STD. XI Commerce Organization of Commerce & Management

Transcription

1

2 Written as per the revised syllabus prescribed by the Maharashtra State Board of Secondary and Higher Secondary Education, Pune. STD. XI Commerce Organization of Commerce & Management Salient Features: Exhaustive coverage of syllabus in Question Answer Format. Covers answers to all Textual Questions. Relevant Marking Scheme for Each Question. Includes Additional Important Questions for better preparation. Mnemonics to facilitate easy answer recall. Quick Recap at the end of each chapter to facilitate quick revision. Simple and Lucid language. Includes GG our very own mascot. Printed at: Repro India Ltd., Mumbai Target Publications Pvt. Ltd. No part of this book may be reproduced or transmitted in any form or by any means, C.D. ROM/Audio Video Cassettes or electronic, mechanical including photocopying; recording or by any information storage and retrieval system without permission in writing from the Publisher. P.O. No _10805_JUP

3 PREFACE We present to you "Std. XI Commerce: Organization of Commerce and Management" with a revolutionary fresh approach towards content thus laying a platform for an in depth understanding of the subject. This book has been written according to the revised syllabus and guidelines as per the State Board and covers answers to all textual questions. In addition to this, we have included extra questions in each lesson that not only aim at covering the entire topic but also make students ready to face the competition. The sub topic wise classified Question and Answer format of this book helps students in easy comprehension. Furthermore, we have provided model answers to each question in the form of pointers which makes it easy for students to memorize and reproduce the answers in their examinations. We have incorporated Mnemonics to facilitate easy answer recall. Every chapter ends with a Quick Recap to facilitate quick revision of the lesson learnt. The model questions are provided with relevant marking schemes so as to highlight the importance of each question. We are sure this study material will turn out to be a powerful resource for students and facilitate them in understanding the concepts of this subject in the most lucid way. The journey to create a complete book is strewn with triumphs, failures and near misses. If you think we've nearly missed something or want to applaud us for our triumphs, we'd love to hear from you. Please write to us on: mail@targetpublications.org Best of luck to all the aspirants! Yours faithfully, Publisher. Gyan Guru (GG) We present to you our mascot 'GG', who has been proudly introduced by us. GG is a student buddy who pops up throughout the book and draws your attention to important bits of knowledge also termed as 'Good to Know'. These 'Good to Know' sections help you understand a concept distinctly with a corresponding example from your immediate environment. This is our initiative in education that helps linking learning to life and we're hopeful that you are going to love it.

4 Sr. No. Topic Name Page No. 1. Nature and scope of Business 1 2. Small Business Private, Public and Global Enterprises Internal Trade International Business Business Environment Marketing Nature and Significance of Management 219 Note: All Textual questions are represented by * mark.

5 01.Nature and Scope of Business Introduction Chapter 01: Nature and Scope of Business Ms. Priya is conducting her first OCM class for class XI. She is eager to start with the chapter Nature and Scope of Business. She wants the class to be interactive. So, she asks them to introduce themselves one by one. The conversation flows as given below: Ms. Priya: Hi all, welcome to class XI. I am your OCM teacher. Today we are starting with the first chapter. But before that, let s have a quick round of introduction about you and your family. Praful: Hi, my name is Praful. My dad works as an engineer with an MNC. My mother is a home maker. Ms. Priya: Thanks for the introduction Praful. Let s take your example. Everybody in Praful s family does some or the other activity. Praful studies, his dad works with an MNC and his mom looks after household duties. Is that right? Students: Yes. Ms. Priya: Great. However, do all of them receive money for the activity they perform? Students: No. Ms. Priya: Only Praful s dad receives money for the activity he does. Hence, the work that he does is termed as economic activity and the activity of studying and performing household duties are termed non economic activity. Ravi: Hi, I am Ravi. My mom is a doctor and runs her own clinic. My dad deals in purchase and sale of old furniture. Ms. Priya: Thanks Ravi. Ravi s introduction takes me towards the classification of Economic activities. Economic activities are classified into Business, Profession and Employment. Business includes manufacturing and/or trading in goods or services. Profession includes rendering expert services. Employment means hiring somebody to do a job. Ravi: I understood. The work my mom does is termed as Profession and the work my father does is termed as Business. Is that right, ma am? Ms. Priya: Absolutely Yes. Anuj: Ma am, I have a question. We sold some furniture last month. Does that also mean Business? Ms. Priya: No, Anuj. Business is a regular activity. If you purchase and sell furniture on a regular basis, then it would be termed as Business. Thus, we conclude that human activities can be of two types viz. economic activities and non economic activities. Economic activities take place on pursuing a business, profession or an employment. In this chapter, you will learn the meaning of economic activity and its classification. Human Activities What are Human Activities? Every human being engages himself/herself in some kind of activity. All human activities can be broadly classified into two categories. They are as follows: Non Economic Activities: These activities are performed for gaining happiness, pleasure and satisfaction. These activities do not involve money matters at all. For e.g. Reading a book, attending a family function, chatting with friends, worshipping god, etc. 1

