AP Inter 2nd Year Commerce Study Material Chapter 3 Business Services

Andhra Pradesh BIEAP AP Inter 2nd Year Commerce Study Material 3rd Lesson Business Services Textbook Questions and Answers.

AP Inter 2nd Year Commerce Study Material 3rd Lesson Business Services

Essay Answer Questions

Question 1.
Define banking. Explain the functions of banking.
The word Bank is derived from the French word ‘Bancus’ means a bench. According to Banking Regulation Act of 1949, banking is defined as “Accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”.

The basic functions of banks are classified as primary functions and secondary functions.

A) Primary functions:
i) Accepting Deposits :
Bank accept various types of deposits, such as

Fixed deposits :
Fixed deposits are also called as time deposits or term deposits. In this deposit amount cannot be withdrawn until the maturity. Interest rate is also high.

Current Deposits :
Current accounts bears no interest companies, institutions, government and business men hold the current account. The greatest advantage of having current account is that there is no restriction on the withdrawls.

Savings Deposits :
The aim of these accounts is to encourage small savings from the public. Certain restrictions are imposed on the depositors regarding the number of withdrawals and the amount to be withdrawn in a given period of time.

Recurring deposits :
The purpose of these accounts is to encourage regular savings particularly by the fixed income group. Generally money is deposited in these accounts on monthly instalments for a fixed period. It is repaid to the depositors along with interest on maturity.

ii) Advancing of Loans :
Lending is carried out purely on profit motive. Banks lend the amount which is mobilised through the deposits. The different forms of lending are :

Loans :
A specified amount sanctioned by bank is called a ‘Loan’. A loan is granted against the security of property or personal security. The loan may be repaid in lumpsum or in instalments. The loan may be classified into i) Demand loan ii) Term loan. Demand loan is repayable on demand. It is repayable at short notice. Medium and long term loans are called term loans. It is granted for more than year and repayment is done on longer period.

Cash credit:
Cash credit is an arrangement where by the bank agrees to lend money to the borrower upto a certain limit. The amount is credited to the borrowers account. The borrower draws the money as and when he needs. Interest will be charged only on the amount actually drawn. Banks may impose commitment charges on unutilised portion.

Banks grants overdraft to current account holders by which he is allowed to draw an amount in excess of the balance held in his account. Interest is charged on the overdrawn amount.

Discounting of bills of exchange :
A holder of a bill of exchange may be in urgent need of cash before the due date. He may sell or discount the bill with the bank. He will receive lesser amount than the actual amount. On maturity, the bank gets it payment from the debtor.

B) Secondary Functions :
These services include agency services and general utility services.

1. Agency services :
Banks perform some agency services on behalf of their customers.

  • Banks helps their customers in transferring funds from one place to another place through cheques, drafts etc.
  • Banks collect and pay various credit instruments like cheques, bills of exchange, promissory notes etc.
  • Banks undertake to purchase and sale of various securities like shares, bonds, debentures etc., on behalf of their customers.
  • Banks preserve the wills of their customers and execute them after death.

2. General utility services :
These services are

  • Letters of credit are issued by the banks to their customers certifying their credit worthiness.
  • Banks issue travellers cheques to help to travel without fear of theft or loss of money.
  • Banks provide safe deposit locker facilities to the public at selected branches.
  • Accepting or collecting foreign bills of exchange.

AP Inter 2nd Year Commerce Study Material Chapter 3 Business Services

Question 2.
Discuss the principles of insurance. [A.P. Mar. 17]
Insurance means protection against risk of loss. It provides compensation against any loss or damage due to the happening of an event. It is a contract between the two parties by which one of them undertake to indemnity the other person against a loss which may arise due to some events.

Principles of insurance :
1. Insurable interest:
A person cannot enter into a contract of insurance unless he has insurable interest in the subject matter of insurance. It is essential feature of insurance. Without this insurable interest, the contract of insurance will be treated as a wager or gambling contract. A person has insurable interest on his own life or the life of his wife and a creditor has insurable interest in the debtor.

