WACC Formula:

WACC = (E/V x Re) + [(D/V x Rd) x (1 - T)]

Where,

1. E = market value of firm's equity,
2. D = market value of firm's debt,
3. V = total value of capital,
4. E/V = percentage of capital that is equity,
5. D/V = percentage of capital that is debt,
6. Re = cost of equity,
7. Rd = cost of debt,
8. T = tax rate.

RBI Monetary Policy is the policy formulated by the Reserve Bank of India to regulate the money matters of the country.

• The policy takes into account the distribution of credit among users as well as the rate of interest on borrowing and ling.
• Since India is a developing country, monetary policy is significant in the promotion of economic growth.
• The policy involves measures taken to control inflation, regulate the supply of money and the cost of credit in the economy.
• The various instruments of monetary policy include variation in bank rates, other interest rates, supply of currency, etc.
• In addition to that, the current repo rate, reverse repo rate, marginal standing facility rate, and bank rate also come under the RBI Monetary Policy.

The business entity concept states that the transactions associated with a business must be separately recorded from those of its owners or other businesses. Doing so requires the use of separate accounting records for the organization that completely exclude the assets and liabilities of any other entity or the owner.

Oligopolistic firms are interdependent in such a way that they all need one another to do well and ensure their own success. Firms are affected not only by their own production/profit decisions but by the same actions of other firms as well.

The Game theory model is the study of how people behave in strategic situations.

Statement I: GST is the destination-based tax on the consumption of goods and services. GST is a destination-based tax and levied at a single point at the time of consumption of goods or services by the ultimate consumer. GST will be levied on all goods and services except on goods outside the ѕсоре of GST, exempted goods & services, and transactions below the threshold limit.

Statement II: 'I' stands for integrated in IGST. Integrated goods and services tax (IGST) would mean the tax levied under the IGST Act on the supply of any goods and/or services in the course of inter-state trade or commerce. Integrated GST shall also apply to the import of goods and services into India.

Thus, both statements are correct.

Employee training is defined as a planned set of activities for imparting knowledge to employees, such that it leads to a growth in job skills required for organizational growth.

Key Points

• Steps of employee training in the proper sequence

1. Explain why the employee is being trained:
   • Employee training programs help improve the knowledge and skills of employees to match the various changes in the industry. These improvements will positively affect the productivity of workers, which can increase the profits and efficiency of an organization. Some of the things employees may learn through training include work ethics, human relations and safety.
2. Create interest and find out what the employee already knows about the job:
   • Employee training programs help an organization test the efficiency and effectiveness of a new performance management system, which will help HR establish clearer performance expectations. ​For this its important to know his current levelof knowledge,
3. Explain the whole job and relate it to some other job that the employee already knows
4. Place the trainee/employee as close to the normal working position as possible
5. Familiarize the employee with equipment, materials, tools, and trade terms
6. Evaluate and provide re-training if needed.

Therefore the correct answer is C, B, E, D, A.

1. Trade Creditors
2. Bank Overdraft
3. Bills Payable
4. Outstanding Expenses are current liabilities, so they are taken into account, but redeemable debentures is a non-current liability, so it is not taken.

The New Industrial Policy of 1991 comes at the center of economic reforms that launched during the early 1990s. All the later reform measures were derived out of the new industrial policy. The Policy has brought comprehensive changes in economic regulation in the country. As the name suggests, these reform measures were made in different areas related to the industrial sector.

The major aims of the new policy were; to carry forward the gains already made in the industrial sector; Correct the existing market distortion from the industrial sector; provide gainful and productive employment; to attain global competitiveness.

Key-Points

The main objectives of the Industrial Policy of the Government in India are:

1. to maintain a sustained growth in productivity;
2. to enhance gainful employment;
3. to achieve optimal utilization of human resources;
4. to attain international competitiveness; and
5. to transform India into a major partner and player in the global arena.

Important Points

Thus, to achieve these aims and objectives, the government took decisions like offering VRS to shed the excess load of workers, abolishing industrial licensing, disinvestment of the public sector, encouraging foreign direct investment, removal of mandatory convertibility clause, abolishing phased manufacturing program, referring sick units to The Board for Industrial and Financial Reconstruction, etc.

Option 4 is the correct answer.

The “Theory of Absolute Cost Advantage” considers the following points:

• The theory of absolute cost advantage explains that a country having an absolute cost advantage in the production of a product on account of greater efficiency should specialize in its production and export.
• It is a two-country framework with two commodities.
• It is a positive-sum game, i.e. both countries are gaining.

The critical incident method of performance appraisal involves identifying and describing specific events (or incidents) where the employee did something really well or something that needs improvement. Thus, in the critical incident method of performance appraisal, the evaluator keeps a written record of significant events and how difficult employees behaved during such events.

The correct answer is Option 3

Key Points Business Economics:

• Business economics is a branch of applied economics that looks into the financial, organisational, market-related, and environmental concerns that businesses confront.
• The concept of scarcity, product factors, distribution, and consumption are all covered in business economics.
• Managerial economics is a branch of business economics that is very important.