6 2 2 Std. XI : Commerce Economic Activities: These activities are undertaken for the purpose of earning livelihood. A person conducting economic activities receives money in return of it. For e.g. Running a shop, working in an MNC, practicing as a chartered accountant, selling second hand goods, etc. Economic activities can be further classified into three types viz. Business, Profession and Employment (Service). Economic Activities Business Meaning of Business: Business is a state of being busy. The primary aim of conducting business is to earn profit. Business is related to the continuous and regular production & distribution of goods & services for the purpose of satisfying human wants and earning profit. Production refers to changing the form of resources and/or adding value to them so that they can be used for consumption. Goods can be either agricultural goods or manufactured goods. Such goods are made with the help of manpower or with the use of machines. For e.g. Growing mangoes on a piece of land is an example of agricultural production. Converting the mangoes into pulp/juices and selling them in the market is an example of manufactured goods. Distribution, on the other hand, is the process of making the products and/or services available for consumption in the market. This process includes actual buying and selling along with the arrangement for transportation, advertising, warehousing and other aids to trade that help the products to reach the consumers. Definitions of Business: Stephenson defines business as, The regular production or purchase and sale of goods undertaken with the object of earning profit and acquiring wealth through the satisfaction of human wants. According to Prof. Haney, Business activities are all those human activities which are directed towards the production and processing of wealth. *Q.1. Define Business. Explain its Features. [10] Ans: Stephenson defines business as, The regular production or purchase and sale of goods undertaken with the object of earning profit and acquiring wealth through the satisfaction of human wants. According to Prof. Haney, Business activities are all those human activities which are directed towards production and processing of wealth. Features of Business (Traditional Business): The features of business are as discussed below: [Mnemonic: DIRECT Plan] i. Deals in Goods and Services: Every business transaction is concerned with either goods and/or services. In their absence, business cannot take place. Goods are tangible in nature. They may either be capital goods (like tools and machinery) or consumer goods (like clothes, shoes, toothpaste etc). Services are intangible in nature. They include transport, banking, insurance etc. ii. Involves Production and Distribution: Every business deals with production of goods / creation of services and their distribution. Any activity or transaction that is required to complete the process of making goods or services available for a price to the consumers is called a business activity.

7 iii. iv. Chapter 01: Nature and Scope of Business Risk: Risk and uncertainty are a part of any business activity. The element of risk exists due to a variety of factors such as: change in the demand of goods; risk of loss due to fire, earthquake, pilferage, theft etc. competition, changes in government policies etc. A businessman tries to predict the future uncertainties and plans his business activities accordingly. However, the element of risk always remains associated with a business. Involves Exchange: Business means exchange of goods or services for money or money s worth. When goods are exchanged for money s worth, it is called monetary exchange. On the other hand, when goods exchanged for some other goods is called Barter Exchange. However, exchange does not include goods donated or gifted to someone. Also, business does not include goods used for personal consumption by a businessman. v. Continuity: vi. vii. Business involves a regular activity of production and/or distribution of goods and services. A single transaction of buying and selling cannot be termed as business, even if it involves monetary exchange. For e.g. If a person sells his old television for money, then it cannot be called as business. It can be just termed as an economic activity. However, a dealer dealing in second hand electronic goods can be called a businessman. Two Parties: A business transaction involves an exchange. Every business transaction, thus, involves at least two parties i.e. a buyer and a seller. A business transaction is a result of an agreement; hence the presence of two parties is a must. Aims at Profit: The primary aim of a business concern is to earn profit as it is a driving force behind every business. Every business transaction includes profit, though its amount may vary based on the nature and size of the transaction. Features of Modern Business: The above mentioned features of business are related to traditional businesses. However, the modern businesses operate in a much more competitive and dynamic world. Hence, in addition to the basic features mentioned above, modern businesses have some additional features too. These additional features are listed below: [Mnemonic: I M a STAR] i. Information: Information plays an important role in today s business world. A business unit frames its plans and policies depending upon the information on market conditions, consumers tastes and preferences, government policies etc. gathered through various sources of information such as market surveys, internet, newspaper and journals. Information so collected helps the business units to take correct and timely decisions. 3