2. Utmost good faith :
Insurance is based on the principle of utmost good faith. It means both the parties of the contract must disclose all the facts relating to the subject matter of insurance. If the insured does not disclose all material facts, the contract between them is void.

A person who had suffered from T.B. in the past had not disclosed it in the proposal form. Later on the insurer comes to know of this fact. He may declare the contract as void.

3. Indemnity :
This is the chief principle of insurance. Indemnity means security against risk of loss. Under this principle, the insured gets only the loss suffered from the insurer but not profits out of the contract of insurance. The principle of indemnity applies to contracts of fire and marine insurances only, but not to life insurance contracts.

4. Contribution :
Sometimes, goods are insured with more than one company. It is double insurance. The insured can get compensation only for the total loss from all insurance companies put together, but not total loss from each company. The insurance companies will pay the compensation on prorata basis.

5. Subrogation :
According to this principle, the insurer after compensating the loss of insured, the right of ownership of the damaged goods is shifted from insured to insurance company. Ex : Mr. X owns a scooter worth ₹ 36,000 and it was insured with a insurance company for full value. Later it was met with an accident and damaged beyond repairs. The insurance company paid the full value as compensation. Then all the rights on the scooter will pass on to insurance company.

6. Causa proxima :
According to this principle, the loss is caused by nearest and direct factor, then only the insurer will have to bear the loss. Ex : Biscuits in a ship are insured and are destroyed because of the sea water entered through a hole made by the mouse in the bottom of the ship and water entered into the ship. The nearest and direct cause is sea water. Hence, the insurer will have to bear the loss.

7. Mitigation of loss :
It is duty of the insured to take necessary steps to minimise the loss happened due to some event. He should not act carelessly and negligently at the time of loss to the insured property.

Question 3.
Define Life Assurance Policy. What are the kinds of life assurance policies?
A life insurance contract may be defined as “a contract whereby the insurer, in consideration of premium paid either in lumpsum or in periodical instalments, undertakes to pay an annuity or a certain sum of money, either on the death of the insured or the expiry of certain number of years”.

Kinds of life assurance policies:
The following are some of the popular life assurance policies.
1) Whole life policy :
Under this policy the premium is paid through out the life of the insured. The sum assured is payable only after the death of the assured. The premium payable is low and it is meant for the family.

2) Endowment policy:
This policy is taken up for a specific period called endowment period. The policy will mature at the end of the specified period or at the attainment of particular age or on the death of insured, whichever is earlier. This policy offers the advantage of both protection and investment.

3) With or without profits policies :
When the policy is insured with profits, the policy holders share the profits of the company. The profit is called Bonus. The amount of the policy and bonus is paid on the maturity of the policy. When the policy is insured without profits, the insured does not share any profits and the amount of policy only is paid on maturity.

4) Joint life policies:
A policy may be taken jointly on the lives of two or more persons. On the death of any one person, the policy is paid to other surviving policy holder as the case may be. This type of policy may be taken by husband and wife.

5) Convertible whole life policy :
The policy is insured for whole life policy with a provision to convert it into endowment policy after a specified period. The conversion is done at the request of the assured. The rate of premium is increased after conversion.

6) Janata policy:
Janata policy was introduced by life insurance corporation of India in May 1957. This policy was introduced for the benefit of lower income group people. It can be issued for a term of 5,10, 15, 20 and 25 years subject to the condition that it should mature at the age of 60 years. No loans are granted on such policies.

7) Annuity policy :
Under this policy, the insured would deposit a lumpsum amount with the insurance company. The amount of policy would be paid to the insured for a specified number of years or until the death of the insured.

8) Children endowment policy:
This policy is taken by a person for his / her children to meet the expenses of their education or marriage. The agreement states that a certain sum will be paid by the insurer when the children attain a particular age.

9) Group insurance policy :
Members of a family or the employees of a business concern can take this insurance policy.

