Test: Social Responsibilities Of Business And Business Ethics - 1 - Commerce MCQ

Correct Answer :- a

Explanation : There is no requirement of creating a charge over the assets of the company when equity shares are issued. The liability of the equity shares is not required to be paid. The company does not have any obligation to pay dividend to the shareholders.

Statement: Public deposit cannot exceed 25% of share capital and reserves

- This statement is TRUE about Public deposits.

- Public deposits refer to the funds collected from the public by a company through fixed deposits for a specific period of time.

- As per the Companies Act, the total amount of public deposits cannot exceed 25% of the aggregate of the company's paid-up share capital and free reserves.

- This regulation ensures that companies do not rely excessively on public deposits and maintain a healthy balance between equity and debt financing.
Statement: Rate of interest offered on public deposits is lower than the rate of interest on bank deposits

- This statement is NOT TRUE about Public deposits.

- The rate of interest offered on public deposits varies from company to company.

- Some companies may offer higher interest rates on their public deposits compared to bank deposits to attract investors.

- However, it is also possible that the rate of interest offered on public deposits may be lower than the rate of interest on bank deposits in certain cases.
Statement: Public deposits are issued for a period of 6 months to 5 years

- This statement is NOT TRUE about Public deposits.

- The period for which public deposits are issued can vary depending on the company's policies and the terms and conditions set by the company.

- While some companies may offer public deposits for a period of 6 months to 5 years, others may have different durations such as 1 year, 3 years, or even longer.
Statement: It is one of the reliable sources of finance

- This statement is TRUE about Public deposits.

- Public deposits are considered to be a reliable source of finance for companies.

- Companies can raise funds through public deposits without diluting their ownership or control.

- Public deposits provide a stable and predictable source of funding for companies, especially in situations where they may face difficulty in obtaining loans from banks or other financial institutions.
In conclusion, the TRUE statement about Public deposits is that they cannot exceed 25% of share capital and reserves, and they are also considered to be a reliable source of finance for companies.

First Global Company to Issue IDR in India: Standard Chartered PLC
Explanation:
- IDR stands for Indian Depository Receipts, which are financial instruments issued by foreign companies to raise capital in the Indian market.
- Standard Chartered PLC was the first global company to issue IDR in India.
- The company issued IDR in 2010, making it the pioneer in this field.
- Standard Chartered PLC is a well-known multinational bank headquartered in London, with a strong presence in Asia, Africa, and the Middle East.
- By issuing IDR in India, Standard Chartered PLC aimed to tap into the growing Indian market and expand its operations in the country.
- The issuance of IDR provided Indian investors with an opportunity to invest in a global company without directly purchasing its shares on international stock exchanges.
- Since then, several other global companies have followed suit and issued IDR in India, including HSBC, Citigroup, and Deutsche Bank.
- HDFC, Reliance, and HSBC were not the first global companies to issue IDR in India.

Public Deposits
Public Deposits are deposits that are directly raised from the public. These deposits are an important source of funds for various organizations and institutions. Let's break down the answer into bullet points to provide a detailed explanation:
Definition of Public Deposits:
- Public Deposits refer to the funds collected from the general public by organizations or institutions.
- These deposits are usually in the form of fixed deposits or savings accounts.
Significance of Public Deposits:
- Public Deposits provide a source of funds for organizations to meet their financial requirements.
- It allows organizations to reduce their dependence on traditional sources of finance such as banks or financial institutions.
- Public Deposits can be used for various purposes such as business expansion, capital investment, or working capital requirements.
Source of Public Deposits:
- Public Deposits are directly raised from the general public.
- Individuals, households, and small businesses contribute to these deposits.
Advantages of Public Deposits:
- Lower interest rates compared to traditional banks, which attract customers to invest in public deposits.
- Flexible tenures that cater to the needs of different investors.
- Safety and security provided by organizations that raise public deposits.
- Interest income earned on public deposits can be an additional source of income for investors.
Regulations and Guidelines:
- Public deposits are regulated by various government bodies to ensure the protection of investors.
- Organizations that raise public deposits are required to comply with specific guidelines and regulations set by regulatory authorities.
In conclusion, public deposits are deposits directly raised from the public and serve as a significant source of funds for organizations. These deposits provide benefits such as lower interest rates, flexible tenures, and additional income for investors. However, organizations must adhere to regulations and guidelines to ensure the protection of investors' interests.

