CBSE

Class XI Business Studies

Time: 3 hrs Max. Marks: 90

General Instructions:
i. All questions are compulsory.
ii. Marks for questions are indicated against each question.
iii. Question Nos. 1–8 are very short answer questions carrying 1 mark each. They are
required to be answered in one sentence each.
iv. Question Nos. 9–14 are short answer questions carrying 3 marks each. Answers to
them should normally not exceed 50–75 words each.
v. Question Nos. 15–18 are also short answer questions carrying 4 marks each.
Answers to them should normally not exceed 150 words each.
vi. Question Nos. 19–23 are long answer questions carrying 5 marks each. Answers to
them should normally not exceed 150 words each.
vii. Question Nos. 24–27 are long answer questions carrying 6 marks each. Answers to
them should normally not exceed 200 words each.
viii. Answers should be brief and to the point, and the above word limits should be
adhered to as far as possible.

1. Insurance belongs to which of the following types of industry? [1]

a. Primary
b. Secondary
c. Tertiary
d. None of the above

2. Which form of business organisation provides limited liability to its members and
unlimited liability to its head? [1]
a. Sole proprietorship
b. Partnership
c. Cooperative society
d. Hindu undivided family

3. Which kind of deposit is raised directly from the public? [1]

4. What is OPC? [1]

5. Which of the following does not come under the World Bank group? [1]
a. International Court of Justice
b. International Monetary Fund
 c. International Development Association
d. International Labour Organisation [1]

6. Which of the following is the classification of itinerants? [1]

a. Hawkers
b. Street traders
c. Cheap jacks
d. All of the above

7. What is the principle followed in a cooperative society? [1]

8. Cottage industries are well-known industries in rural areas. State any two features of
the same. [1]

9. Commerce is a kind of business activity. Write a brief note on it. [3]

10. Explain any one factor which can explain the need for pollution control. [3]

11. The quality of the environment is important for all of us; thus, it is our collective
responsibility to protect it from getting spoiled, whether it is the government or
consumers or business firms. In the given context, state some laws introduced by the
government on protection of the environment in India. [3]

12. What are the different roles played by a minor in a Hindu Undivided Family and in a
partnership firm? [3]

13. Name the industries specified under the first schedule of the Development and
Regulation Act 1951 engaged in the manufacture or production of goods. Give a brief
outline on them. [3]

14. Although India may not be eager to have cordial relations with neighbouring
countries, it still trades with them. Why does it do so? [3]

15. Kinjal’s neighbourhood is surrounded by many shops such as a newspaper seller

shop and an electronics shop. Help her to identify the type of small-scale retailer
under which these businesses belong. Also explain the differences among them. [4]

16. Arjun has an enormous unused area near his house in a village. He asks his friend if
he could use it for any purpose which would earn him some money for his family. His
friend suggests that he allow traders to stock their material for a certain period of
time and in turn charge them for the same.
a. Which term is being referred to in the above paragraph? Define the same. [1]
b. State its various functions. [3]
17. Nitin wants to start a fast food business. He asks his uneducated father for some
amount to establish his business. His father states that the food business does not
require money as food can be prepared from home. In this context:
a. What do you understand by the term business finance? [1]
b. Why do you think that a business needs funds for its establishment or its
running? [3]

18. People of rural India faced discrimination for ages, while those in urban India were
given opportunities to improve their living. However, after some time, the Indian
government realised the need to restore regional balance in the country. How did the
government bring about changes in this context? [4]

19. ‘A society has its own objectives for the promotion of economic interests of its
members in accordance with cooperative principles.’ Which term is being referred to
here? State its characteristics. [4]

20. The public sector consists of different types of organisations. Among those
organisations, many of them prefer government-based organisations compared to
others. Give reasons. [5]

21. Radhika had recently shifted to another area which boosted the wholesale market
around it. Although she was happy to buy items at a wholesale price, she started
missing the retail stores present in her previous area. She realised that those stores
played an essential role in her shopping. Do you think these stores can play such a
role? If yes, why? [5]

22. A bank offers services such as accepting deposits and lending loans to the public and
various companies. Which type of bank is described here? State its functions. [5]

23. Describe different types of financial instruments used in international financing. [5]

24. Harsha has been continuously hearing about online trading and its benefits.
However, she is sceptical about using it as she is unaware of the ways it is done. Her
friend (You) are an online trader. She asks for your help. Explain to her the
procedure performed for online trading. [6]

