UGC NET Paper 2 Commerce Mock Test - 3 - UGC NET MCQ

The correct answer is to promote cross border investment in developing countries.

• The Multilateral Investment Guarantee Agency (MIGA) is a member of the World Bank Group.
• MIGA  mandate is to promote cross-border investment in developing countries by providing guarantees (political risk insurance and credit enhancement) to investors and lenders.
• MIGA  guarantees protect investments against noncommercial risks and can help investors obtain access to funding sources with improved financial terms and conditions.

​World Bank composed of 5 institutions:​​

• World Bank is headquartered at Washington and established in the year 1945
• The president of the World Bank Group is David Malpass.
• There are 189 members of the world bank.
• World Banks important publications are Ease of Doing Business Report, World Development Report and Human Capital Index.
  The current president of the World Bank is Ajay Banga. He began his five-year term on June 2, 2023.

Key Points The statement USA's exports were labor-intensive and imports were capital-intensive explains the Leontief paradox in international business.

The Leontief paradox is a contradiction of the Heckscher–Ohlin theory of international trade. The Heckscher–Ohlin theory predicts that countries will export goods that are intensive in the factors of production that they are abundant in. For example, the United States is abundant in capital, so it should export capital-intensive goods. However, the Leontief paradox found that the United States actually exported labor-intensive goods and imported capital-intensive goods.

There are a number of possible explanations for the Leontief paradox. One explanation is that the United States has a comparative advantage in the production of high-tech goods, which are often labor-intensive. Another explanation is that the United States has a large domestic market, which allows it to produce goods at a lower cost than other countries.

The Leontief paradox has important implications for international trade theory. It suggests that the Heckscher–Ohlin theory is not a complete explanation of international trade. It also suggests that other factors, such as technology and economies of scale, can also play a role in determining the pattern of international trade.

Additional Information Here are some other possible explanations for the Leontief paradox:

The United States has a high level of productivity in labor-intensive industries.
The United States has a high level of investment in human capital, which makes its labor force more productive.
The United States has a strong domestic market, which allows it to produce goods at a lower cost than other countries.
The United States has a favorable trade policy, which makes it easier for its exports to compete in foreign markets.
The Leontief paradox is a complex issue, and there is no single definitive explanation for it. However, it is an important paradox that has challenged our understanding of international trade.

The correct answer is Under insurance.

Key Points

• The average clause is a provision commonly found in insurance policies that deals with the valuation of losses in cases where the insured property is underinsured.
• Underinsurance occurs when the insured value of the property is lower than its actual value. In such cases, the average clause is triggered when a claim is made for a partial loss or damage to the property. The average clause is applied to calculate the amount of indemnity that the insurance company will pay.
• The average clause is typically expressed as a formula or ratio, which compares the insured value of the property to its actual value at the time of loss. The formula is used to determine the proportion of the loss that will be covered by the insurance company.
• For example, if a property is insured for 80% of its actual value and suffers a partial loss, the average clause may specify that the insurance company will only cover 80% of the loss. In this case, the insured is responsible for the remaining 20% of the loss.

Additional Information  Double Insurance:
Double insurance refers to a situation where the same subject matter (property or person) is insured by multiple insurance policies with different insurers. In double insurance, the insured individual or entity seeks coverage for the same risk from two or more insurance companies. Each insurer provides a separate policy, and in the event of a claim, the insured may be able to recover from both policies up to the limits specified in each policy. However, the total amount recovered cannot exceed the actual loss or the value of the insured subject matter. Double insurance can occur when a person or organization acquires multiple policies without the insurers' knowledge or when multiple insurers independently issue policies covering the same subject matter.

Reinsurance:
Reinsurance is a process where insurance companies transfer a portion of their risk to another insurance company. In reinsurance, the original insurer (also called the ceding company) purchases insurance from another company (reinsurer) to protect against large losses or to manage their risk exposure. The reinsurer agrees to indemnify the ceding company for a portion of the claims paid under the policies issued by the ceding company. Reinsurance allows insurance companies to spread their risk, maintain financial stability, and protect against catastrophic losses. Reinsurance can be structured in various ways, such as proportional reinsurance (where the reinsurer assumes a fixed percentage of the risks) or non-proportional reinsurance (where the reinsurer covers losses above a certain threshold).