AP Inter 2nd Year Commerce Study Material Chapter 3 Business Services

Question 4.
What do you understand by the word Transport? Discuss the benefits and limitations of Transport.
Transport is the physical means of moving goods and persons from one place to another. Transport creates place utility of goods by moving them from different centres of production to the places of consumption. Goods are now produced thousand miles away from places where the consumer resides. Transportation only help the business men to reach consumer. Not only does transport give place utility, but it also renders time utility in various ways. Transportation, in simple language can be defined as “a means through which goods are transferred from one place to another”.’

Benefits or Functions of transport:
1. Movement of goods:
The first and important function of transport is the movement of goods. The raw materials have to move from their sources to the factory. The manufactured goods have to move from the factory to the consuming areas.

2. Transport enhances mobility of labour and capital :
An efficient network of transport services encourages the movement of people from one place to another labour can migrate to the place where they can get better job opportunities which reduces exploitation of labour.

3. Creation of place utility:
It moves goods from places where they are abundant to the places where they are scarce and thus creates place utility.

4. Specialisation and division of labour :
Transportation facilitates optimum utilisation of natural resources of a country. For example, petroleum resources of Arab countries, watches of Switzerland etc.

5. Creation of time utility :
With the advancement of technology, transportation time is being shortened. So, it creates time utility.

6. Stability in prices :
Goods can be transported from the place where the goods are abundant, to the places where scarcity exists. In this way, prices are equalised throughout the country.

7. Contribution to national income :
The transportation also contributes national income of a nation. For example, our railways.

8. Economies of large scale production :
Transport has helped the development of large scale industries. Transport procure raw material, labour and sells the finished goods.

9. Improve standard of living :
Availability of wide variety of goods at reasonable prices improves standard of living.

10. National defence :
Transport strengthens the national defence transport system. During war period, all the personnel, material and equipment can be moved rapidly to the boarder areas.

Limitations of transport :
1. Cottage and small scale industries lost their glory :
With the development of transport, labour is showing interest to work in big factories. This has led to shortage of workers in tiny and small scale industries.

2. Accidents :
Improvement in transport facility has given rise to new problem viz. accidents.

3. High urbanisation:
Improved means of transport has helped in creating big cities, which have further resulted into concentration of population in these cities. This has given rise to many new problems such as housing, health and pollution.

Question 5.
Describe the road transportation. Explain the kinds of roads in India. [A.P. Mar. 17]
Road transport is the oldest form of transport. The Indian road network is one of the largest in the world. Road transport plays an important role in trade and commerce. Road transport is very good for short distance. Door – to – door collection and delivery is possible in road transport. It is most suitable for perishable goods. In road transport both men and animals are used to carry goods and people.

Modes of road transport are bullock carts, Tonga, rickshaws and motor vehicles such as jeeps, buses, motor vans, trucks and other vehicles. Road transport is suitable for the goods such as paper goods, clothing, computers, livestock, cement etc.

Indian roads are classified into three types – National highway, State highway, District and Rural roads.

a) National highway:
These roads are meant for inter state transport and movement of defence men. These also connect the state capitals and major cities. The National Highway Authority of India (NHAI) has the responsibility of development, maintenance and operation of national highways. The national highways have a road length of about 65,000 kms or 2% of the length of the total road system but they carry nearly 40% of goods and passenger traffic.

b) State highways:
These are constructed and maintained by state government. They connect the state capital with district head quarters and other important towns. State highways constitute 4% of total road length in the country.

c) District roads :
These roads are the connecting link between district head quarters and the other important roads of the district. The account for 14 % of the total road length of the country.

d) Rural roads :
These roads provide link to the rural areas. There are about 80% of total length in India are categorised as rural roads.

e) Boarder roads :
These roads are in the northern and northern – eastern boundary of the country. The Boarder Road organisation constructs and maintains boarder roads. They construct roads in high altitude areas and undertakes snow clearance.

f) International highways :
There are meant td promote harmonious relationship with the neighbouring countries by providing effective links with India.