Important Points

Features of Business Economics

• Business Economics is related with the micro-economics. It is micro in nature. It is mainly related with the problems of individual unit. Hence, Statement (i) is correct
• Business Economics helps to formulate the economic policy, Taxation policy, credit policy. Import-Export policy etc. it is considered as Normative in nature. Normative Economics helps to solve the particular economic problems and formulation of economic policies. e. g. concept of elasticity of demand is used to determine the price of a product, as well as to impose the tax on a commodity. Hence, Statement (ii) is incorrect.
• Business Economics is both conceptual and metrical. It outlines, the conceptual framework to understand, analyse and solve the decision making problems of any business. It also makes the use of various quantitative techniques from various subjects to solve the problems of any business. Hence, Statement (iii) is correct.
• Business Economics primarily uses the theory of markets and private enterprises. It uses the theory of the firm and resource allocation in a private enterprise economy. Hence, Statement (iv) is correct.

Comparative Advantage theory states that each country should produce those goods in which it has a comparative/relative advantage because of the presence of opportunity costs which gives the country a relative advantage in the production of one good.

The correct answer is Franchising.

Key Points

•  A system based on the licensing of the right to duplicate a successful business format in foreign markets is known as franchising. Franchising is a business model in which a franchisor (the owner of a successful business format) grants a franchisee (an individual or company) the right to operate a business under the franchisor's name and using the franchisor's business model and system.
• The franchisor typically provides the franchisee with training, marketing support, and other resources to help the franchisee succeed. In return, the franchisee pays the franchisor a fee and a share of the franchise's profits.
• Franchising is a popular business model for both franchisors and franchisees. Franchisors benefit from the ability to expand their business without having to invest in new locations or hire new employees. Franchisees benefit from the support and resources of the franchisor, as well as the proven business model.
• There are many different types of franchises, including restaurants, retail stores, and service businesses. Some of the most popular franchises include McDonald's, Subway, and Dunkin' Donuts.
• Franchising can be a successful business model, but it is important for both franchisors and franchisees to do their research before entering into a franchise agreement. There are a number of factors to consider, such as the size of the market, the competition, and the financial resources of the franchisee.

Statement I: Most infrastructure services are provided by public monopolies which generally suffer from severe problems like lack of accountability, low productivity, poor financial performance, and over-employment.

Explanation:

1. Most infrastructure services are provided by public monopolies to retain control over its working so that they can be provided to the general public at an economical cost.
2. They do have certain limitations because the government considers infrastructure facilities as its social duty and thus makes them available at a very considerable price which in turn makes it difficult for the government to pay for its maintenance effectively.
3. However, the statement that most infrastructure services provided by the government face severe problems cannot be generalized as there are many infrastructure facilities that are profitable and are at par with international standards.

Thus, the statement is incorrect.

Statement II: There is a need now to induce more private sector investment and participation in sharing, accountability, monitoring, and management of the infrastructure sector.

Explanation:

1. The private sector has greater incentive and ability to manage infrastructure & deliver services cost-effectively.
2. The private sector brings attention to cost recovery, which may encourage faster construction and better-continued maintenance over the contract life of the assets.
3. Also, the involvement of the private sector in infrastructure services will help the government to focus on other important aspects of the country.

Thus, the statement is correct.

Thus, option 3 is the correct answer.

The correct answer is (A) - (III), (B) - (IV), (C) - (II), (D) - (I)

Key PointsNegatively skewed distribution (also known as left-skewed) is a type of distribution in which more values are concentrated on the right side (tail) of the distribution graph while the left tail of the distribution graph is longer.

Positively skewed distribution (also known as right-skewed) is a type of distribution in which most values are clustered around the left tail of the distribution while the right tail of the distribution is longer.

Normal distribution describes continuous data which have a symmetric distribution, with a characteristic 'bell' shape.

Binomial distribution describes the distribution of binary data from a finite sample. Thus it gives the probability of getting r events out of n trials.

The correct option is (i), (iii), (ii), (iv), (v)

Key Points Venture capital financing

• Venture capital financing refers to the type of funding that provides to early stage high potential and high-risk businesses or start-up businesses
• The process of venture capital financing involves mainly  five stages 

1)Deal orientation

2)Screening 

3)Due diligence

4)Deal structuring 

5)Exit plan

• Most start-up businesses is depending on such sources of finance and they are the more viable source and get funds in an easier way, and the young aspiring entrepreneurs who are ensuring minimal surety that business firms are getting more success.

Hence the correct answer is (i), (iii), (ii), (iv), (v)

 Proposal: 

• In the Indian Contract Act 1872, a proposal is defined as a suggestion or offer made by one person to another, with an intention to enter into a contract.
• It is also referred to as an offer.
• The proposal should be definite and certain, and should be communicated to the person to whom it is made.
• Once the proposal is accepted, it becomes a promise or an agreement, forming a binding contract between the parties.
• However, if the proposal is rejected, it comes to an end and cannot be revived.