Underinsurance:
Underinsurance occurs when the insured value of the property or the coverage amount for a person is less than the actual value or the appropriate level of coverage required. In other words, it is a situation where the insurance coverage is insufficient to fully compensate for the loss in the event of a claim. Underinsurance can arise due to various reasons, such as inaccurate valuation, failure to update coverage over time, or intentional underestimation to reduce insurance premiums. In case of a claim, when the insured property or person suffers a loss, the insurance company may apply the average clause (as mentioned earlier) to reduce the claim payment proportionally based on the level of underinsurance. Underinsurance can result in financial loss for the insured, as they may have to bear a portion of the loss themselves.

The correct answer is Under insurance.

The correct answer is option (4) i.e All of these

• An income tax is a tax imposed on individuals or entities (taxpayers) that varies with respective income or profits (taxable income).
• Income tax generally is computed as the product of a tax rate times taxable income. Taxation rates may vary by type or characteristics of the taxpayer.
• In India, the nature of the income tax is progressive. The tax rate may increase as taxable income increases (referred to as graduated or progressive rates). 
• The first income tax is generally attributed to Egypt. In the early days of the Roman Republic, public taxes consisted of modest assessments on owned wealth and property. The tax rate under normal circumstances was 1% and sometimes would climb as high as 3% in situations such as war.
• Retirement oriented taxes, such as Social Security or national insurance, also are a type of income tax, though not generally referred to as such.

The correct answer is Bangladesh.

Key Points

• In IMF's latest World Economic Outlook, Bangladesh has overtaken India in GDP per capita.
• Generally, countries are compared on the basis of GDP growth rate, or on absolute GDP.
• For the most part since Independence, on both these counts, India’s economy has been better than Bangladesh.
• GDP Per capita calculation involves the overall population and is arrived at by dividing the total GDP by the total population.
• Reasons for India's poor performance 
  • Bangladesh the economy has been growing rapid GDP growth rates since 2004.
  • India’s population grew faster (around 21%) than Bangladesh population (just under 18%).
  • The relative impact of Covid-19 on the two economies in 2020. While India’s GDP is set to reduce by 10%, Bangladesh is expected to grow by almost 4%.

Additional Information

• IMF(International Monetary Fund) established in 1945 and headquartered in Washington.
• IMF Managing Director is Kristalina Georgieva.
• Presently IMF has 190 member countries.

The incorrect match is World Hunger Index - United Nations

Key Points 1. Gender Development Index:

• The Gender Development Index (GDI) is an index designed to measure gender equality.
• GDI and the Gender Empowerment Measure (GEM) were first mentioned in the United Nations Development Program's 1995 Human Development Report.
• The GDI uses the same components of the Human Development Index (HDI) – longevity, education and income – revealing whether human development achievements are distributed between the two genders.
• Hence, it is correctly matched.

2. Ease of Doing Business: 

• The World Bank Group developed a ranking system called the Ease of Doing Business (EoDB) index.
• Higher rankings in the EODB index (a lower numerical number) denote better, typically simpler business rules and more robust property rights safeguards.
• It is an aggregate figure that includes different parameters which define the ease of doing business in a country.
• Hence, it is correctly matched.

3. Inclusion Index:

• The World Economic Forum System Initiative on Shaping the Future of Economic Progress developed the Inclusive Development Index (IDI), an annual economic index, in 2017.
•  This initiative seeks to inform and enable sustained and inclusive economic success by enhanced public-private partnership, thought leadership and analysis, strategic dialogue, and practical cooperation, including the acceleration of social impact through business action.
• Hence, it is correctly matched.

4. World Hunger Index:

• The Global Hunger Index (GHI) is a tool created to fully assess and monitor hunger on a global, regional, and national level.
• It outlines the achievements and shortcomings in reducing hunger and offers insights into the causes of hunger and nutritional insecurity.
• The Global Hunger Index (GHI), which is determined annually by the International Food Policy Research Institute (IFPRI), aims to increase understanding of regional and national inequalities.
• Hence, it is not correctly matched.

The correct answer is 1926.

Key Points

Trade Union Act 1926:

• The Trade Union Act was passed in the year 1926 in India.
• The main objective of the Act was to provide legal recognition and protection to registered trade unions and their activities.
• The Act defined a trade union as "any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business, and includes any federation of two or more trade unions".
• The Act also laid down certain provisions related to the registration, rights, and liabilities of trade unions.

