Question:
What is a commercial paper? What are its advantages and limitations?
Answer:
Commercial Paper:
- Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities.
- Maturities on commercial paper can range up to 365 days. The debt is usually issued at a discount, reflecting prevailing market interest rates.
- Commercial paper is not usually backed by any form of collateral, so only firms with high-quality debt ratings will easily find buyers without having to offer a substantial discount (higher cost) for the debt issue.
Advantages and Limitations of Commercial Paper Advantages:
- For the most part, commercial paper is a very safe investment because the financial situation of a company can easily be predicted over a few months.
- Typically only companies with high credit ratings and credit worthiness issue commercial paper. Hence the companies issuing them enjoy (a) the prestige associated
with such issuance and (b) the ability to issue large quantum without much hassles like other types of financing which requires restrictions from regulatory bodies.
- Interest rate is generally lower compared to others like bank loans and other types of short term financing
Disadvantage:
- It does not have any flexibility with regard to repayments.
Sources of Business Finance
Q 1.
Write a note on international sources of finance.
Q 2.
What is a commercial paper? What are its advantages and limitations?
Q 3.
In leasing agreement what right is given to lessee?
Q 5.
Name two sources of funds under owner's fund.
Q 6.
Give the full form of GDR and ADR.
Q 7.
Differentiate between a share and a debenture.
Q 8.
Explain in detail the types of debenture a company can issue.
Q 9.
Explain trade credit and bank credit as sources of short term finance for business enterprises.
Q 10.
What is business finance? Why do businesses need funds? Explain.
Q 11.
State two factors affecting the working capital requirement of a firm.
Q 12.
Which deposits are directly raised from the public?
Q 13.
Why does business enterprise need finance?
Q 14.
What advantage does issue of debentures provide over the issue of equity shares?
Q 15.
What do you mean by discounting of bills of exchange?
Q 16.
Specify the objective of I.D.B.I.
Q 17.
Preference shares are preferred by company but not by investors. Why?
Q 18.
State the meaning of finance. What factors determine working capital and fixed capital requirements of a business?
Q 19.
Discuss the financial instruments used in international financing.
Q 20.
What is factoring? Discuss its pros and cons.
Q 21.
Who regulates the acceptance of public deposits?
Q 22.
What is lease financing? Discuss its merits and demerits.
Q 23.
What are Indian depository receipts (IDRs)?
Q 24.
Name any three special financial institutions and state their objectives.
Q 25.
State various sources of short and medium term funds.
Q 26.
Why is equity share capital called Risk Capital'?
Q 27.
What are retained profits? Discuss their advantages and disadvantages.
Q 28.
Explain different types of preference shares which can be issued by a company.
Q 29.
Retained earnings are not a good source from the values point of view as it is the right of equity shareholders. Do you agree? Justify your answer.
Q 30.
What are public deposits?
Q 31.
What is the status of debenture holders?
Q 32.
Why preferences are given to preferential shares?
Q 33.
Name zones of the Lessors and Lessees in India.
Q 34.
What are the two important functions of factors?
Q 35.
Describe in brief the features of equity shares.
Q 37.
Who are called the owners of a company?
Q 38.
What is a trade credit?
Q 39.
Mr. John has ? 1,00,000 for investment purposes. Should he invest in equity shares, preference shares, public deposits or debentures? Justify your answer.
Q 40.
What preferential rights are enjoyed by preference shareholders? Explain.
Q 41.
What are the preferences given to preference shareholders?
Q 42.
State two factors affecting the fixed capital requirement of a firm.
Q 43.
Discuss the sources from which a large industrial enterprise can raise capital for financing modernisation and expansion.
Q 44.
As a source of finance retained profit is better than other sources. Do you agree with this view? Give reasons for your answer.
Q 45.
List different types of finance.
Q 46.
State the merits and demerits of public deposits and retained earnings as methods of business finance.
Q 47.
Describe briefly the factors responsible for selecting a source of finance.
Q 48.
List sources of raising long-term and short term finance.
Q 49.
Preference shares are not suitable for which kind of investors?
Q 50.
Write a short note on the features of GDRs.