8 ii. iii. iv. Std. XI : Commerce Many Lines of Products: With the expansion of markets, Good to Know: the business world has become A company like HUL very competitive. has numerous product In order to survive, companies lines like Shampoos, produce and distribute many detergents, Soaps etc. products at the same time. The combination of all Thus, even if one product does these product lines not yield sufficient profits, the forms the product mix. company can recover the reduction in profit by selling other products. Large Scale of Business: Owing to the development in transport and communication, businesses have crossed national boundaries. Thus, production and distribution of goods and services takes place on a large scale. Science and Technology: Modern businesses make use of scientific techniques for making budgets, recruitment of employees, handling employees and overall control. They make use of latest technology for producing goods. v. Adaptability: The ability of a business to react as per the changing situation is known as adaptability. The business environment is ever changing. Factors like consumers tastes and preferences, government policies, technology, etc. change very rapidly and hence, the business has to change its policies to suit the changing environment. vi. Good to Know: Barrix Ago Sciences, a Bangalore based startup offers eco friendly crop protection methods after much research on products that support organic farming to increase crop produce and quality with minimal expenditure. Good to Know: Jalgaon's farmers owe their prosperity to precision farming, an agricultural method first tried out in the district in This technique reduces fertiliser and pesticide use, prevents soil degradation, utilizes water optimally and raises productivity. Globally, this is done with the aid of modern, eco friendly farming practices and technology, including satellite imagery and information technology. Over the last decade, Jalgaon's farmers, with some help from companies such as Jain Irrigation Systems, have adapted precision farming practices without depending on satellite imagery and the like. Role of Government: In a modern business scenario, the government possesses a crucial role to play. It plays the role of a regulator by forming various acts and policies. Through such regulations, it regulates the working of the business units in national and international markets to restrict unfair and unethical trade practices. The government, by such acts, intends to protect the welfare of the consumers, investors, creditors, employees, etc. 4 4

9 Chapter 01: Nature and Scope of Business Economic Activities Profession Meaning of Profession: Profession is the utilization of special knowledge and skills that empowers an individual to provide services in order to earn a living. In order to become a professional, a person has to attain a certain degree of knowledge, formal education and undergo training. Profession is an intellectual activity. For e.g. Teachers, lawyers, doctors, engineers, chartered accountants, etc. are known as Professionals. *Q.2. Write a short note on: Features of Profession. [5] Ans: Profession is the utilization of special knowledge and skills that empowers an individual to provide services in order to earn a living. A person has to attain a certain degree of knowledge, formal education and undergo training in order to become a professional. The features of Profession are as follows: i. Qualification: A person has to acquire certain expertise to offer professional services. Every profession has its own definite body of knowledge. The knowledge required for practicing a profession has to be acquired through systematic and formal training. A person cannot practice a profession, unless he has the prescribed qualification, education and skills. ii. Motive: Profession is an economic activity. Every economic activity is undertaken for earning money. However, profession should also have the motive to provide diligent service to the clients. A professional renders services of special nature to solve the problems and work for the well being of his clients. For e.g. A doctor treating the illness of a patient should aim at improving the health of the patient rather than just focusing on money. iii. Monetary Returns: A professional renders services in exchange of Fees. Income of profession depends upon the expertise, quality of service and experience of the professional. The income of self employed professional, in particular is uncertain. For e.g. A doctor having his own clinic is self employed and so his income will be uncertain whereas, a doctor working in a hospital is considered as an employee, whose income is certain. iv. Capital: The capital required by a self employed professional is low as compared to a businessman. If a professional is working under someone else, he usually does not require any capital. v. Requirement of Registration: Every professional needs to register himself/herself with the respective council and get a certificate of practice after successful completion of the specified education and training. For e.g. The Bar Council of India for Lawyers, Council of Architecture, India for Architects etc. Generally, professions have a distinct national level council that lays down the code of conduct to be followed by them. The professionals have to strictly adhere to the code of conduct prescribed by their respective councils. It protects the interests of both, the professionals as well as their clients. 5

10 vi. vii. Std. XI : Commerce Non transferability: Unlike a business, profession cannot be transferred to some other person as per the will of a professional. To practice a profession, one requires to have the prescribed qualification, education and skill. However, it can be transferred to a person who is equally qualified in the said profession. For e.g. A lawyer cannot transfer his office or his practice to his son who has not completed his education in law. However, it can be transferred to another lawyer. Nature of Work: A professional renders expert services to his clients based on his formal education, training and skills in exchange of fees. For e.g. A doctor treats the illness of a patient and accepts fees. Economic Activities Employment 6 6 Meaning of Employment: Employment is an economic activity wherein a person appoints another person for the purpose of completing a job, task or assignment and pays wages / salary in return. The person who assigns the task is known as an Employer and the one who is expected to perform the assigned task is known as an Employee. For e.g. Factory workers, office assistants, managers, etc. are employees of a company. Employment may be full time, part time, permanent or temporary in nature. *Q.3. Write a short note on: Features of Employment. [5] Ans: Employment is an economic activity wherein a person appoints another person for the purpose of completing a job, task or assignment and pays wages / salary in return. The person who assigns the task is known as an Employer and the one who is expected to perform the assigned task is known as an Employee. The features of employment are as follows: i. Qualification: Qualification required for an employment may or may not be specific. Some jobs do require specific qualifications, whereas some do not. The qualification required to perform a job depends upon the nature of the job. As the nature of job changes, the qualification also changes. The criteria for qualification can be used for employing skilled as well as unskilled employees. For e.g. A driver should know how to drive a car. ii. Motive: The motive of employment is to earn money in order to satisfy the primary and secondary needs. iii. Monetary Returns: An employee gets returns in the form of Wages or Salary for the work completed by him. The returns of employees are certain as they are paid on the basis of pre determined terms of engagement. Wages are paid daily or weekly while salary is paid monthly. An employee may also get incentives and rewards in the form of travelling allowances, rent allowance, bonus, commission etc. iv. Capital: No capital is required to be invested by an employee. An employer provides the employee with all the material, infrastructure, tools and equipment that is required to complete the given job.