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

Key Points

• Ind AS 37 - Provisions, Contingent Liabilities and Contingent Assets:
  • This standard provides guidelines on recognizing and measuring provisions (liabilities of unspecified amount or timing), contingent liabilities (potential liabilities that depend on future events) and contingent assets (potential assets that depend on future events).
  • It requires that organizations recognize a provision in the financial statements only when there is a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
• Ind AS 104 - Insurance Contracts:
  • This standard provides specifics on the recognition, measurement, presentation and disclosure of insurance contracts by any entity that issues such contracts.
  • It defines an insurance contract and requires appropriate provision for unearned premium, unexpired risks, claims, and claim settlement expenses. It also provides guidelines for profit recognition.
• Ind AS 2 - Inventories:
  • Ind AS 2 provides guidelines on how to account for inventories in the financial statements.
  • It includes principles for determining the cost of inventories and for recognizing an expense as these inventories are sold or as their value decreases.
  • The standard covers costs to be included in inventory value (like costs of purchase, costs of conversion, and other costs incurred to bring inventories to their present location and condition) and how to measure inventory (at the lower of cost and net realizable value).
  • The standard also discusses various techniques for cost determination like the FIFO (First In, First Out) and weighted average cost.
• Ind AS 19 - Employee Benefits:
  • This standard outlines how to account for various types of employee benefits, including short-term benefits (like wages and paid leave), post-employment benefits (like pensions and retirement benefits), and other long-term benefits (like long service leaves).
  • It establishes the obligation to recognize a liability when an employee has provided service, as well as the need to recognize an expense when the entity consumes the economic benefit arising from the service provided by an employee.

The correct answer is A-3, B-2, C-1, D-4

Key PointsSA 299 - Responsibility of Joint Auditors

SA 300 - Planning an Audit of Financial Statements

SA 510 - Initial Audit Engagements

SA 520 - Analytical Procedures

Additional InformationSA 570 - Going Concern

SA 580 - Written Representations

SA 700 - Forming an Opinion and Reporting on Financial Statements

SA 560 - Subsequent Events

Key-Points

Consumer Buying Behaviours:

• A consumer's buying behaviour differs according to the type of product they need to purchase.
• The buying behaviour of the consumer is determined by the involvement level that a consumer shows towards a purchase decision.
• The amount of risk involved in purchase also helps in determining the buying behaviour.
• The goods having a high price tends to have high risk, thereby seeking high involvement of the consumer.
• For example, a consumer's behaviour while purchasing a car will be different as compared to while purchasing tea.

• There are four types of consumer buying behaviour:
• Routine / Habitual buying:
  • Routine buying behaviours involve the least effort while making a purchase decision.
  • Consumers buying products that they will use for their daily routine do not require a lot of thought.
  • Here, the consumer perceives only a few significant differences.
  • Consumers buy their favourite brand or the one that they use on a regular basis.

Therefore, routine buying behaviours involve the least effort while making a purchase decision.

Additional Information l

• Complex buying:
  • Complex buying behaviour can be seen when a consumer is buying an expensive product.
  • Consumers thoroughly research before making a purchase and thus are highly involved in the purchase decision.
  • Here, the consumers pass through a learning process i.e. at first he develops beliefs about the product, then attitude, and then makes a thoughtful purchase choice.
• Dissonance-reducing / high involvement buying:
  • Dissonance-reducing buying has very high consumer involvement due to high price and infrequent purchase.
  • There is low availability of choice, with less significant differences among brands.
  • Consumers will have a limited choice due to low availability, so the consumers purchases a product that is easily available.
  • For example, when a consumer is looking for a collapsible table, the main criteria will be the feature and budget rather than the brand of that table.
• Variety seeking buying:
  • Variety seeking buying has low consumer involvement and significant difference between brand.
  • The cost of switching products is low, so the consumers do a lot of brand switching.
  • Consumers buy new products mainly with an urge to seek variety, rather than because of dissatisfaction.
  • For example, consumer purchase cookies brand without putting much thought into it.

The correct answer is A company with a paid-up capital of 4 Crores.