Important Points Section 6 of Indian Contract Act 1872: 

Revocation how made —A proposal is revoked—

1. by the communication of notice of revocation by the proposer to the other party;
2. by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;
3. by the failure of the acceptor to fulfil a condition precedent to acceptance; or
4.  by the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance. 

Hence the correct answer is A, B, C and D only.

Refer to: ‘The context in which this new strategy was launched needs recalling. Unlike the period prior to the 1990s, the NPAs that accumulated in the books of banks in recent years were not equitably distributed across different categories of borrowers, big and small, priority and non-priority. Rather, because of a change in the lending strategy during the period of the credit boom after 2003, the NPAs are now concentrated in the hands of large borrowers, primarily corporate borrowers.’

I is opposite of what has been stated in the passage.

II is correct.

III has not been mentioned in the passage and is incorrect.

The Mercantilist Theory holds that "exports were good and had to be encouraged but imports were bad and had to be discouraged". His policy was to export to the countries he controlled and not to import.

Managerial economics

• The study of managerial economics focuses on the application of economic theory to corporate management.
• It deals with the use of economic theories and principles of business decision-making.

​Important Points

Definition of Managerial economics

According to M.H. Spencer and L. Siegelman-

“Business Economics (Managerial Economics) is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management.”

• They believe that the theory of decision-making acknowledges the diversity of objectives and pervasiveness of uncertainty in the real management world.
• The decision-making theory rejects the idea of a single optimal solution in favor of the idea that the goal is to find a solution that "satisfies" as opposed to "maximizes."
• It delves into an examination of motivation, the relationship between rewards and aspirational levels, and the distribution of power.
• Hence, the correct answer is Spencer.

Additional InformationHaynes, Mote, and Paul definition

“Managerial Economics refers to those aspects of economics and its tools of analysis most relevant to the firm's business decision-making process."

Mansfield definition

"Managerial Economics is concerned with the application of economic concepts and economic analysis to the problems of formulating rational managerial decisions."

According to Prof. Evan J Douglas

‘Managerial economics’ is concerned with the application of economic principles and methodologies to the decision-making process within the firm or organization under the conditions of uncertainty”.

Exchange Rate refers to the price of one currency in terms of another currency.

Key-Points

Arbitrageurs:

• Arbitrage is a process where investors/arbitrageurs are looking to make a riskless profit out of the difference between the interest rate and the forward discount and the forward premium.
• The participants/arbitrageurs take advantage of the different exchange rates in different markets by purchasing an asset from a low-price market and selling it in the higher price market.
• It leads to the equalization of prices of assets in all segments of the market.

Therefore, the participants who take advantage of different exchange rates in different markets are Arbitrageurs.

Additional Information

Speculators:

• Speculators are agents who speculate the market and then make a decision to purchase or sell the foreign exchange with the intention of making a profit by taking advantage of changes in exchange rates.
• They participate in forward exchange market by entering into forward exchange deal.

Hedgers:

• These are participants who enter into forward exchange market to protect themselves against the risk arising out of the fluctuations in the exchange rate.
• It is especially essential for those firms which have large amounts of receivables or commitments to pay in foreign currencies.

Investors:

• An investor is any person or entity that allocates capital with the expectation that in the future he will gain financial returns from it.
• Investors play a vital role in the growth of a company.

Key Points

Correlation:

• The intensity and direction of a relationship between two variables is indicated by a correlation coefficient, which is a number between -1 and 1.
• In other words, it shows how comparable two or more variables' measurements are across a dataset.

Important PointsCoefficient of Determination

The Coefficient of determination is obtained by squaring the correlation coefficient (r²).

• This is the percentage of variance that is shared by all the variables.
• Always falling between 0 and 1, the coefficient of determination is frequently given as a percentage.
• The coefficient of determination is used in regression models to measure how much of the variance of one variable is explained by the variance of the other variable.
• Coefficient of Determination = r²(square of correlation coefficient)
• A high r² indicates that a significant portion of one variable's variability is influenced by its relationship to the other variable.
• A low r² indicates that only a small percentage of the variability of one variable is explained by its link to the other variable.

Solution of the question:

• In the given question, correlation coefficient (r) is given = 0.8
• Coefficient of Determination = r²
• Hence, r² = (0.8)²
• r² = 0.64
• Percentage of variation is 0.64 x 100 = 64%

Hence, the percentage of variation in the dependent variable explained by the variation in the independent variable is 64%

Key Points

• A Derivative is a contract between two or more parties that derives its value from an agreed-upon underlying financial asset like securities, or a set of assets like an index.
• The most commonly used derivatives are currencies, stocks, bonds, commodities, market securities, futures contracts, forward contracts, options, swaps.
• Derivatives can be used for hedging or speculation purposes.

Therefore, a Derivative is a Derived financial asset.

Additional Information

• Hedging undertaken by hedgers refers to an operation to protect themselves against the risk that will arise out of exchange rate changes.
• Speculation refers to the purchase and sale of foreign exchange with an intention of making a profit by taking advantage of exchange rate changes.