Rajasthan Board RBSE Class 11 Business Studies Chapter 4 Trade Risk and Uncertainty
RBSE Class 11 Business Studies Chapter 4 Textual Questions and Answers
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RBSE Class 11 Business Studies Chapter 4 Multiple Choice Questions
Question 1.
In the Arabic language, ‘Risk’ is called –
(a) Possibility
(b) Loss
(c) Forecast
(d) Earning livelihood
Answer:
(d) Earning livelihood
Question 2.
“Risk is a calculated uncertainty.” Which scholar said this?
(a) Feeney Fayal
(b) Taylor
(c) Franknitto
(d) Bourne and Kurtz
Answer:
(c) Franknitto
Question 3.
Speculative Risk is –
(a) Possibility of risk
(b) Possibility of profit
(c) Possibility of both risk and profit
(d) Possibility of neither profit nor risk.
Answer:
(c) Possibility of both risk and profit
Question 4.
Which bank forms and implements the Monetary Policy?
(a) RBI
(b) SBI
(c) HDFC
(d) ICICI
Answer:
(a) RBI
Question 5.
Which is the second stage of risk management?
(a) Identification of risk
(b) Risk analysis
(c) Risk evolution
(d) The decision to bear the risk
Answer:
(b) Risk analysis
Question 6.
In which country was the world’s first credit rating agency established?
(a) Britain
(b) Russia
(c) India
(d) USA
Answer:
(d) USA
Question 7.
CRISIL was established in India in –
(a) 1991
(b) 1997
(c) 1987
(d) 2002
Answer:
(c) 1987
RBSE Class 11 Business Studies Chapter 4 Very Short Answer Type Questions
Question 1.
Give the meaning of the word ‘Risk’ in Arabic.
Answer:
In Arabic ‘Risk means ‘earning livelihood’.
Question 2.
How has Franknitto defined the word ‘Risk”?
Answer:
According to Franknitto, “Risk is a measurable uncertainty”.
Question 3.
What do you mean by Pure Risks?
Answer:
Pure risks are those risks where business suffers loss only.
Question 4.
Which monetary authority implements monetary policy?
Answer:
Reserve Bank of India.
RBSE Class 11 Business Studies Chapter 4 Short Answer Type Questions
Question 1.
How many types of risk are there on the basis of Insurance business?
Answer:
According to the Insurance business, there are two types of risk.
1. Net Risk – The type of risk where business suffers loss only.
2. Speculative Risk – The type of risk in which there is the possibility of incurring both gain and loss.
Question 2.
Give the meaning of term Risk.
Answer:
In the Arabic language, Risk means ‘earning the livelihood’. A business can earn profits only by bearing risks. It is an important part of any business and the one who does not have the capacity of bearing the risk cannot gain the profit.
Question 3.
Identify the two risks regarded as Economic Risks
Answer:
1. Tax Structure Risk – Any change in the tax structure by the government creates risk. Rebate in tax reduces the amount of risk and increase in tax increases the risk.
2. Monetary Policy Related Risk – Monetary Policy aims at controlling the amount of money and credit as well as the banking activities of a country. This policy can have both negative and positive impact on business risks.
Question 4.
Explain any two non – economic risks.
Answer:
1. Risks Related to Climate – Suitable temperature, rainfall, humidity, cold are the important parts of climate. Any imbalance in climatic features increases business risk. Less rainfall, extreme fluctuation in temperature, etc. affect the demand and supply of business commodities.
2. Risk Related to the Population – There is a direct effect of size of population, growth rate, age, sex, literacy level, etc. on business. The demand pattern and marketing strategies also undergo changes, increasing the possibility of risks.
RBSE Class 11 Business Studies Chapter 4 Essay Type Questions
Question 1.
Give the meaning of Risk. Explain the major economic risks.
Answer:
The word ‘Risk’ means the possibility of loss due to some calamity or disaster. This possibility gives rise to uncertainties and these uncertainties, in turn, give birth to risk.
According to Franknitto, “Risk is a measurable uncertainty”.
According to Bourne and Kurtz, “Risk is the possibility of loss or damage”.
Economic Risks:
Economic risks are those risks which directly affect the monetary and profit earning activities of the business. These risks can bring to an end the existence of a business.
Main Economic risks are as follows:
1. Tax Structure Risk – Tax structure includes various parts, viz. income tax, corporation tax, sales tax, estate duty, customs duty, etc. Any change in the tax structure by the government creates risk.
2. Risk Related to Liberalisation – It is an economic activity under which the rules, controls and prices are liberalised or relaxation are given in rules, controls with an objective to increase the rate of economic growth. This reduces certain risks in business but increases the risk related to market competition.
3. Monetary Policy related Risk – This policy aims at controlling the amount of money and credit as well as the banking activities of a country. Monetary policy is executed by the central bank of the country. Monetary Policy can have both negative and positive impact on business risk.