11 Chapter 01: Nature and Scope of Business v. Code of Conduct: An employee has to abide by the rules and regulations as specified by the employer. These rules are agreed by the employee at the time of accepting the employment. For e.g.: Reporting time to office, dress code etc. vi. Non Transferability: Every employment is an individual and independent contract which cannot be transferred from one person to another. For e.g. If a manager retires, he cannot transfer the job to his son / daughter, provided certain provisions and guidelines are given on Government level. vii. Nature of Work: The nature of work depends upon the job profile of the employee. An employer assigns a task and the employee is expected to complete the same. Objectives of Business *Q.4. Describe the various objectives of a business unit. [10] Ans: Business is related to the continuous and regular production and/or distribution of goods and services for satisfying human wants and earning profit. Objectives of Business: Objectives are the desired results that a business intends to achieve. A business may be started with the objective of earning profit, but sooner or later it realises the influence of social factors on business. Thus, it has to maintain good relations with suppliers, customers, employees, investors etc. In short, it has to maintain a balance between the profit objective and the social objective. The statement by Henry Ford is as follows: business is not mere money chasing but it also should aim at serving the community. Objectives of business can be classified into two types: Economic Objectives and Social Objectives. They are explained as follows: A. Economic Objectives: Business being an economic activity, its objectives is economic in nature. Economic objectives of business are: i. Earning Profit: Profit is essential for the survival, expansion and growth of a business. Earning legal profit is not objectionable. Thus, a business unit produces those goods and services that are in demand and commercially viable. Profitability is also an indicator of the stability, efficiency and progress of a business unit. ii. Search of New Customers: Customers are key to the profitability of an organization. The survival of a business depends on the number of customers it has created in the market. Given the level of competition in the market, a business unit works hard to create and maintain a loyal customer base. New customers are created when a business supplies goods that suit the tastes and preferences of the market. Existing customer base can be maintained by supplying quality goods at reasonable prices. Thus, customer satisfaction is the end towards which all business energies are directed. Customer satisfaction ensures that the business remains operational in the market for a long time. 7

12 8 8 iii. iv. Innovation: Innovation can be in the form of introduction of a new product/service in the market It can also be in the form of improvement in an existing product/service available in the market A business needs to be innovative in order to be competitive. It cannot keep offering the same product for a long time as the tastes and preferences of the consumers change rapidly. A business needs to spend on research, market surveys etc. to bring innovation in its products. Std. XI : Commerce Good to Know: Tata Motors got the idea of launching a small truck half the size of a Tata 407, a 2.25 tonner. The feedback from the market clearly pointed towards a rising demand for small trucks. Tata Motors identified this gap in the market and launched Ace. Today, every fourth truck sold in India is a Tata Ace. It has created an all new segment that of the small light commercial vehicle. Such novelties attract the customers and expand the customer base. Apart from new product launches, innovations can also be achieved by tapping into unique channels of distribution and offering value added services. Best Possible use of Resources: Most of the available resources are scarce and they can be put to productive use in more ways than one. Resources include human resources, raw materials, financial resources etc. A business should make best possible use of these resources and try to minimize their wastage. Reduction of wastage also reduces the cost of production and increases the profits. Additionally, reduction of wastage is beneficial from the environmental perspective. Thus, optimum (maximum) use of resources helps in increasing the efficiency, productivity and profitability of the business organization. B. Social Objectives: A business depends on society for the utilization of various resources. Hence, as a token of gratitude, it has to undertake social initiatives to gain goodwill and acceptance of the people. i. Supplying Quality Products: Customers are a part of the society that a business actively seeks to serve. Thus, providing quality products/services at reasonable prices becomes a pre requisite. Quality refers to product attributes such as purity, safety, durability, utility etc. Customers will be satisfied if they get value for money. Satisfied customers help in creating a favourable brand image that leads to further widening of the customer base. This in turn enhances the profitability of the enterprise. ii. Avoiding Unfair Trade Practices: A business concern should avoid malpractices like black marketing, misleading advertising, wrong measurement etc. It should follow fair trade practices. Unfair trade practices may lead to quick profits but in the long run, it affects the image of the company and the company loses its market share to its competitors. iii. Employment Generation: Business units undertake economic activities in the society. Thus, they can be described as socio economic institutions.

