Sources Of Business Finance - 1 - Free MCQ Practice Test with solutions,

Common stock is what most people think of when they think "stock." Common stock allows its holders to make a profit through rising share prices and dividend payments. Holders of common stock also get to vote on corporate issues, such as electing new directors to the corporation's board. However, should the company end up in bankruptcy, holders of common stock are last on the list to get their money back -- after regular creditors, bondholders, and holders of preferred stock. If you hold common stock and the company goes bust, you are unlikely to get any of your capital back.

The term "redeemable" is typically used for preference shares. Redeemable preference shares are those that can be redeemed by the issuing company after a certain period of time or on a specific date, at a predetermined price. This means that the company can buy back these shares from the shareholders at a fixed price and retire them, thereby reducing its overall share capital. Redeemable preference shares are considered to be a hybrid security, as they have characteristics of both equity and debt.

• ADRs, or American Depositary Receipts, are financial instruments that allow non-U.S. companies to list their shares on U.S. stock exchanges.


• ADRs are issued and traded in the United States.


• They represent ownership in shares of non-U.S. companies and are denominated in U.S. dollars.


• ADRs provide investors in the United States with a convenient way to invest in foreign companies without having to directly purchase the shares on foreign exchanges.


• ADRs are subject to U.S. regulations and are traded on major U.S. exchanges, such as the New York Stock Exchange (NYSE) and the Nasdaq.


• They offer investors the opportunity to diversify their portfolios by investing in companies from different countries and industries.

Therefore, the correct answer is D: USA.

1. Introduction: Debentures are a form of long-term borrowing for a company. They represent a type of loan capital that a company raises from the public or financial institutions.


2. Definition: Debentures are debt instruments issued by a company to raise funds from the market. They are essentially a form of loan taken by the company.


3. Features of Debentures:
   
   
   
   • Fixed Interest: Debentures carry a fixed rate of interest that is paid to the debenture holders periodically.
   
   
   • Repayment: Debentures have a specific maturity date, after which the company is obligated to repay the principal amount to the debenture holders.
   
   
   • Security: Debentures can be secured or unsecured. Secured debentures are backed by the assets of the company, which act as collateral, whereas unsecured debentures are not backed by any specific assets.
   
   
   • Priority: In case of liquidation or bankruptcy, debenture holders have a higher priority compared to equity shareholders in repayment of their investment.
   
   
   • Transferability: Debentures can be easily transferred from one investor to another, providing liquidity to the investors.
   
   
   
   


4. Types of Debentures:
   
   
   
   • Convertible Debentures: These debentures can be converted into equity shares of the company after a specific period of time.
   
   
   • Non-Convertible Debentures: These debentures cannot be converted into equity shares and are repaid in cash at the end of the maturity period.
   
   
   • Secured Debentures: These debentures are secured by specific assets of the company, which act as collateral for the repayment of the debenture amount.
   
   
   • Unsecured Debentures: These debentures are not backed by any specific assets and rely solely on the creditworthiness of the company for repayment.
   
   
   
   


5. Conclusion: Debentures represent loan capital of a company and are an important source of long-term financing. They provide investors with a fixed return and the company with the necessary funds to finance its operations and growth.

Factoring involves the sale of receivables to a finance company, which is called the factor. Under a factoring arrangement, the customer is notified that it should now remit payments to the factor. The factor assumes collection risk. Thus, the transferor has no further involvement with customer payments. Essentially, a factoring transaction is recorded as a sale of the receivables, and a gain or loss (usually a loss) is recognized on the receivable transferred to the factor Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs.

Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days after which it has to be redeemed.

The way of classifying the sources of funds is whether the funds are generated from within the organization or from external sources of the organization. Internal sources of funds are those that are generated inside the business. A business, for example, can generate funds internally by speeding collection of receivables, disposing of surplus inventories and increasing its profit. The internal sources of funds can fulfil only limited needs of the business.