Key Points

Small Company

• A paid-up share capital equal to or below Rs.4 crore or a higher amount specified not exceeding Rs.10 crores.
• A turnover equal to or below Rs.40 crore or a higher amount specified not exceeding Rs.100 crore.

However, the following will never be treated as a small company regardless of Turnover and paid-up share capital:

• a holding company or a subsidiary company
• a company registered under section 8
• a company or body corporate governed by any special Act.

Hence, the correct answer is A company with a paid-up capital of 4 crores.

Marginal cost represents the increase or decrease in total cost which occurs with a small change in output say, a unit of output. In Cost, Accounting variable costs represent marginal cost. Differential cost is the change (increase or decrease) in the total cost (variable as well as fixed) due to change in the level of activity, technology or production process or method of production. In other words, it can be defined as the cost of one unit of product or service which would be avoided if that unit was not produced or provided. The main point which distinguishes marginal cost and differential as that change in fixed cost when the volume of production increases or decreases by a unit of production. In the case of differential cost variable as well as a fixed cost. i.e. both costs change due to change in the level of activity, whereas under marginal costing only variable cost changes due to change in the level of activity.

The development bank is essentially a multi-purpose financial institution with a broad development outlook. A development bank may be defined as a financial institution concerned with providing all types of financial assistance (medium as well as long term) to business units, in the form of loans, underwriting, investment and guarantee operations, and promotional activities-economic development in general, and industrial development, in particular.

Following are the main characteristic features of a development bank:

1. It is a specialized financial institution.
2. It provides medium and long term finance to business units.
3. Unlike commercial banks, it does not accept deposits from the public.
4. It is not just a term-lending institution. It is a multi-purpose financial institution.
5. It is essentially a development-oriented bank. Its primary objective is to promote economic development by promoting investment and entrepreneurial activity in a developing economy. It encourages new and small entrepreneurs and seeks balanced regional growth.
6. It provides financial assistance not only to the private sector but also to the public sector undertakings.

Option (A) is incorrect as no such issue that cannot be solved has been mentioned.

Option (B) is opposite of what has been mentioned in the passage.

Option (C) is factually incorrect.

Option (D) is correct as the author feels this step would reduce fraud.

As per the new Companies Act 2013, a company can be wound up by a tribunal in the below-mentioned circumstances:

1. When the company is unable to pay its debts.

2. If the company has by special resolution resolved that the company be wound up by the tribunal.

3. If the company has acted against the interest of the integrity or morality of India, the security of the state, or has spoiled any kind of friendly relations with foreign or neighboring countries.

4. If the company has not filed its financial statements or annual returns for the preceding five consecutive financial years.

5. If the tribunal by any means finds that it is just & equitable that the company should be wound up.

6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or any person or management connected with the formation of the company is found guilty of fraud, or any kind of misconduct.

According to Section 3 (1) (iii) of the companies Act, 1956 the minimum no. of persons required to form a private and public ltd. the company are 2 and 7.

Price-discrimination is profitable and possible if the two markets have a highly elastic demand. Price discrimination is possible when the monopolist sells in different markets in such a way that it is not possible to transfer any unit of the commodity from the cheap market to the dearer market. It is profitable when markets have high elasticity in demand.

The most common forms of marketing researches conducted in most of the firms are the measurement of market potential and the analysis of market share. The market potential is the entire size of the market for a product at a specific time.

The concept of cognitive dissonance is relevant to study consumer's post-purchase behaviour. The theory of “cognitive dissonance” is of great importance in consumer behaviour and marketers have lots of interest in analyzing the post-purchase behaviour of consumers experienced by them.

Non-Banking Financial Companies (NBFCs) are the Financial Intermediaries engaged primarily in the business of accepting Deposits, Lending loans and advances, Leasing, and Hire purchasing.

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of the immovable property.

The following are some of Section 87A of the Income Tax Act of 1961 important points:

1. The maximum deduction allowed by this clause is Rs. 2,500 or 100% of the tax liability (whichever is lower).
2. The rebate is available on the total tax amount before the 4% educational cess.
3. Under this clause, only individuals are eligible to get a rebate. Neither businesses nor the Hindu Undivided Family may apply for this rebate.
4. Senior citizens are eligible for a rebate (individuals above the age of 60 years and below 80 years)
5. Individuals who are super senior citizens (those who are over 80 years old) are not qualified for a rebate under Section 87A.
6. This rebate is only available to Indian citizens; NRIs are not allowed rebates under Section 87A.

