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Q. What is the difference between Share & Debenture?

Ans: - The difference between Share & Debenture is given here:

BASIS

SHARE

DEBENTURE

i.        NATURE

Shareholder is an owner of the company

Debenture holder is a creditor of a company

ii.      RETURN

A shareholder receives dividend.

A debenture holder receives interest.

iii.    SECURITY

A share is not secured by any charge of assets.

A debenture is secured by a floating charge of assets.

iv.     REPAYMENT

Share Capital cannot be repaid.

Debentures can be repaid by the company.

v.          CONTROL AND RIGHT TO VOTE

A shareholder has control over the company.

A debenture holder does not have right to control or vote.

vi.        PRIORITY OF REPAYMENT

Amount of shares are refunded after all other claims are paid.

Amount of debenture are repaid before any amount is paid to shareholders.

vii.      ISSUE ON DISCOUNT

Shares can be issued at discount.

Debentures can be issued at discount at the will of the company.

viii.    CONVERTIBILITY

A share cannot be converted into debentures.

A debenture may be converted into shares.

 

Q. Explain the trade credit & bank Credit as a source of short term finance.

Ans: - Trade credit is the credit extended by one trader to another for the purchase of goods and services.

These are the merits of trade credit as a source of short term finance:

                     I.         It is readily available according to the customs

                    II.         It is flexible source of finance

                  III.         It is an economical source of finance.

Its limitation is that only limited amount of funds can only be generated

 

Q. Explain the trade credit & bank Credit as a source of short term finance?

Ans: - Trade credit is the credit extended by one trader to another for the purchase of goods and services.

These are the merits of trade credit as a source of short term finance:

i.      It is readily available according to the customs

ii.    It is flexible source of finance

iii.   It is an economical source of finance.

Its limitation is that only limited amount of funds can only be generated

 

Bank credit is provided by the banks in many ways like cash credits, overdrafts, term loans discounting, of bills

These are the merits of Bank Credit:

i.      Bank finance can be raised as and when required

ii.     Banks keep the information of bank finance secret

iii.   A company can rely upon the amounts up to credit limit sanctioned for it.

The limitation is that it is subject to many terms and conditions.

 

Q. Discuss the sources from which an industrial enterprise can raise capital.

Ans: - An industry will need long term finance for financing & expansion. Following are the sources of raising long term finance:

Issue of Shares-A share is a unit of capital. It may be either preference or equity. It is regarded as ownership capital. It is a permanent source of finance.

Issue of Debenture-Debenture provides funds to the company on loan basis. A debenture holder is the creditor of the company. He gets interest on the fixed rates. It is a safe way of investment.

Loans from banks and financial institutions: Banks provide loans to various business concerns for the proper functioning of the business.

Retained Earnings Companies: Retained Earning Companies retain profits to finance their requirements. It is an internal source of finance .Company build reserves by not distributing the earning in the form of dividend .It helps in financing long term requirements

 

Q. What are the merits and demerits of public deposits?

Ans: - Merits of Public Deposits:

a) Simple- The system is very simple in raising the loans .It does not involve a lot of formalities

b) Economical- It is cheap method of raising working capital. As the rate of public deposits are low.

c) Elasticity in capital structure-Public deposits keeps the capital structure elastic. Additional capital may be raised.

d) No security Requirement Deposits are usually unsecured .These assets may be used as security for borrowing from other agencies.

e) Trading on equity: Public deposits help on trading on equity. If the company is earning more than the rate of interest paid on public deposits. A company can pay higher dividends to its shareholders.


Demerits of Public Deposits:

a) Unsuitable for new concerns: It is very difficult for the new companies to rely on Public deposits as they have not attained sound standing in business

b) Unreliable- It is very uncertain and unreliable. It is very difficult to predict whether it will be collected according to expectation

c) Unhealthy for Capital Market: The companies find it easy and economical to raise money through public deposits so they are not keen to raise from issue of shares and debentures. So the public deposits reduce the number of good industrial securities in the capital market.


 Q. Discuss the financial instruments used in international financing?

Ans: - The financial instruments used in international Financing are given here:

i.      Global Depository Receipts: Global Depository Receipts are used to tap investors by way of global equity offering. They are indirect equity offerings and the shares issued by the company are held by a depository which is an international bank. Depository receives dividend notices and reports and issues negotiable certificates as claims against these shares. These claims are called Global Depository Receipts.

ii.     American Depository Receipts: American Depository Receipts are used to equity offering. These shares issued by the company are held by the depositories which receives dividends, notices and reports. American Depository Receipts are listed on one of the major stock exchanges in United States American Depository Receipts are subject to strict disclosure requirements.

iii.   Foreign Currency Convertible Bonds: Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity receipts after a specific period. They are similar to convertible debentures and they are listed and traded in foreign exchanges.


Q. What is the difference between GDR and ADR?

Ans: - ADR i.e. American Depository Receipts can be issued only to the American citizens and can be listed and traded on a stock exchange of America. GDR i.e. Global Depository receipts can be issued abroad and can be listed and traded on stock exchange of any country other than America.

 Q. What is a commercial paper?

Ans: - Commercial paper is an unsecured promissory note issued by the company with maturity period varying from 90 days to 364 days .It is issued by one firm to other firm’s insurance companies, banks. It is issued by creditworthy and reputed companies.

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