13 Chapter 01: Nature and Scope of Business Business helps society by providing adequate employment opportunities to the people. A business should also consider providing employment opportunities to the needy and the physically challenged people. This helps in establishing a favourable public image and enhances the goodwill of the organization. Good to Know: The IT BPO industry has created direct employment of 2.2 million and indirect employment of eight million. By 2020, the figures are expected to go up to 10 million and 20 million respectively. The indications are that significant global career opportunities will be generated. Interestingly, the employment opportunities have touched different sections of society, going beyond the metros. iv. Welfare of Employees: Skilled and unskilled labour / employees are a resource that a business obtains from the society. Therefore, employee welfare is a way to serve the society. It can be achieved by providing the employees with fair wages, good working conditions, appreciations, increments, additional perks and benefits etc. Good to Know: RMSI an IT services player bagged first rank by keeping staff happy without big budgets as India's best companies to work for The company, which employs about 800 people currently, plans to more than double its headcount to 2,000 people in the next one year. The company focuses on simple employee engagement practices like Workshops to help employees develop life skills; Sessions on stress management through jazz and yoga; In house music band and photography club; Wellness camps, etc. v. Help to Solve Social Problems: Rapid industrialization leads to various problems such as air pollution, water pollution, noise pollution, traffic jams, etc. Business sector should understand the intensity and impact of such problems and try to find a viable solution. It should implement processes that reduce pollution and safeguard the environment. This ensures harmony in the social and ecological environment. vi. Contributing to the Welfare of the Society: A business should understand and Good to Know: play a pro active role in the general welfare of the society. Set up in 1996, They can lend support to social, Mahindra & Mahindra cultural, religious, research and through its flagship developmental organizations. programme, Project They can help build schools, Nanhi Kali supports the education of over 11 lakh colleges, libraries, dharamshalas, underprivileged girls in ten states, providing hospitals, sports bodies and material support (uniforms, bags, notebooks, shoes research institutions. and socks) and academic support (workbooks, study They can help non government classes). The key outcomes of the project include an organizations (NGOs) like CRY, Help increase in both enrolment of girls in schools and Age and others which render curtailing dropouts to less than 10%. services to weaker sections of society. 9

14 Std. XI : Commerce Role of Profit in Business Q.5. Ans: 10 *Explain the importance of profit in Business. OR Discuss the Role of Profit in Business. [10] Every business operates with an aim of earning profit. It is a reward for taking risk and investing time, money and energy in the business. Profit not only ensures the survival and growth of a business but also helps the concern to fund its social initiatives. Importance/Role of Profit: The importance/role of profit can be explained as follows: [Mnemonic: STARING Great Entrepreneurs] i. Survival of Business: Profit is necessary for the survival and growth of a business enterprise. A new business may find it difficult to survive the initial stages in the constantly evolving markets. However, if the business makes even small profits, it can survive and aim for better profits in the near future. Profits also boost the morale of the employees, ease negotiations with banks, attract investors and build customer confidence. ii. Reward for Risk Taking: Profit is a return on investment. A businessman invests his capital and also runs his business with an uncertainty of making profit and the risk of incurring losses. Thus, earning profit is a reward for risk taken in the business. iii. Availability of Funds: Regularity in profit making helps a business to create a pool of available funds in the form of savings or retained earnings. These funds can be utilized to meet future contingencies in business. Also, savings indicate a sound financial standing and thus help to build public confidence. This helps the business in raising funds by means of issuing shares to the public or taking loans from financial institutions. Thus, profits make the availability of funds from internal as well as external sources possible. iv. Research and Development: Reasonable amount of profit making encourages the management to undertake research and development. This may lead to the creation of innovative products and services that help the business to earn more profits. v. Index of Performance: Profit acts as an indicator of financial performance. Higher profits indicate enhanced efficiency in the functioning of the business and lower profits signal the management towards taking corrective steps. vi. Income to Satisfy Needs: Business is an economic activity i.e. its main purpose is to earn profit. Profit is the income earned by the businessman. Through this income earned, he can satisfy the needs and wants of his family. vii. Growth and Expansion: Profits are required to fund the growth, expansion and diversification plans of a business. Growth and expansion may be in the form of opening new branches, offering different types of goods and services etc. Profits are also required to make a business globally competitive.

15 Chapter 01: Nature and Scope of Business viii. Satisfaction of Interest Groups: A business depends on customers, employees, government investors, etc. for its functioning. These factors are known as interest groups. A profitable business is able to satisfy these interest groups by: providing good quality products at a reasonable price to its customers; offering fair remuneration to its employees; paying taxes to the government and distributing dividends on time to its investors. ix. Increases Efficiency: Profits help in making payments to suppliers, employees and vendors on time. This ensures that the above associates are motivated to provide prompt and quality services to the business unit, whenever required. This in turn helps to improve the efficiency in functioning. Classification of Business Activities Classification of Business Activities: Business activities are the sum total of all the activities that range from raw material purchase to the production and final distribution of finished products. On the basis of function performed, the business activities can be classified into two types: : includes all those business activities which are related with the production and manufacturing of goods and services. An industry is involved in the production of: Consumer goods that are consumed by the final consumer Capital goods that are used for the production of other goods and services Intangible services creates form utility by processing raw materials or semi finished goods into finished goods. This is done with the help of manpower, machineries and money. Industrial activities may be undertaken at large scale or small scale. They may take place in factories, small workshops or even at home. Industries can be further classified into three types viz. Primary Industries, Secondary Industries and Tertiary Industries. Commerce: Commerce is an integral part of business which deals with the distribution of goods and services produced by the. Thus, role of commerce begins where the role of industry ends. All goods and services produced are to be made available to the consumers else the industrial activities of producing goods will be of no use. In simple words, commerce facilitates the buying and selling process by removing all the difficulties involved in the distribution of goods and services. Hence, commerce is the sum total of Trade and Auxiliaries to Trade. Trade refers to the buying and selling of goods and services. It can be further classified into: Home Trade / Internal Trade and Foreign Trade / External Trade. Auxiliaries to Trade are the various services and factors that are required to facilitate the Trade. They ensure smooth flow of goods and services from the seller to the buyer. Auxiliaries to Trade include Transport, Warehousing, Insurance, Banking, Advertising and Mercantile Agents. 11