25. A customer’s preference for a product declines after a certain period because of some
competitors’ policies or change in taste. In such cases, it is difficult for a
businessperson to correctly anticipate consumer preferences. As a result, he or she
always faces the risk of unforeseen fluctuations in demand. This leads to a possibility
of occurrence of loss in the business.
a. Which aspect of business is cited in the example? [2]
b. State the nature of the aspect of business mentioned above. [4]
26. Westernisation has impacted India and its people in an enormous way. As a result,
many other nations have also become aware of various products available in India for
their usage. Thus, to attract foreign customers, the government has set up various
organisations in the country which would promote a country’s foreign trade. Name
these organisations and explain each of them briefly. [6]

27. Kirti along with her class visited an industrial area on their college field trip. She was
amazed with the sheer size of the firm and the machinery used for the production. She
was excited and wanted to update her father (small-time businessman) regarding the
same. She asked her father to set up their business in a similar fashion. However, her
father informed her that it would not be possible for them to do so because of the
various problems they face being a small-scale business. Explain in detail the problems
faced by such small-scale firms. [6]
 CBSE
Class XI Business Studies
Solution

Answer 1
Insurance belongs to the tertiary industry because it facilitates the removal of obstacles
with respect to risk of loss or damage of goods or services due to accidents, thefts and
fire.

Answer 2
The karta (head) in a Hindu undivided family business has unlimited liability, while the
members have limited liability. This is because the karta is the eldest member of the
family and has the responsibility of making all the decisions for the business. However,
the liability of other members is limited to their share in the business.

Answer 3
Public deposits are directly raised from the public by organisations to finance both
medium and short-term financial requirements. These deposits provide higher interest
rates as compared to bank deposits. Reserve Bank of India regulates the acceptance of
public deposits.

Answer 4
OPC refers to ‘one person company’. This new type of entity was introduced by a 2013
Act where only one person is the member of the company. It is an entity which allows a
person to form a company neither public nor private.

Answer 5
International Monetary Fund (IMF) does not come under the World Bank group. In fact, it
is the second international organisation after World Bank. It was set up to provide a
system of international payments and to adjust exchange rates among national
currencies.

Answer 6
The term itinerant refers to retailers who do not have any permanent place to run their
business. Examples: Hawkers and pedlars, periodic market traders, cheap jacks and
street traders

Answer 7
The principle of one man, one vote is followed in a cooperative society. This right is
equally provided to all the members irrespective of the amount of money contributed by
them.

Answer 8
Features of cottage industry:
1. Owned and organised by individuals having private resources.
 2. Less or minimal capital is required in these units.

Answer 9
After manufacturing and production comes the task of distribution of goods. Activities
which fall under the purview of commerce involve helping directly or indirectly in
distributing goods and services from the producers to the users or ultimate consumers.
Sometimes, high-in-demand goods are produced at one place and need to be circulated
and distributed to consumers living at different places. In such situations, commerce or
commercial activities take a lead in distributing and delivering the goods. Thus, the major
commercial activities are transport, advertisement, packaging, warehousing, banking and
communication. Hence, we can say that the gap between producers and consumers is
removed by commerce. Commerce can then be further classified into trade and
auxiliaries to trade.

Answer 10
A factor which can explain the need for pollution control is reduced risk of liability.
Whenever there is any kind of environmental damage or human resource damage caused
by the release of toxic solid, liquid or gaseous waste from factories, the polluting firms are
required to pay hefty fines. Thus, if they install pollution control devices, then they could
avoid paying compensation to parties affected by pollution as well as save the
environment.

Answer 11
Laws enacted by the Directive Principles of State Policy in the Constitution of India on
protection of environment are
 The Wildlife Protection Act, 1972
 The Air (Prevention and Control of Pollution) Act, 1974, amended in 1974 and
1988
 The Environment (Protection) Act, 1986
 The Water (Prevention and Control of Pollution) Act, 1974, amended in 1974 and
1988

Answer 12

Joint Hindu Family Partnership Firm

Can become a member right Cannot be a partner in a

after birth partnership firm
Minor

Enjoys equal ownership over Can be admitted to the benefits

the inherited property just of the partnership firm with
like the remaining members the consent of all the other
of the family partners
Answer 13

Under the first schedule of the Development and Regulation Act, 1951, industries which
engaged in the manufacture or production of goods are
1. Micro enterprise: The investment for plant and machinery is up to 25 lakh rupees
in these enterprises.
2. Small enterprise: The investment for plant and machinery is more than 25 lakh
rupees, but it does not exceed 5 crore rupees.
3. Medium enterprise: The investment for plant and machinery is more than 5
crore rupees, but it does not exceed 10 crore rupees.