Convertible Preference Shares
Convertible preference shares are a type of preference shares that have the option to be converted into equity shares at a later date. These shares offer the preference shareholders the opportunity to participate in the company's growth and potential increase in share value.
Features of Convertible Preference Shares:
- Convertibility: Convertible preference shares can be converted into equity shares at the option of the shareholder.
- Conversion Ratio: The conversion ratio determines the number of equity shares that can be obtained by converting one preference share.
- Conversion Price: The conversion price is the price at which the preference shares are converted into equity shares.
- Conversion Period: Convertible preference shares have a specified period within which they can be converted into equity shares.
- Dividend Rights: Convertible preference shareholders are entitled to receive dividends before equity shareholders, but they may forego this right upon conversion.
Advantages of Convertible Preference Shares:
- Potential for Capital Appreciation: By converting preference shares into equity shares, shareholders can benefit from the potential increase in share value.
- Flexibility: Convertible preference shares offer flexibility to investors as they have the option to convert or continue holding the preference shares.
- Participation in Company Growth: Convertible preference shareholders can participate in the company's growth and success by converting their shares into equity and enjoying the benefits of ownership.
Conclusion:
Convertible preference shares provide investors with the option to convert their preference shares into equity shares, allowing them to potentially benefit from the company's growth and increase in share value. These shares offer flexibility and the opportunity to participate in the company's success, making them an attractive investment option for shareholders.

ADR Issuance Locations:
- ADRs (American Depositary Receipts) are issued in various countries, allowing investors to trade shares of foreign companies on U.S. stock exchanges.
- The most common locations for ADR issuances are as follows:
A: USA
- The United States is a major hub for ADR issuances.
- Many foreign companies choose to issue their ADRs in the U.S. market to gain access to a larger pool of investors and increase visibility.
- ADRs issued in the U.S. are typically listed on either the New York Stock Exchange (NYSE) or the Nasdaq Stock Market.
B: China
- China is another significant market for ADR issuances.
- Chinese companies often opt to issue ADRs in order to access U.S. investors and enhance their global presence.
- ADRs issued by Chinese companies are typically listed on U.S. stock exchanges.
C: India
- India has also seen an increase in ADR issuances in recent years.
- Indian companies may issue ADRs to attract foreign investment and expand their shareholder base.
- ADRs issued by Indian companies are typically listed on U.S. stock exchanges.
D: Canada
- While Canada is not as prominent as the U.S., China, or India in terms of ADR issuances, there are Canadian companies that choose to issue ADRs.
- ADRs issued by Canadian companies provide an opportunity for international investors to access Canadian stocks.
In summary, ADRs are commonly issued in the USA, China, India, and occasionally Canada. These locations offer foreign companies the opportunity to tap into broader investor bases and increase their market visibility.

Unsecured Short Term Deposit:

• Definition: An unsecured short term deposit refers to a financial arrangement where one company places funds with another company for a short period without any collateral or security.


• Characteristics:
  
  
  
  • Short term: The deposit has a relatively short maturity period, typically ranging from a few days to a year.
  
  
  • Unsecured: There is no collateral or security provided by the company making the deposit.
  
  
  • Trust-based: The arrangement relies on trust and the creditworthiness of the receiving company.
  
  
  
  


• Options:
  
  
  
  • ICD: Inter-corporate deposits are unsecured short term deposits made by one company with another. This option matches the description and is the correct answer.
  
  
  • ADR: American Depositary Receipts represent shares of foreign companies traded on U.S. stock exchanges.
  
  
  • IDR: Indian Depositary Receipts are financial instruments representing shares of foreign companies traded on Indian stock exchanges.
  
  
  • GDR: Global Depositary Receipts are negotiable instruments representing shares of foreign companies traded on international stock exchanges.
  
  
  
  


• Conclusion: The correct answer is ICD, which represents an unsecured short term deposit made by one company with another.