Question 6.
Explain the warehouse concept and its significance.
The term warehousing is a combination of two terms, ‘ware’ and ’housing’. The word ware refers to goods. Therefore, warehousing can be defined as the ‘ place suitable for preserving the goods and warehousing is the activity involving storage of goods. In common parlance warehouse means a godown. Warehousing facilitates other marketing functions such as assembling, grading and transportation.

Warehousing performs two important functions with regarding to finished goods. They are movement function and storage function. Movement function refers to the receipt of the products from the manufacturing plant, their transfer into warehouse and transferring them to common carriers on their way to consumers. The storage function is performed by retaining storing products in the warehouse until they are sold because production and consumption cycles differ. Warehousing functions creates time utility at minimum cost.

Significance :

  1. Some commodities are produced in a particular season only. To ensure their off – season availability, warehousing is needed.
  2. Some products are produced throughout the year but their demand is seasonal. Warehousing is important in such cases.
  3. For the companies which opt for large scale production and bulk supply, warehousing is unavoidable factor.
  4. Warehousing help companies to ensure quick supply of goods in demand.
  5. Production of goods and their movement of goods are important for the companies for continuous production of goods.
  6. Warehousing is also important for price stabilisation. For necessary goods, the Government store them in the warehouse and control its supply in the market as per the price fluctuations.
  7. Another important need of warehousing is for bulk breaking.

Short Answer Questions

Question 1.
Define services and goods.
Services are those separately identifiable, essentially intangible, activities that provide satisfaction of wants and are not necessarily linked to the sale of a product or other services. Services are intangible as they are not seen or touched. Service is inconsistant, since there is no standard tangible product. Service is the simultaneous activities of production and consumption. Services cannot be stored for future. Service is the participation of the customer in the service delivery process.

Goods are physical objects and are homogeneous in nature. They are tangible. Ex: Medicine Different customers get standardised demands fulfilled. Ex: Mobile phones. There will be separation of production and consumption. Ex : Purchasing ice cream from a store. Goods can be kept in stock. Ex : Train journey ticket. Involvement at the time of delivery is not possible. Ex : Manufacturing a vehicle.

Question 2.
What are the advantages of E-Banking?
E-Banking brings certain advantages.
1. It reduces costs :
The cost of banking transactions is considerably reduced. It increases the profitability of the banks.

2. Prompt in services :
There is high degree of personalisation and fast and flexible execution. Thus E-Banking prompt service and there is greater customer satisfaction.

3. Anywhere and any time banking :
It is 24 hours in a day and 7 days in a week banking service. Bank account can be accessed from anywhere. So the customer can obtain information his account and conduct transactions from his home or office.

4. Cashless banking :
Handling of cash is not necessary in E-Banking.

5. Global coverage :
It provides global network coverage of bank services. NRIs can monitor their bank account in Indian banks, from abroad.

6. Central data base :
The data base of each branch is centralised. Customer can deposit, withdraw or remit money from any branch of his bank.

7. Internet banking helps banks to reduce the workload of their branches, such as generation of statements, balance of enquiry etc.

AP Inter 2nd Year Commerce Study Material Chapter 3 Business Services

Question 3.
What is Mobile Banking? What are the services can be obtained through mobile banking?
The delivery of bank services to customers through mobile (cell) phone is called mobile banking. When compared to telephone banking the scope of mobile banking is more and effective also. Mobile banking can take the form of SMS banking, GSM SIM Toolkit and WAP.

a) SMS banking :
Short messages are sent to the customers mobile phones. SMS messages can be used for both passive and active banking operations. A client automatically receives information about his account balance after a certain operation is performed.

b) GSM SIM Tool kit :
The GSM SIM Toolkit service can be only be used from a mobile phone supporting this technology. GSM SIM Toolkit is a software that evolves arbitrary changes in the mobile phone menu. Mobile phones now on the market support GSM SIM Tool kit after buying a special sim card and activating the permanent bank branch. The client can use this service.

c) WAP (Wireless Application Protocol) :
WAP is often compared to web pages although it is simplified. Unlike pages appearing on computer monitor, WAP presents it output on a small mobile phone. WAP Banking is not very popular. Only few banks are providing this service. .