16 Std. XI : Commerce Classification of Business Activities Commerce Primary Secondary Tertiary Trade Auxiliaries to Trade Agriculture Extractive Genetic Manufacturing Construction Home Trade Wholesale Trade Foreign Trade Import Trade i. Transport ii. Warehousing iii. Insurance iv. Banking v. Advertising vi. Mercantile Agents vii. Communication Retail Trade Export Trade Entrepot Trade Q.6. Discuss the different types of Industries. [10] Ans: includes all those business activities which are related with the production and manufacturing of goods and services. It can be classified into three types viz. Primary Industries, Secondary Industries and Tertiary Industries. 12 Types of Industries: Industries can be classified into three types: A. Primary : Primary industries are directly dependent on nature. Generally, the products of these industries cannot be consumed as it is. They need to be processed first and then made available in the market. The output of Primary Industries may also be used as a raw material in Secondary Industries. Primary industries are further divided into three sub types. They are as follows: i. Agriculture : It includes farming and cultivation of land for growing crops. The farm produce needs to be processed before it is made available in the market for consumption. ii. Extractive : It includes extraction from natural sources (i.e. land, air and water) for the purpose of consumption. For e.g. Extracting minerals and oils, fishing etc. The extracts from these industries may be used directly or sent to other industries for further processing. iii. Genetic : These industries are involved in the reproduction and multiplication of plants and animals. For e.g. Poultry farming, Animal husbandry, Horticulture (growing fruits and vegetables), Floriculture (growing flowers), Pisiculture (breeding fish).

17 Chapter 01: Nature and Scope of Business Q.7. Ans: B. Secondary : These industries are dependent on primary industries for the regular supply of raw materials. They convert these raw materials into finished goods. For e.g. Fruits produced by primary industry are used for making jams and jellies, Cotton is used to produce textile cloth, Timber is used to produce furniture. Secondary Industries are of the following two types: i. Manufacturing : These industries convert raw materials into finished products with the help of manpower and machines. The output of manufacturing industries can be directly consumed. They manufacture consumer goods as well as capital goods. For e.g. Manufacturing furniture from wood. ii. Construction : It refers to those industries which are concerned with construction of bridges, dams etc. It is the only industry which creates immovable wealth. The output of this industry is sold at the same place where it is built. For e.g. Residential flats, offices, shops etc. C. Tertiary : Tertiary Industries facilitate the functioning of primary industries and secondary industries by providing them with services like Banking, Transport, Insurance, Warehousing etc. This industry can only grow if primary and secondary industries flourish in the market. What do you mean by Trade? Discuss the classification of Trade. OR *Write a short note on: Classification of Trade. [5] Meaning of Trade: Trade involves the buying and selling of goods and/or services for money or money s worth. Trading activities are performed in local and international markets. The purpose of trading activities is to transfer the ownership and possession of goods and/or services from one person to another i.e. seller to buyer. Classification of Trade: Trade can be classified on the basis of area of operations, as Home Trade/Internal Trade and Foreign Trade/External Trade. They are explained as follows: A. Home Trade/Internal Trade: When trade takes place within the political boundaries of a country, it is called Internal Trade. Since the trade takes place within the country, local currency of the country is used for the purpose of exchange. Based on the scale of operations, Internal Trade is further divided into: i. Wholesale Trade: Wholesale trade refers to a trade wherein goods are purchased in large quantities from manufacturers or producers for the purpose of resale. This type of trade is usually conducted on a large scale. Traders who engage in this type of trade are known as Wholesalers. A wholesaler acts as an intermediary between the manufacturer and the retailer. ii. Retail Trade: Retail trade refers to a trade wherein goods are sold to the final consumers in small quantities. This type of trade is usually conducted on a small scale. The trader involved in this type of trade is known as a Retailer. The retailer is the last link in the chain of distribution. He establishes a link between wholesalers and consumers. 13