Zero Coupon Bonds:
Zero coupon bonds are debt instruments that do not carry a specific rate of interest but are issued at a heavy discount. Here is a detailed explanation of zero coupon bonds:
Definition:
Zero coupon bonds, also known as deep discount bonds or pure discount bonds, are fixed-income securities that do not make periodic interest payments like traditional bonds. Instead, they are issued at a significant discount to their face value and pay the full face value at maturity.
Features:
1. No periodic interest payments: Zero coupon bonds do not pay periodic interest like regular bonds. The bondholder receives the interest in the form of the difference between the discounted purchase price and the face value at maturity.
2. Heavy discount: These bonds are typically issued at a substantial discount to their face value, which is the amount the bondholder will receive at maturity.
3. Maturity date: Zero coupon bonds have a fixed maturity date, at which the bondholder will receive the face value. The maturity period can range from a few months to several years.
4. No reinvestment risk: Since zero coupon bonds do not make periodic interest payments, there is no reinvestment risk associated with the coupon payments. The bondholder receives the interest and principal amount in a lump sum at maturity.
5. Tax treatment: Although there are no periodic interest payments, the bondholder may be liable for tax on the imputed interest. This means that even though the interest is not received until maturity, it is still considered taxable income each year.
Advantages:
1. Capital appreciation: Zero coupon bonds are typically issued at a significant discount, allowing investors to benefit from capital appreciation when the bond approaches maturity.
2. Fixed return: The bondholder knows the exact amount they will receive at maturity, providing a predictable and fixed return on investment.
3. Diversification: Zero coupon bonds can be used to diversify an investment portfolio, as they offer a different risk and return profile compared to traditional interest-bearing bonds.
Disadvantages:
1. Lack of liquidity: Zero coupon bonds are less liquid compared to traditional bonds since they do not trade as frequently in the secondary market.
2. Tax implications: The bondholder may be liable for tax on the imputed interest each year, even though it is not received until maturity.
3. Interest rate risk: Zero coupon bonds are susceptible to changes in interest rates. If interest rates rise, the value of the bond may decline, and vice versa.
In conclusion, zero coupon bonds are debt instruments that do not carry a specific rate of interest but are issued at a heavy discount. They provide a fixed return at maturity and can be used for diversification and capital appreciation. However, they come with certain disadvantages such as lack of liquidity and tax implications.

Interest Rate on Three Months Inter Corporate Deposit:
The interest rate on a three months Inter Corporate Deposit (ICD) can vary depending on various factors such as market conditions and the creditworthiness of the borrower. However, the options provided in the question are:
A: 0.12
B: 0.15
C: 0.1
D: 0.2
To determine the correct answer, we need to consider the most commonly observed interest rates for three months ICDs:
1. The average interest rate for three months ICDs is typically lower than longer-term deposits due to the shorter maturity period.
2. The interest rate on ICDs can vary among different financial institutions and can be influenced by market factors such as the prevailing interest rates set by the central bank.
3. In general, interest rates on ICDs are lower than those on other short-term instruments like Treasury bills or commercial papers.
Based on the given options:
A: 0.12
B: 0.15
C: 0.1
D: 0.2
We can see that option A, 0.12, is the most reasonable and plausible answer based on the commonly observed interest rates for three months ICDs. However, it is important to note that the actual interest rate may vary depending on the specific circumstances and market conditions at the time of investment.
In conclusion, the interest rate on a three months Inter Corporate Deposit is likely to be 0.12 based on the given options. However, it is always advisable to consult with a financial institution or conduct thorough market research to determine the prevailing interest rates before making any investment decisions.

Financial Assistance towards Balanced Regional Development and Development of Management Education:
The institution that provides financial assistance towards balanced regional development and development of management education in the country is the Industrial Development Bank of India (IDBI).
Reasons:
- IDBI was established in 1964 under the Industrial Development Bank of India Act to provide credit and financial assistance to industrial projects.
- It aims to promote balanced regional development by providing financial support to industries in backward areas.
- IDBI also plays a crucial role in the development of management education in the country.
- It provides financial assistance to management institutes for infrastructure development, faculty development, research activities, scholarships, and other related initiatives.
- By supporting management education, IDBI contributes to the overall growth and development of the business and industrial sectors in the country.
Other Options:
- Industrial Finance Corporation of India (IFCI) primarily focuses on providing long-term finance to industrial projects but does not specifically mention balanced regional development or development of management education as its objectives.
- Life Insurance Corporation of India (LIC) is primarily engaged in the life insurance business and does not provide financial assistance towards regional development or management education.
- Industrial Credit and Investment Corporation of India (ICICI) is a commercial bank that provides various financial services but does not have a specific focus on regional development or management education.
Hence, the correct answer is option A: Industrial Development Bank of India (IDBI).