Question 4.
What are the facets of electronic banking?
The following are the different facets of E-Banking.
1. ATM :
ATM is popularly known as Any Time Money Machine. The customer gets cash fast, withdrawal, transfer, payment of bills or cash deposit through ATM.

2. Tele banking (home banking) :
Customers can perform number of transactions from their telephone such as checking the balance in the accounts, transfer funds from one account to another, pay certain bills and order statements or cheque book etc.

3. E-mail banking :
Customers may communicate with bank by electronic mail or E-mail. The most frequently used service is sending account statement periodically to the clients mail box.

4. Network banking or online banking:
Internet or online banking is a facility provided by banks to enable the user to execute bank related transactions through internet. The people sitting at home can transact business and they need not visit bank.

5. Mobile banking:
The delivery of bank services to a customer through mobile (cell) phone is called mobile banking.

Question 5.
Explain the term Insurance? Explain the functions of Insurance.
The method of sharing of risk through economic cooperation is called insurance. Insurance may described as a social device to reduce or eliminate risk of loss to life and property. Insurance renders valuable services to commerce as well as to the society. Insurance covers many risks and uncertainties in the world of business and act as a boon to business firms.

Functions of Insurance :
1. Providing certainty :
Insurance provides payment of the risk of loss. There are uncertainties of happening of time and amount of loss. Insurance removes these uncertainties and the assured receives payment of loss. The insurer charges premium for providing certainty.

2. Protection:
The second function of insurance is to provide protection from probable chances of loss. Insurance cannot stop the happening of a risk or event but can compensate the losses arising out of it.

3. Risk sharing:
On the happening of a risk event, the loss is shared by all the persons exposed to it. The share is obtained from every insured member by way of premiums.

4. Assist in capital formation:
The accumulated funds of the insurer received by way of premium payments made by the insured are invested in various income generating schemes.

Question 6.
Explain the costs and benefits of Insurance.
The following are the benefits of Insurance :
i) Provides certainly :
Insurance helps the insured to convert his uncertainties into certainities by entering into contract of insurance. The payment of premium by insured enables to reduce the risk.

ii) Distribution of losses :
Insurance helps to distribute losses of any uncertain events among the large number of insurer’s. It enables to transfer the risks and spreads the financial loss of insured members over the whole insurers.

iii) Provides security:
It provides security to the insured against the risk of uncertain events. The insurance company guarantees the insured to compensate or indemnify the loss on the occurrence of an event in consideration for payment of premium.

iv) Generates capital :
Insurance reduces financial risks and losses by providing facilities of capital investment in various organisations.

v) Increases efficiency :
Insurance reduces the risk and increases the efficiency in business. It provides security for business community which in turn paves the way for growth and diversification of industry.

vi) Earns foreign exchange :
Insurance provides security to the international traders, shippers and banking institutions, thus paves the way for expansion of foreign trade. The increased foreign trade activities lead to securing foreign exchange which makes the country to become economically strong.

vii) Social security :
Insurance acts as an instrument to fight against evils of poverty, unemployment, disease, old age, sickness, disability, accidents, fire and similar other calamities of nature.

viii) Promotes thrift:
Insurance encourages the people to go for savings. It alter the people in their spending habits and makes them to save a certain sum of money regularly.

Costs of disadvantages of Insurance :
i) Sharing of loss:
The loss of one person should be shared by all other policy holders. But the sharing of loss is opposed by many people as their return on investment is reduced.

ii) Real value of money :
The maturity value of the policy after the specific period may be more but the real value of money is going to be less.

iii) Lack of confidence :
Many of the investors, who propose to save their money, prefer banks and other financial institutions. It is due to lack of confidence in the insurance companies and its policies.

Question 7.
What are the advantages of Life insurance policies?
In life insurance contract the policy amount is definitely, it is a question of time. The policy may mature during the life time of the assured or it may be paid on his death.