Answer 14
Reasons for trade between nations:
i. Overcome the limitation of scarcity: Natural resources are not equally available
among nations. Some nations may be rich in minerals, while other nations may be
rich in agricultural products. So, the nation which faces a shortage of oil and
petroleum products such as India can import from the nation which is abundant in
the production of that product. This enables different nations to bridge the gap
which they may face due to the shortage of certain goods.
ii. Maximise the profit through better utilisation of resources: Some nations
which have surplus natural resources at low price can export to other nations to
earn good value for their product. Certain nations import goods which are
expensive to produce within the nation at a low rate from other nations.
Therefore, every nation can maximise their profit by either import or export of
goods for better utilisation of available resources.
iii. Maintain price stability: Demand and supply of goods in the international market
are controlled by exporting the surplus to other nations which are scarce in those
goods.

Answer 15
Street traders and street shops are businesses which belong to the category of small-scale
retailers.

Street Traders Street Shops

Small retailers selling cheap products on Small shops situated on the streets or
the streets. roadside selling branded or cheap
products.

They are mostly found at places with They are usually available on every
heavy population or at crowded places. street.

Do not have a permanent establishment. Have a permanent establishment.

 Examples: They deal in vegetables, Examples: They deal in garments,
newspapers and accessories. electronic goods and grocery items.

Answer 16
a. The term referred to in the given paragraph is ‘warehousing’. Warehousing refers
to a storage unit which is used to store various goods in an orderly manner so as to
preserve their worth and quality. It not only provides storage space but also
logistics services which tend to be profitable and economical.
b. Functions of warehousing:
i. Consolidation: It receives products from various places. It helps in
consolidation of all the materials received and then sends it across as a single
product package to the desired location.
ii. Bulk division: It also helps in separating bulk quantities and sending it in
smaller packages to specific locations.
iii. Piling up of stocks: Many a times, packages received at the storehouse are
not required immediately. So, these products are then stored at the
warehouse and sent to the desired locations as and when required.

Answer 17
a. Business finance refers to funds required for carrying out business activities.
b. Small business owners and big entrepreneurs face the biggest challenge when
raising funds. Finding the right funds and growing eventually is what everyone is
looking out for. As the business grows, there is an inevitable greater call for funds
to finance expansion and to meet its day-to-day expenses. Liquid cash is needed to
meet short-term requirements during the operating cycle. These operations
include purchase of premises and payment of wages and salaries. Funds required
to finance the expansion of a business are also considered part of business finance.
Reasons why a business needs funds:
i. Fixed capital requirements: Funds required to purchase fixed assets such
as building, machinery, furniture and fixtures are termed fixed capital
requirements of an organisation. The quantum of funds required varies from
business to business depending on the nature and size of a business.
ii. Working capital requirements: Funds required for meeting day-to-day
business activities such as purchasing raw materials, payment of wages and
salaries to employees and payment of rent are known as working capital
requirements of an organisation.

Answer 18
The government maintains a regional balance in the country in the following ways:
i. Public sector enterprises were purposely set up in rural areas. This created
employment opportunities for the rural people and led to the growth and
development of rural areas.
 ii. Setting up of four major steel plants helped in accelerating economic development.
It also enhanced ancillary industries by bringing about balanced development in
all areas.
iii. The government also established infrastructure facilities such as roads, bridges
and railways in rural areas. This made rural areas well connected with the other
parts of the country, thereby leading to development of all regions in a balanced
way.

Answer 19
The term referred to in the given paragraph is ‘cooperative organisation’. According to
Indian Cooperative Societies Act, 1912, cooperative organisation refers to a society
wherein people voluntarily form an association for mutual help.
Characteristics:
i. Voluntary association: Anyone having a similar/common interest is allowed to
join this association irrespective of their religion, caste or gender. A person can
join a society according to his requirement and may leave in the same manner.
ii. Legal status: Registration is compulsory for the society, thereby giving it a status
of separate legal identity. It can enter into contracts and has the right to sue others
or can be sued by others.
iii. Limited liability: The liability of the members is limited to the amount of capital
invested by them.
iv. Democratic and secular control: It follows the principle of ‘one man, one vote’,
thereby maintaining equality among its members. Also, the members of a
particular religion cannot dominate the affairs of the society.

