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MCQ Based Questions on Class 11 Business studies for chapter-8 Sources of Business Finance

Find below MCQ Based Questions on Class 11 Business studies for chapter-8 Sources of Business Finance all the MCQ questions are explained with correct answers and explanations. To check the correct answer click on the answer. 

Find MCQ questions for class 11 Business studies-8 Sources of Business Finance

Business Studies - MCQ on Sources of Business Finance

Class XI

Q. 1. Equity shareholders are called

I. Owners of the company

II. Partners of the company

III. Executives of the company

IV. Guardian of the company


I. Owners of the company

Explanation: They are Owners of the shares of the company

Q. 2. The term ‘redeemable’ is used for

I. Preference shares

II. Commercial paper

III. Equity shares

IV. Public deposits


I.Preference shares

Explanation: Redeemable preference shares which will be repaid after a certain date

Q. 3. Funds required for purchasing current assets is an example of

I. Fixed capital requirement

II. Plugging back of profits

III. Working capital requirement

IV. Lease financing


III. Working capital requirement The financial requirements of an enterprise do not end with the procurement of fixed assets.

Q. 4. ADRs are issued in

I. Canada

II. China

III. India




Explanation: The depository receipts issued by a company in the USA are known as American Depository Receipts.

Q. 5. Public deposits are the deposits that are raised directly from

I. The public

II. The directors

III. The auditors

IV. The owners


I. The public

Explanation: Public deposits are raised from public

Q. 6. Under the lease agreement, the lessee gets the right to

I. Share profits earned

II. Participate in the by the lesser management of the Organization

III. Use the asset for a Specified period

IV. Sell the assets


III.Use the asset for a Specified period

Explanation: A lease is a contractual agreement whereby the owner of an asset (lessor) grants the right to use the asset to the other party (lessee).

The lessor charges a periodic payment for renting of an asset for some specified period called lease rent.

Q. 7. Debentures represent

I. Fixed capital of the company

II. Permanent capital of the Company

III. Fluctuating capital of the Company

IV. Loan capital of the company


Iv. Loan capital of the company

Explanation: Debenture means loan for the company which it takes from the public

Q. 8. Under the factoring arrangement, the factor

I. Produces and distributes

II. Makes the payment on The goods or services behalf of the client

III. Collects the client’s debt

IV. Transfer the goods from or account receivables one place to another


III.Collects the client’s debt

Explanation: Factoring has emerged as a popular source of short-term funds in recent years. It is a financial service whereby the factor is responsible for all credit control and debt collection from the buyer and provides protection against any bad-debt losses to the firm.

Q. 9. The maturity period of a commercial paper usually ranges from

I. 20 to 40 days

II. 60 to 90 days

III. 120 to 365 days

IV. 90 to 364 days


IV.90 to 364 days

Explanation: It is an unsecured promissory note issued by a firm to raise funds for a short period The maturity period of commercial paper usually ranges from 90 days to 364 days. Being unsecured, only firms having good credit rating can issue the CP and its regulation comes under the purview of the Reserve Bank of India.

Q. 10. Internal sources of capital are those that are

I. Generated through outsiders

II. Generated through loans such as suppliers from commercial banks

III. Generated through issue Of shares

IV. Generated within the business


IV.Generated within the business

Explanation: Internal sources of funds are those that are generated from within the business

Q. 11. Over Capitalization is the result of

I. Under estimating the rate of capitalization

II. Payment of excessive amount of goodwill.

III. Raising more money than can be profitably raised.

IV. All of the above.


: I.All of the above.

Explanation: Over capitalization means collecting extra fund that it needs.

Q. 12. Under Capitalization refers to

I. Increase in the market value of the share

II. Payment of dividend at low cost

III. Share holders defaulting in payment of call money

IV. Actual capitalization being lower that proper capitalization


IV. Actual capitalization being lowers that proper capitalization

Explanation: Under capitalization means collecting less funds that it needs

Q. 13: What type of Debenture Company cannot issue.

I. Registered debenture

II. Bearer debenture

III. Participating Debentures

IV. Irredeemable Debentures


III.Participating Debentures

Explanation: Preference shares which have a right to participate in the further surplus of a company shares which after dividend at a certain rate has been paid on equity shares are called participating preference shares

Q. 14: A profit which is not likely to contribute to the current profit, Should be financed by

I. Debenture

II. Public deposit

III. Preference share capital

IV. Equity Capital


IV.Equity Capital

Explanation: It is collected for long term purpose and it for particular reason which may benefit the company in long run

Q. 15: Identify the non redeemable security among the following.

I. Debenture

II. Public deposit

III. Preference share capital

IV. Equity Shares


IV.Equity Shares

Explanation: These securities are not redeemable because they are not paid back.

Q. 16: Redeemable Shares could be

I. Cumulative

II. Non- Cumulative

III. Participating

IV. All of them


: IV.All of them

Explanation: Redeemable shares could be any as they will be redeemed back.

