Q. What is the difference
between Share & Debenture?
Ans: - The
difference between Share & Debenture is given here:
BASIS
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SHARE
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DEBENTURE
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i.
NATURE
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Shareholder is an owner of the company
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Debenture holder is a creditor of a company
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ii.
RETURN
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A shareholder receives dividend.
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A debenture holder receives interest.
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iii.
SECURITY
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A share is not secured by any charge of assets.
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A debenture is secured by a floating charge of assets.
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iv.
REPAYMENT
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Share Capital cannot be repaid.
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Debentures can be repaid by the company.
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v.
CONTROL AND
RIGHT TO VOTE
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A shareholder has control over the company.
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A debenture holder does not have right to control or vote.
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vi.
PRIORITY OF
REPAYMENT
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Amount of shares are refunded after all other claims are paid.
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Amount of debenture are repaid before any amount is paid to
shareholders.
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vii.
ISSUE ON
DISCOUNT
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Shares can be issued at discount.
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Debentures can be issued at discount at the will of the company.
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viii.
CONVERTIBILITY
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A share cannot be converted into debentures.
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A debenture may be converted into shares.
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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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