Sources of Business Finance Test - 49

LIC was set up in 1956 under the LIC Act, 1956 after nationalizing 245 existing insurance companies.

A holder of GDR can at any time convert it into the number of shares it represents. The holders of GDRs do not carry any voting rights but only dividends and capital appreciation.

Dividend is paid only on shares.

Dividend is paid out of the profit of the company. Dividend is that part of the profit which is paid to the shareholders (Equity and Preference shareholders). Investors also see "dividend payment" as a sign of a company's strength.

Owners' funds primarily consist of equity shares, preference shares, and retained earnings. These represent the capital contributed by the owners/shareholders of the company, either through direct investment (equity and preference shares) or through the accumulation of profits (retained earnings). 

Loans from financial institutions are primarily obtained for funding long-term capital projects such as expansion, modernization, or acquisition of fixed assets. These loans provide businesses with the necessary funds for investment in their growth and development over an extended period.

Interest rates on loans from financial institutions and commercial banks are typically variable, meaning they can fluctuate over time based on prevailing market conditions, changes in benchmark rates, and the creditworthiness of the borrower.

Trade credit is the credit extended by suppliers to buyers for the purchase of goods and services. It allows buyers to defer payment for purchases for a specified period, usually on agreed-upon terms, such as net 30 days.

Public deposits are deposits raised directly from the general public rather than from specific institutional investors or shareholders. These deposits are typically solicited by non-banking financial companies (NBFCs), housing finance companies, and other similar entities to raise funds for their operations. Public deposits offer an alternative source of funding for these institutions and are often used to meet short-term financing needs or to support business expansion.

Funds raised through loans or borrowings are considered borrowed funds. These funds are acquired by entering into agreements with lenders, such as banks or financial institutions, where the borrower agrees to repay the borrowed amount along with any applicable interest within a specified period. Borrowed funds typically include bank loans, debentures, bonds, or other forms of debt financing. Unlike equity financing, borrowed funds represent an obligation that must be repaid by the borrower, often with interest, and do not confer ownership rights in the company.

Public deposits typically offer higher interest rates compared to traditional bank savings accounts and may have flexible repayment terms based on the agreement between the company and the depositors. However, they are unsecured in nature, meaning they do not require collateral.