Answer 20
Reasons why government company form of organisation is preferred over other types of
organisation in the public sector:
i. Easy formation: A government company needs no bill to be passed in the
Parliament for its formation. It can be formed through a simple procedure under
the Indian Companies Act, 1956.
ii. Separate entity: It has its own identity which is separate from that of the
government. It has properties in its name and has the right to enter into contracts.
iii. Administrative autonomy: A government company has minimum interference
from the government. It has maximum autonomy in its actions and decision-
making processes, while the other companies are controlled in some manner or
the other by the government.
iv. Efficiency: Government companies are efficient in managing their business and
hence are more accountable as compared to other public sector enterprises.
v. Competition: They provide healthy competition to private sector enterprises by
providing goods and services at reasonable prices and help in restricting
unhealthy business practices.
Answer 21
Yes, retail stores do play an essential role.
Retail shops are shops where retailers sell their products to final consumers. Retailers
buy goods directly from manufacturers or wholesalers in bulk quantities. They then sell
these goods to final customers in small quantities.
Reasons for their importance:
i. Regular availability of goods would be hampered without them.
ii. Customers would be deprived of choosing from a wide range of products which
are provided by retailers.
iii. Information regarding new products is passed on by retailers to consumers
allowing them to make important decisions regarding products.
iv. They are usually located near residential areas and remain open for long hours
making it easier for customers to approach them.
v. They also provide after-sales services such as home delivery, credit facilities and
more.

Answer 22
Functions of commercial banks:
i. Accepting deposits: Banks play an essential role in the economy as they borrow
money from the public in the form of deposits and pay interest, and they lend
money to the public or investors and get interest. They accept various types of
deposits from the public through current accounts, fixed accounts and savings
accounts.
ii. Lending funds: Banks use the deposited money by providing loans and advances
to people or investors who are in need of money. The advances can be in various
forms such as overdrafts, cash credits, term loans and trade bills. The amount to be
lent depends on the amount of money deposited in the bank.
iii. Cheque facility: A cheque is an inexpensive means wherein a bank is directed to
pay a certain amount of money from a person’s account to another. Cheques are of
two types—bearer cheques and crossed cheques. This is an essential service
provided by banks to the public.
iv. Remittance of funds: This function involves transferring of funds from one bank
to another using pay orders, bank drafts or mail transfers.
v. Allied services: Banks also provide various other services which are known as
allied services. These include bill payments, locker facilities, helping customers in
the share market, underwriting services, dividend collection and insurance
premium payment.

Answer 23
Financial instruments used in international financing:
i. Commercial banks: These banks are located all over the world and provide
foreign currency loans to firms. Different types of loans and services are provided
by banks to different countries.
 ii. Global Depository Receipt (GDR): In return for the local currency shares
deposited in an account, the depository bank issues receipts, accounted in some
foreign currency (US dollars), known as global deposit receipt (GDR). It is termed a
negotiable instrument listed freely in the foreign stock exchange and can be
bought and sold like any other security. It can be listed and traded on the stock
exchange of any country other than the United States.
iii. American Depository Receipt (ADR): A negotiable depository receipt or
certificate which represents the shares of companies based in the United States.
Unlike GDR, it can be listed only in the U.S. stock exchange and can only be issued
to American citizens. American investors thus gain the ability to purchase shares
in international firms.

Answer 24
Online trading refers to the act of buying and selling products through the Internet and is
available to each person interested in shopping online. There are three stages involved in
online trading. First is the pre-purchase stage which includes advertising and information
seeking. Second is the purchase/sale stage wherein the price is negotiated, the deal is
confirmed and the payment is made. The last stage is the delivery stage.
Let us understand each stage in detail:
i. Registration: Before one can begin with online shopping, one has to register on the
website by filing up a registration form. The username and password will be
assigned which can be used for further processes.
ii. Order placement: After your account is registered, you can check out the stuff you
are interested in buying and place them in the shopping cart for buying later or
directly proceed to the cart. This is similar to what we do in a physical store.
iii. Payment: The next step is to choose the payment option once the items are decided.
Various payment options are
a. Cash on delivery (COD): As the name suggests, it means that the buyer can
make payment for the order at the time of delivery of the product.
b. Cheque: Payment is through cheque. After the product is booked, the vendor
can arrange for the cheque to be picked up from the buyer. On realisation, the
goods can be delivered to the buyer.
c. Net banking transfer: This process allows the buyer to transfer funds to the
vendor’s account over the Internet. After the payment is received, the vendor
delivers the product.
d. Credit or debit card: Plastic money is majorly used for online shopping. In
this payment mode, the person needs to feed in his card information after
which he will receive a one-time password (OTP) on his smartphone which
needs to be entered to complete the payment transaction. After confirmation,
the vendor starts the delivery process.
e. Digital cash: It is an electronic form of currency which does not have any
physical presence. This cash can be used as real currency in cyberspace.
Availing of this cash can be done from the bank by transferring the amount
 (in the form of cheque or draft) equal to the digital cash needed. These funds
are stored on the computer. It can then be used as cash to make online
transactions.