Advantages of life assurance policies :
1. Encourages savings:
The insured has to pay premium to insurance company every year. Otherwise, the policy will be cancelled. So, the insurance is helpful in creating the habit of saving money.

2. Exemption from income tax :
The amount paid as premium on a life insurance policy is allowed as deduction from income for calculating income tax.

3. Protection:
Life insurance provides protection to the family members if the policy holder dies suddenly. Life insurance builds a fund for the benefit of the dependents.

4. Credit facilities :
Insured can get loans against their policies to meet emergency needs. Life Insurance Corporation itself gives a loan against the policy to the insured at a lower rate of interest.

5. Surrender:
The life insurance company can surrender the life policy if the insured is unable to continue it. The insurance company can return some premium known as’surrender value’.

6. Meets the future needs:
An insurance policy can be helpful in providing funds for marriage and educational needs of insured children.

Question 8.
Explain the characteristics of marine Insurance.
Marine insurance is a contract whereby the insurer agrees to indemnify the insured against marine losses.

The following are the characteristics of Marine Insurance.
1. Fundamentals of general contract:
Marine insurance must have the fundamentals ieraj insurance i.e. insurable interest, utmost good faith, indemnity, subrogation, contribution, warranties, causa proxima etc.

2. Consideration :
Marine insurance is a contract between the insured and insurer. Hence, insured is under an obligation to pay certain amount periodically to the insurer in consideration for accepting risk.

3. Coverage for insurance:
In marine insurance, cargo ship and freight can be insured. It covers large number of risks such as sinking of the ship, burning of the ship, standing of the ship, collision of ships, sea decoits etc.

4. Mode of insurance :
In marine insurance, the insurance may be for a single journey or number of journeys or for specific period of time. Insurance must be renewed once the specific condition is lapsed.

5. Indemnify the losses :
In marine insurance, the insurers guarantees to indemnify the losses caused by sea perils only.

6. Condition for compensation :
In marine insurance the insured is compensated only when the loss is occurred to ship or cargo. It also includes third party insurance.

Question 9.
Define Fire Insurance. Explain characteristics.
According to Asbury, Fire insurance is defined as “It is a contract of insurance by which the insurer agrees for consideration to indemnify the insured upto a certain extent and subject to certain terms and conditions against loss or damage by fire which may happen to the property of the insured during a specified period”.

Features of fire insurance :
1. Contract of indemnity:
The fire insurance contract is a contract of indemnity and insured cannot claim more than the value of goods lost or damaged by fire or the amount of policy whichever is less.

2. Lawful consideration :
There must be consideration in fire insurance contract. The consideration is paid by the insured, which is called premium. Thus the essential element of fire insurance contract is premium received from the insured.

3. Insurable interest:
The insured must have insurable interest in the property or goods insured against fire. He must have insurable interest at the time of taking the policy and also at the time when the loss occurs and claim is filed for compensation.

4. Claim over residue :
The scrap or damaged goods after the fire accident automatically pass on to the insurer after the payment of claim under fire insurance.

5. Cause of accident:
The loss must be the out come of fire or ignition. No other reason for loss of property is accepted for settlement of claim.

6. Utmost good faith:
In fire insurance contract, both insured and insurer must have utmost good faith on each other.

AP Inter 2nd Year Commerce Study Material Chapter 3 Business Services

Question 10.
Briefly state the advantages and disadvantages of road transportation.
Advantages of Road transport: The following are some of the merits of Road transport.
1. Low capital:
It requires lesser capital for constructing roads. Roads are maintained by government and local authorities.

2. Low maintenance :
The maintenance charges of the road carriers are much less than the cost of railways.

3. Flexible :
Road transport is flexible. The route and timing can be adjusted to the individual requirements.

4. Suitable for short distance :
It is more economical and quicker for carrying goods and people over short distance.

5. Door-to-door delivery:
Road transport provides door-to-door delivery service for industries. Goods can be loaded at sellers doors and unload at buyers door.