Q. 17: Preference share carries a preference right in respect of.

I. Dividend

II. Repayment of Capital

III. Both

IV. None


:III. Both

Explanation: Preference right is carried in Dividend as well as Repayment of Capital

Q. 18: Capital gearing means

I. Working Capital

II. Trading on equity

III. Watered Capital

IV. Fixation of proper ratio between two more type securities.


IV.Fixation of proper ratio between two more type securities.

Explanation: When a company fixes to raise funds from different sources than it fixes a ratio between securities which is called capital gearing

Q. 19: the Term capitalization is used with ref to

I. Partnership

II. joint stock company

III. co-operative society

IV. None of the above


II.Joint Stock Companies

Explanation: Shares can be issued only by a joint stock company.

Q. 20: The rate of dividend is not fixed in

I. Debenture

II. Public deposit

III. Preference share capital

IV. Equity Shares


II.Public Deposit

Explanation: Rate of interest on deposits is usually higher than that offered by banks and other financial institutions but it is not fixed

Q. 21: share warrants may be issued by

I. Public Limited Companies

II. Private limited Companies

III. Companies Limited By guarantee

IV. All of the above


I.Public limited company

Explanation: Share warrants are issued only by Public limited company

Q. 22: Premium on issue of shares can be used for

I. Distributing profit

II. Issue of bonus shares

III. Paying the amount of directors

IV. None of these


II. Issue of bonus shares

Explanation: The premium may be used to issue bonus share

Q. 23: Balance of forfeited Shares is

I. Revenue reserve

II. Capital reserve

III. Reserve

IV. None of these


II.Capital reserve

Explanation: Capital reserve is the balance offorfeited Shares

Q. 24: Profit can be fraudulently inflated by

I. suppression of sales returns

II. treating capital expenditure as revenue

III. Over estimation of liabilities

IV. Omission of pre paid expenses


: II.treating capital expenditure as revenue

Explanation: When capital expenditure s treated as revenue than a company can show profit

Q. 25: Bonus share can be issued by company

I. Out of the revenue created by revaluation of fixed asset.

II. Out of Share Premium not collected in cash

III. Without any provision for it in the AOA built out of the company

IV. Out of free reserves built out of genuine profit


IV Out of free reserves built out of genuine profit

Explanation: Bonus share can be issued by company from the profits which are not used

Q. 26.Debenture holders are known as

I. Debtors

II. Creditors

III. Share holders

IV. Partners



Explanation They have given loan to the company so they are basically creditors

Q. 27.Public deposits can be raised for a maximum period of

I. One year

II. Two years

III. Three years

IV. Four Years


III.Three years

Explanation The maximum period for public deposits Three years

Q. 28.Risk capital is provided by

I. Debenture shareholder

II. Equity shareholder

III. Preference shareholder

IV. Fixed Capital


II. Equity shareholder

Explanation Risk capital is a contribution of equity shareholder

Q. 29 Financial Disintermediation results in large

I. Access to financial institutions

II. Participation of foreign financial institutions

III. Free based income

IV. Securities related income


III.Free based income

ExplanationFree based can be earned by Financial Disintermediation

Q. 30: Identify the source of finance that does not pose a burden on a company’s finances

I. Debenture

II. Public deposit

III. Loan from Financial Institution

IV. Retained earnings


IV.Retained earnings

Explanation: Retained earning is ploughing back the profits for reinvestment

Q. 31.: Commercial papers represent a new financial instrument issued for the purpose of

I. Project financing

II. Working capital

III. Leasing of plant and equipments

IV. Imports of capital goods


II.Working capital

Explanation: It is an unsecured promissory note issued by a firm to raise funds for a short period The maturity period of commercial paper usually ranges from 90 days to 364 days.

Q. 32.Equity linked debt securities converted into equity after a specified period




IV. None



Explanation: Foreign currency convertible bonds a holder of FCCB has the option of

either converting them into equity shares at a predetermined price or exchange rate, or retaining the bonds.

Q. 33.An international source of finance for Indian companies is

I. Euro Issue

II. Dollar Issue

III. Rupee Issue

IV. Yen Issue


I.Euro Issue

Explanation: Securities are issued in foreign currency and are offered for sale internationally

Q. 34.Trade credit refers to

I. Credit by bank

II. Creditor of trade

III. Extended one trader to another for purchasing goods or services

IV. None


III. Extended one trader to another for purchasing goods or services

Explanation: Trade credit facilitates the purchase of supplies on credit. The terms of trade credit vary from one industry to another and are specified on the invoice.

Q. 35.Fixed charges on the assts of the company are called

I. Secured Debentures

II. Unsecured debenture

III. Redeemable debenture

IV. Irredeemable debenture


I.Secured Debentures

Explanation: Secured debentures are such which create a charge on the assets of the company.

Q. 36.The source f medium term finance is

I. Trade credit

II. Commercial banks

III. Financial institution

IV. Customer advance


III. Financial institution

Explanation: It is raised for period d more than one year and less than five years for launchinga new project.

Q. 37.GDR is

I. Global Depository Receipt

II. Great depository receipt

III. Global Depository Reserve

IV. None


I.Global Depository Receipt

GDR is a negotiable instrument and can be traded freely like any other security.

Q. 38.What has been set by government for the rehabilitation of sick units







Explanation: Indian investment bank of India was set to support sick units