Answer 25
a. Business risk may be defined in terms of the possibility of occurrence of losses or
insufficient profits because of various unexpected events which cannot be
controlled by business.
b. Nature of business risk:
i. Essential part of business: Risk is an essential part of business and cannot be
avoided. Every type of business faces risk although the degree of risk may vary.
A business risk can be reduced but cannot be eliminated.
ii. Depends on the nature of business: The degree of risk which a business faces
depends on the nature and size of the business. A large-scale business is more
prone to risks than a small-scale one. For instance, a business which produces
goods of daily use, such as soap and toothpaste, faces a lower business risk than
a business which produces fashion goods which are highly dependent on
consumer preferences.
iii. Reward for bearing risk: A business earns profit for undertaking risk. ‘No pain,
no gain’ goes hand-in-hand with ‘no risk, no gain’ in business. Higher the degree
of risk involved, higher the amount of profit earned and vice versa.
iv. Arise due to uncertainties: Change in government policies or natural
calamities can be some uncertain reasons which can cause a business risk as the
outcome of such events are unknown to all.

Answer 26
Organisations set up in the country by the government for promoting the country’s foreign
trade:
i. Department of Commerce is an apex body which looks into India’s external trade.
It was set up to ensure that measures were taken to develop commercial relations
with other countries. As a result, policies relating to external trade and import and
export were formulated.
ii. Export Promotion Councils (EPCs): As the case may be, these are registered under
the Companies Act or the Societies Registration Act. This council is a non-profit
organisation whose objective is to increase the country’s exports of specific
products under its jurisdiction.
iii. Commodity Boards: They are set up by the Government of India with the purpose
of promoting production of traditional commodities and their export. These boards
augment EPCs.
iv. Export Inspection Council (EIC): The Government of India under Section 3 of the
Export Quality Control and Inspection Act, 1963, brought this Council into existence
with the intention to improve export-related practices.
 v. Indian Trade Promotion Organisation (ITPO): Indian Trade Promotion
Organisation (ITPO) was established on 1 January 1992 by the Ministry of
st

Commerce under the Companies Act, 1956. It was formed by merging the Trade
Development Authority and the Trade Fair Authority of India. It was created so that
regular interaction can be managed among the government, trade and industry.
vi. Indian Institute of Foreign Trade (IIFT): It was set up in 1963 by the Government
of India as an autonomous body. It has recently been recognised as a deemed
university. It conducts training in international trade, research in areas of
international business and analyses and provides data related to international trade
and investments.

Answer 27
Problems faced by small-scale industries:
i. Insufficient funds: One of the major issues faced by small-scale industries is that of
insufficient funds to carry out activities. They have to heavily depend on local
financial resources for funds. These locals exploit people thereby depriving them of
adequate funds. Banks too are not eager to provide loans to borrowers who do not
have adequate collateral security.
ii. Raw materials: Procurement of raw materials is another problem faced by these
industries. Unavailability of raw materials at local markets forces them to buy
materials at higher rates. Unacceptable and unaffordable rates force the buyers to
buy low-quality materials thereby affecting their quality of production. Also, when
buyers purchase goods in small quantities, they are left with no margin to bargain,
which increases their cost. Because of lack of space for storage, materials cannot be
bought in bulk. In addition, a poor transport system and a faulty supply mechanism
often result in irregular supply of raw materials.
iii. Lack of managerial skills: A business operated on a small scale does not consist of
people with managerial skills. Many of these people possess sound technical
knowledge; however, they are not good in marketing the output. Also, it becomes
burdensome for them to take care of all functions at the same time when they do not
have enough knowledge of the same.
iv. Marketing: It is one of the most important activities in a business. Small-scale
businesses may not have expertise in marketing; hence, they need to be promoted
through middlemen. Middlemen exploit owners of small-scale enterprises by paying
them low prices and delaying their payments unnecessarily.
v. Quality: These businesses are sometimes unable to control their quality of
products. This is because they focus on cutting costs and keeping prices low. This
hampers the quality of product.
vi. Technology: Use of outdated technologies lowers productivity. It makes operations
unfeasible and leads to uneconomical production.