So, Under Section 87A of the Income Tax Act, 1961, an individual who is resident in India and whose total income does not exceed Rs. 3,50,000 is entitled to claim a rebate up to a maximum of Rs 2500.

Market segmentation is a marketing term that refers to aggregating prospective buyers into groups or segments with common needs and who respond similarly to a marketing action.

Demographic segmentation:

• It divides the consumer market into smaller categories based on common demographic factors.
• It is a market segmentation according to age, race, religion, gender, family size, ethnicity, income, and education.
• For instance, e-mails regarding admission in a college will be targeted to a certain age group. Similarly, target audience to advertise BMW will be different to someone who can afford an Alto- it can be done on the basis of income segmentation.

Behavioural segmentation:

• It refers to a process in marketing which divides customers into segments depending on their behaviour patterns when making purchasing decisions.
• Grouping patterns may include analysing consumer behaviours based on certain factors such as spending habits, consumption, lifestyle, usage of the product, etc.
• There are different types of segmentation based on loyalty, occasion, usage rates, readiness stage, usage and benefits sought.

The primary objective of the International Monetary Fund (IMF) is to promote international monetary cooperation and ensure global financial stability by providing resources to member countries facing balance-of-payments problems. This includes promoting international liquidity, which ensures that member nations have access to foreign exchange reserves and financial resources to stabilize their economies.

Key Points

International Monetary Fund (IMF):

• Created in 1945, the IMF is governed by and accountable to the 190 countries that make up its near-global membership.
• The IMF's primary purpose is to ensure the stability of the international monetary system, the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.
• It is headquartered in Washington, D.C.

​Thus, the head office of IMF is located in Washington, D.C.
Additional Information

• IMF and World Bank are known as Bretton Woods Twins.
• Both IMF and World Bank are headquartered in Washington DC.
• Both the IMF and the World Bank are part of 17 UN specialized agencies.
• Both IMF and World Bank work to help member countries in foreign exchange management, providing financial and policy assistance for development and cooperates in both socio and economic development.

The correct answer is Both Assertion (A) and Reasoning (R) are true, and Reasoning (R) is the correct explanation for Assertion (A).

Key Points Both the assertion (A) and the reasoning (R) are correct.

Assertion (A): Collaborative planning, forecasting, and replenishment (CPFR) do indeed facilitate joint planning and decision-making between suppliers and buyers in the supply chain. CPFR is a business practice that combines the intelligence of multiple trading partners in the planning and fulfillment of customer demand. It involves joint business planning, shared forecasts, and coordinated replenishment activities between trading partners.

Reasoning (R): The reasoning is accurate. CPFR aims to improve supply chain efficiency by sharing information, reducing uncertainty, and enhancing communication between trading partners. By collaborating closely, suppliers and buyers can work together to optimize inventory levels, reduce stockouts, minimize overstock situations, and respond more effectively to changes in market demand.

Therefore, both the assertion and reasoning are correct, and the reasoning provides a valid explanation for the assertion.

Audit: Audit is an unbiased examination and evaluation of an organization's financial statements is performed to ensure that the financial records are a fair and accurate picture of the transactions they claim to represent.

Auditing is mainly performed to avoid any errors and frauds in the books of accounts so that true financial records are reflected to the public.

Debtor-Creditor, Agent-Principal, Licensor-Licensee, Bailor-Bailee, Pledger-Pledgee, etc. are various kinds of relationships between the banker and the customer.

Licensor-Licensee:

• When a banker provides the locker facility to a customer, the relationship between them is that of licensor and licensee or lessor and lessee.
• A bank is a licensor and the customer who hires the bank is the licensee.

Debentures:

• Section 71 of the Companies Act, 2013 permits a company to issue debentures with an option to convert debentures into shares either wholly or partially at the time of redemption.
• Provided that this conversion of the debenture to shares shall be approved by a special resolution passed at a general meeting.
• The Companies Act 1956, Section 2(12) defines debentures as, "Debenture includes debenture stock, bonds and any other securities of a company whether constituting a charge on the Company’s assets or not. Debenture means a document, which either creates a debt or acknowledges it, and any document which fulfills either of these two conditions is a debenture."
• Thus, debentures are governed by company law.