18 14 Std. XI : Commerce B. Foreign Trade/External Trade/International Trade: It is a trade between two countries. When the exchange of goods and services takes place between a buyer and a seller who belong to two different countries, it is known as External Trade. Since the buying and selling of goods/services is conducted across national boundaries, foreign currency is used for the purpose of exchange. Foreign trade is further classified into: i. Import Trade: Import trade refers to inflow of goods and services from foreign country to home country. In this case, goods from a foreign country enter the political boundaries of home country. ii. Export Trade: Export trade refers to outflow of goods from home country to a foreign country. In this case, goods from home (our) country cross the boundaries and are sent to another country. iii. Entrepot Trade: Entrepot trade is also known as Re export. It is a combination of import and export trade. It refers to purchase of goods from one country and then reselling them (exporting them) to another country. *Q.8. What is meant by Export Trade? [5] Ans: Export trade is a part of external trade. External trade refers to the exchange of goods and services between a buyer and a seller who belong to two different countries. On the other hand, export trade refers to outflow of goods from home country to foreign country. For e.g. India selling mangoes to European countries. This is an example of export trade where India plays the role of an exporter. Usually, when goods are produced in surplus, they are exported to countries where there is a demand for the same. This allows domestic companies to sell surplus goods in the international market. This provides a business opportunity in the form of expansion of markets and globalization. Also, it earns valuable foreign exchange and increases the foreign currency reserves of the country thereby, facilitating the economic development of the nation. Moreover, export trade helps in creating goodwill for the company in the national and international markets. *Q.9. State the role of Auxiliaries to Trade in Trading Activities. [5] Ans: Activities that facilitate buying and selling of goods (trade) are known as Auxiliaries to Trade. It not only facilitates smooth flow of goods and services between the seller and the buyer but also provides the necessary support to the entire business for its successful functioning. Following are the different Auxiliaries to Trade: i. Transport: Transport helps: in the movement of raw materials up to the factory site in the movement of finished goods from the factory to the markets Thus, transport helps in creating place utility by making the goods available wherever they are required.

19 ii. Warehousing: A trader needs to store the goods on account of the following reasons: Goods purchased in bulk by a trader are sold in smaller quantities to the customers as and when demanded. Goods produced in one season may be demanded throughout the year. For e.g. agricultural produce. Goods produced throughout the year may be demanded only in one season. For e.g. Sweaters in winter. Warehousing helps a trader to store the goods till they are demanded. Chapter 01: Nature and Scope of Business Good to Know: India has around 6,300 cold storage facilities, with a capacity of million tonnes. However, some per cent of these refrigerated warehouses are suitable only to store potatoes, a commodity that produces only 20 per cent of agricultural revenue. This was revealed in a report by the Institution of Mechanical Engineers (IME), a professional organisation of the UK. Warehouse is a place or building used for safe storage of goods. Thus, warehousing creates time utility by making the goods available whenever they are required. iii. Insurance: A business is exposed to the risk of damage (of goods) on account of floods, fire, robbery etc. To safeguard against such causes of damage, a business can take an insurance policy from an insurance company. Here, the business is required to pay premium to the insurance company for the coverage of risk. In the event of loss, the insurance company will pay compensation that would be equivalent to the amount of loss suffered. iv. Banking: A business requires continuous flow of money for its smooth working. A businessman may not be able to invest large sums as capital and thus face the difficulty of finance. Banking provides finance to the businessman. Banking offers the following services to traders: capital funding for the business through loan facility working capital to fund day to day operations through overdraft and cash credit facilities other value added services such as cheques, demand drafts, debit card, credit card etc. v. Advertising: There is a multitude of products available in the market. However, the consumers lack the necessary awareness about the products available for sale. For increasing sales, it is important for a seller to make the consumers aware about his product. However, the consumers are spread over a wide area. Hence, the seller faces difficulty in communication. This difficulty is solved through advertising. Advertising communicates all the required information about the product, to the prospective consumers and creates in them a strong desire to purchase the product. This results in increased amount of sales. However, a company should provide correct information through advertising to maintain the level of trading activities in the long term. The various mediums used for the purpose of advertising are newspapers, radio, television, cinema theatres, wall posters and hoardings at prominent places. 15

20 16 vi. vii. Std. XI : Commerce Mercantile Agents: Consumers are spread over a wide area, thus it is difficult to have a direct contact between the producer and consumer. Mercantile agents are middlemen who form a link between the seller and the large number of buyers. Mercantile agents remove the difficulty of personal contact and complete the transaction on behalf of the seller. Thus the mercantile agents bridge the gap between the seller and the buyer. There are several types of mercantile agents such as brokers, commission agents, auctioneers, underwriters, insurers etc. Communication: In today s world, the distance between two traders is very vast. It becomes difficult to establish a direct contact between two traders. This difficulty of distance makes it complex for a retailer to place an order with a wholesaler located at a far off place. This difficulty is solved by various means of communication. Communication refers to exchange of information from one person to another. Communication can be in the form of oral or written communication. With the modern communication facilities, a retailer can simply visit the website of the wholesaler and place an order. Modern means of communication like telephone, telex, telegraph, , teleconference etc., play an important role in establishing contact between businessman, producers and consumers. These modern means of communication save time and money. *Q.10. Write short notes on: [5 marks each] i. Warehousing as an Auxiliary to Trade. Ans: Activities that facilitate buying and selling of goods (trade) and solve the various difficulties involved in the process of trading are known as auxiliaries to trade. Time difficulty is a major problem faced by traders. Time difficulty arises as there is a time gap between the production and consumption of goods. Sometimes, goods may be produced only once a year but they may be required for consumption throughout the year (for e.g. agricultural goods). On the other hand, in some cases, goods may be produced throughout the year but they may be required only once a year (for e.g. sweaters in winter). Therefore, it becomes necessary to preserve the goods and maintain the quality of these goods till their demand arises. This difficulty is solved through warehousing. The basic function of warehousing is to store large quantities of goods and ensure steady supply of goods in the market as and when needed. Thus, warehousing helps in creating time utility. It also stabilizes the prices by regulating the supply of goods in the market. Hence, we can say that, warehousing is an auxiliary to trade as it facilitates smooth flow of goods and solves the difficulty of time faced by the traders. ii. Ans: Interdependence of and Commerce. The functions performed by and commerce complement each other well. produces goods and services whereas commerce helps in the distribution of those goods and services. Goods are primarily produced to satisfy human wants. Hence, creation of goods and services is not enough.