6. Service to rural areas :
Exchange of goods between villages and towns are made possible by road transport.

7. Feeder to other modes of transport:
All the movement of goods begin and ultimately end by making use of roads.

8. High speed :
Road transport reduces the effective duration of the transit.

Disadvantages :
1. Less reliable :
Road vehicles are less reliable for long distance to travel because of the breakdowns and road congetions.

2. Accidents and breakdown :
There are more chances of accidents and breakdown in case of motor transport.

3. Lesser speed :
The speed of motor transport is comparatively slow.

4. Limited carrying capacity :
Load carrying capacity of road transport is limited.

5. More expensive :
The road is more expensive than railway transport for long distance travel.

6. Instable rates:
The rates charged by the road carriers are not stable. They need to charge with market.

Question 11.
State various advantages and disadvantages of Railway transportation.
Advantages of railway transport:

  1. Railway transport facilitate long distance travel and transport bulky and heavy goods.
  2. It is quick and more regular form of transport because it helps in the transportation of goods with speed and certainty.
  3. It helps in the industrialisation process of a country by easy transportation of coal and raw materials at cheaper rates.
  4. It helps in the quick movement of goods from one place to another at the time of emergencies like famines and scarcity.
  5. It encourages mobility of labour and thereby provides a great scope for employment.
  6. Railway is the safest form of transport. The chances of breakdown and accidents of railways are less as compared to other modes of transport.
  7. The carrying capacity of the railways is extremely large. Moreover, its capacity is elastic which can be easily be increased by adding more wagons.

Disadvantages :

  1. The railways require a large investment of capital. The cost of construction, maintenance* and overhead expenses are very high as compared to other modes of transport.
  2. Railway transport is not flexible. The routes and timings cannot be adjusted to the individual requirements.
  3. Rail transport cannot provide door-to-door service as it is tide to a particular track.
  4. Railway transport is unsuitable and uneconomical for short distance and small tariff of goods.
  5. It involves much time and labour for booking and taking delivery of goods through railways.

Very Short Answer Questions

Question 1.
ATM means Automatic Teller Machine. An ATM is an unmanned device located on or off the bank premises. The operation mechanism is that ATM is inserted into ATM, the terminal reads and transmits the tape data to a processor which activate the account. It works 24 hours a day, 7 days a week. ATM are being used to withdraw, deposit and transfer of funds.

Question 2.
Online Banking.
It is also called as internet banking. It is a facility provided by banks that enable the user to execute bank related transactions through internet. People sitting at home can transact business.

Question 3.
Tele Banking.
Customers can perform a number of transactions from their telephone such as they can check balances and statement information, transfer funds from one account to another, pay certain bills and order statements, cheque book etc.

Question 4.
Mobile Banking. [A.P. Mar 17]
This type of service is provided free of cost to all the customers. Under this the customer can access his bank account on the mobile screen for the services such as checking the balance, ordering a demand draft, stop payment or viewing last five transactions. To avail this facility the customer requires to have a mobile phone with WAN facility.

Question 5.
Electronic Banking.
The concept of E-banking will enable anyone to transact with bank from anywhere such as home or office at any time convenient to him, which can be beyond the banking hours. Electronic banking is banking with the use of electronic tools and facilities and through electronic delivery channels.

Question 6.
Differentiate Insurer and Insured.
The party who agrees to pay money on the happening of an event is called insurer. The party who seeks protection against the risk by paying premium is called insured.

Question 7.
What is premium?
It is the money which is paid periodically by the insured to the insurer in consideration for which the insurer gives protection to the insured.

AP Inter 2nd Year Commerce Study Material Chapter 3 Business Services

Question 8.
Define Insurance.
Insurance is the pooling of fortuitous losses by transfer of such risks to insurers, who agrees to indemnify insured for such losses, to provide other precuniary benefits on the occurrence or to render service connected with the risk”.

