Chapter 17 Business Finance

Question 1

Define business finance and state the types of finance.
0.1
AnS.
Finance consists of providing and utilizing the money, capital, rights, credit and funds of any kind which are employed in the operation of an enterprise.
There are following three types of business finance:
Business Finance
Short term
Medium term
Long term
Finance
Finance
Finance
Q.2
Give a brief explanation of Musharika.
Ans.
The word Musharika is derived from the world shirkat.
Shirkat means sharing. Musharika is a business organization in which two or more than two parties, contribute (invest) capital and skill. The profit and loss of the business is distributed among persons (parties) according to their agreed ratio.
Q.3
Define Modaraba.
Ans.
Modaraba is an agreement whereby one party provides capital and the other transacts the business. Overall profit of the business is divided in agreed ratio.
Q.4 Explain the types of Modaraba.
Ans. i) Multipurpose Modaraba:
If a Modaraba company is formed for more than one objectives, it is called multipurpose modaraba automatically.
(ii)
Specific Medaraba:
Specific modaraba is established for the specific purpose. After completion of task, it will be dissolved automatically.

State the sources of short term finance.
AnS.
(a) Public sources:
(i) Commercial banks (ii) Foreign exchange banks (iii) Federal goverment agencies
(b)
Personal sources:
(i) Friends & relatives
• (ii) Indigenous bankers iii Public deposits (iv) Personal loan companies
(v) Co-operative societies
(c) Business sources:
(i) Trade creditors (i1) Customers (iti) Factors
(iv) Commercial paper house
Q.6 State the sources of medium term finance.
Ans: (i) Life insurance companies (ii) Partial payment methad (iii) Finance facility by agent (iv) Financial institutions
(v) TFC’s
(vi) PTC’s
PRINCIPLES OF COMMERCE
State the sources of long term finance.
419
(i)
Underwriters
ANS.
(ii)
Bonds
(iii) Incorporate savings (iv) New partners
(v)
Debentures
(vi) Mortgage (vii) Musharika investment (viii) Modaraba certificates
Q.8
State any three characteristics of Musharika.
Ans. i) Musharika is an agreement between bank and its client to participate in a business as temporary partners.
(ii)
The parties contribute their capital according to agreement.
(iii) The total profit of Musharika is to be shared
according to agreed ratio.
Q.9 What is meant by long term finance.
Ans.
Long term finance is generally required for more than 10 years. Some banking experts say that the period of long term finance is 6 to 10 years. It is used for purchasing permanent assets or to start a big business.
Q.10 Define short term finance.
Ans.
Short term finance is generally required for 1 year or less. It is available at low rate of interest to meet the seasonal requirements of business.