21 Chapter 01: Nature and Scope of Business They need to be made available to consumers. This activity of making the goods and services available to the consumers is performed by commerce. Thus, the activities of commerce begin where the activities of end. Hence, and Commerce are the two inseparable and interdependent functions of a business. Business Risks Meaning of Business Risk: Risk is the possibility of incurring loss in a business. Each and every business has a possibility of incurring loss. Risk is an important element of business. The element of risk exists due to a variety of factors. For e.g. Change in the demand of goods; risk of loss due to fire, pilferage, theft, natural calamities etc. A businessman tries to predict the future uncertainties and plans his business activities accordingly. Nature of Business Risk: The nature or the basic characteristic of business risk is as follows: Risk is inevitable. It is present in all types of businesses, irrespective of the nature and scale of business. Risk can be minimized or transferred but cannot be completely avoided. Profit is the reward for undertaking risk. *Q.11. What is Business Risk? Explain various causes of Business Risk. [10] Ans: Risk is the possibility of incurring loss in a business. Each and every business has a possibility of incurring loss. A businessman tries to predict the future uncertainties and plans his business activities accordingly. The causes of business risks can be explained as follows: i. Change in Fashion: Fashion relates to a popular trend at any given point in time. This trend is influenced by people s tastes and preferences, their purchasing power and other influences. Based on this trend, the demand for a particular product may either rise or fall. In case the demand falls, the goods are at a risk of being unsold. This further leads to business losses. ii. Change in Government Policies: Every Business has to operate under the legal framework i.e. the policies framed by the Government. Businesses have to frame their plans and policies based on these government policies. Thus, when a government revises old policies or introduces new policies, the organization has to reframe its policies. This difference in policy can affect the business and may result in profits or losses and put the business at risk. For e.g. Changes in the Import Export policy of the Government. iii. Office Personnel: This is the most common type of risk faced in business. If there is any uneasiness among workers while carrying out their job, it may result in strikes or lock outs or non co operation. 17

22 18 iv. Std. XI : Commerce Work gets delayed and lead to heavy losses in production. In this process, the unit also loses its efficient workers. Negligence and dishonesty of personnel, accidents or deaths in the industry, incompetency of managers or other important people in the organization, etc. cause losses to the organization. Change in Technology: The ever evolving field of technology leads to new breakthroughs in product development. Due to which, the earlier products become obsolete in no time. This leads to huge losses in the form of unsold goods as customers are lured by the presence of newer versions of the products in the market. For e.g. Change from pagers to mobiles affected the market for pagers adversely. v. Natural Calamities: Natural calamities like floods, earthquakes, famines, fire etc. cause great damage to the business units. It not only causes financial loss but may also result in loss of life and property. For e.g. Floods in Mumbai in July 2006, Tsunami in South India, etc. vi. vii. Manmade Disasters: Every business is exposed to manmade disaster like bomb blasts, riots, war etc. During this process, a lot of businesses come to a halt, thereby resulting in a major loss to all business sectors. Dependence on Others: Business depends on various factors such as steady supply of raw material, employees, contractors, logistical support etc. that are not under the direct control of a businessman. If there is any problem in the functioning of any one of the above factors or a delay in the performance of their duties, it can create a loss. viii. Competition Level: Today, the business world has become very competitive in local as well as international markets. Market conditions are constantly changing, especially due to globalization and liberalization. Thus, every organization needs to carefully consider all the factors while framing and implementing its policies. Any mistake in policy making could lead to heavy losses and the organization may lose its market share to its competitors. Multiple Choice Questions Good to Know: Voice over Internet is a sector that is being revolutionizing businesses. Use of this technology in virtual conferencing, live meetings etc. educe costs and efforts in organizing in personal meetings. Small and Medium Enterprises benefit from this cost benefit. Hence, Cisco and other companies have been coming up with really innovative ideas to reduce the overhead of making phone calls. Skype, Yahoo and others have already changed the way we made phone calls traditionally. This has made customers to adopt these technologies over traditional means of communication. I. Select the correct option from the options given below and rewrite the sentences: [1 mark each] 1. Activities undertaken to derive mental satisfaction are known as activities. (A) economic (B) human (C) non economic *2. A courier agent is. (A) an employee (B) a businessman (C) a professional person