Question 9.
Insurance company undertakes the risk according to its capacity. If a company undertakes more risks than its capacity, then it tries to share the risks with some other insurance company. When insurance company insurer complete or part of the risk with other insurance company, then it is called re-insurance.

Question 10.
Double Insurance.
When more than one insurance policy is taken on the same subject matter, it is called double insurance. In life insurance, any number of policies can be taken by the insured upon his life. He can collect full amount on all the policies. But this is not the case with fire and marine insurance. He is entitled to the compensation of the actual loss only.

Question 11.
What is subrogation?
According to this principle, the insurer after compensating the loss of insured, the right of ownership on damaged goods is shifted from insured to insurer, i.e., insurance company.

Question 12.
What is proximate cause?
According to this principle, the loss is caused by nearest and direct factor, then only the insurer will have to bear the loss. The principle is useful in deciding the actual cause of loss when number of causes have contributed for occurrence of loss.

Question 13.
What is insurable Interest?
A person cannot enter into contract of insurance unless he has insurable interest. It is essential feature of insurance. Without the insurable interest the contract of insurance will be treated as a gambling contract. A person has insurable interest on own life or life of his wife.

Question 14.
Endowment polity.
This policy is taken up for a specific period. The policy will mature at the expiry of specific period or attainment of particular age or on the death of the insured whichever is earlier.

Question 15.
Whole life policy.
This policy runs throughout the life of the insured. The sum assured under this policy is payable only after the death of the insured. The premium is low and it is meant to protect the family. The insured will have to pay the premium throughout his life even at the old age when he is not earning.

Question 16.
Name the subject matters of marine insurance.
Subject matter of marine insurance are

  1. Cargo or the goods on transhipment
  2. Hull
  3. Freight

Question 17.
What is cargo insurance?
The cargo while being transported by ship is subject to many risks. These may be at ports i.e., risk of theft, loss of goods on voyage etc. Thus an insurance policy can be issued to cover against such risk to cargo.

Question 18.
What is freight insurance?
If the cargo does not reach the destination due to damage or loss in transit, the shipping company is not paid freight charges. Freight insurance is for reimbursing the loss of freight to the shipping company i.e., insured.

Question 19.
Essential of fire insurance.
Essentials of fire insurance are :

  1. It is a contract of insurance.
  2. There must be consideration.
  3. The object of the contract should be indemnify the assured for the loss caused by damage or destruction of property by fire.

Question 20.
National Highway.
National highways are meant for internal transport. These roads also connect state capitals, major cities etc. The National Highway Authority has the responsibility of development, maintenance and operation of the national highways. These roads encompass a road length of about 65,000 kms.

Question 21.
Pipe Lines.
Pipe line transport is used for the movement of liquid commodities. Crude oil, natural gas and other petroleum products are transported through pipe lines. Pipe lines offer continuous movement at a relatively low cost. They fuel are efficient, dependable and involves less losses and damage. It can be operated all around the clock (24 x 7).

Question 22.
Bonded warehouse.
Bonded warehouses are owned and operated by port trust authorities. It is located near the port. It is a place where importers store goods till customs duties are paid or goods are re-shipped to other destination without being brought into the country.

Question 23.
Two significance of warehouse.
Advantages of warehouses.

  1. It serves the business men who have very limited space.
  2. Some warehouses indirectly offer financial assistance.

Question 24.
Cash credit.
A cash credit is an agreement where by a bank agrees to lend money to the borrower upto a certain limit. The amount is credited to the account of the borrower. The borrower draws money as and when he needs. Interest is charged on the amount actually drawn.

Question 25.
Bill discounting.
The holder of a bill or drawer may be in urgent need of cash before the due date. In such circumstances, he can sell or discount the bill to the bank at lesser amount than the actual.

AP Inter 2nd Year Commerce Study Material Chapter 3 Business Services

Question 26.
Recurring deposit.
In Recurring deposit, the depositor is required to deposit a fixed amount of money every month for a specific period. After the completion of the specific period, the consumer gets back the deposited amount along with the cumulative interest accrued on the deposit.