4. Risks Related to Economic and Trend Condition – Components like national income, economic development, employment conditions, the purchasing power of money, trade cycles, etc. have a direct impact on business risk.
5. Risks related to Currency and Capital Market – When the financial market works favourably in the right direction, adequate funds are available for development and this reduces the risk of fund management.
6. Risk Resulting from Privatization – It is a process of favourable and positive change in the economic sphere. This reduces certain risks in business but increases the risk related to market competition.
Question 2.
“Business is a game of risk”. Comment on those risks which affect the business?
Answer:
“Business is a game of risk”. Whether it is a small or big business, the risk is its important part. Any business can earn profit only by undertaking risks only. The risk is related to factors such as market, finance, marketing, production, technology, business environment and factors such as social, legál; economic, political, technological. After identifying business risk, their intensive evaluation is done.
Risks which affect the business are:
1. Economic Risks – These are the kinds of risks which directly affect the monetary aspect of the business.
The main economic risks are as follows:
- Risk related to the flow of money and capital market.
- Risks related to the tax structure.
- Risks related to privatisation and liberalisation.
- Risk related to monetary policy.
- Risks related to economic conditions and trends.
Non – Economic Risk:
Business is not merely an economic system, but it is also a social and human organisation. It is an important channel of creating and shaping cultural values, thinking styles, social beliefs, social trends, etc. A business has to work continuously in the economic, social and cultural environment of a country.
Some non – economic risks are:
- Risks related to physical features and climate.
- Risks related to demographic changes.
- Risks related to environmental balance.
- Risks related to political instability.
- Risks related to the socio-cultural environment.
Question 3.
Explain different economic and non – economic risks.
Answer:
Following are different economic and non – economic risks:
1. Risks relating to liberalization – It means an activity under which the rules, controls and prices are liberalised or relaxation is given in rules, controls, with an objective to increase the rate of economic growth.
2. Monetary Policy Related Risk – This policy aims at controlling the amount of money and credit as well as the banking activities of a country.
3. Risks Related to Economic Trends and Conditions – It includes components like national income, level of economic development, employment conditions, the purchasing power of money, trade cycles, etc., which have a direct impact on business risks.
4. Risks Related to Currency and Capital Market Condition – When the financial market works favourably in the right direction, adequate funds are available for development and this reduces the risk of fund management.
Non – Economic Risks
1. Risk Related to the Population – Business is not untouched from the changes in the level of population of a country. The increase in population can also be a problem resulting in more risk.
2. Risk Related to Climate – Suitable temperature, rainfall, humidity, cold, are important parts of climate. Any imbalance including less rainfall, extreme fluctuation in temperature, etc. affects the demand and supply of business commodities.
3. Risk related to Political Instability – Political changes may bring changes in the business structure. Business risk increases with political unrest and especially in the condition of ‘President’s Rule’. Only a stable political environment provides the desired protection and promotion to business.
4. Risk related to the socio-cultural environment – In the modern world, many organised curriculums have been started to encounter and minimise risks, such as – risk management, strategy management, etc. Though the risks can’t be fully eliminated, one can minimise their negative effects through efficient risk management, and thus, the existence of business can be protected.
RBSE Class 11 Business Studies Chapter 4 Additional Questions and Answers
RBSE Class 11 Business Studies Chapter 4 Multiple Choice Questions
Questions 1.
‘Risk is the possibility of loss or damage’. Who said this?
(a) Bourne and Kurtz
(b) Haney Fayal
(c) Franknitto
(d) Taylor
Answer:
(a) Bourne and Kurtz
Questions 2.
Risk is divided into how many parts in the Insurance business?
(a) 2
(b) 3
(c) 4
(d) None of them
Answer:
(a) 2
Questions 3.
Pure Risk means –
(a) No possibility of gain
(b) Possibility of loss
(c) Both (a) and (b)
(d) None of them
Answer:
(c) Both (a) and (b)
Questions 4.
Economic Risk is –
(a) Related to the tax structure
(b) Risk related to the liberalization
(c) Related to monetary policy
(d) All of the above
Answer:
(c) Related to monetary policy
Questions 5.
Components of Tax Structure are –
(a) Income Tax
(b) Corporate Tax
(c) Sales Tax
(d) All of the above
Answer:
(d) All of the above
Questions 6.
What is the effect of rebate in tax by the government on risk factor?
(a) Reduction
(b) Increase
(c) No effect
(d) None of the above
Answer:
(a) Reduction
Questions 7.
The component related to the economic trend and climate of the nation is –
(a) National Income
(b) Purchasing Power of Money
(c) Business Cycle
(d) All of the above
Answer:
(d) All of the above
Questions 8.
Which is not a non – economic risk?
(a) Monetary Policy
(b) Analysis of risk
(c) Rate of risk
(d) Decision of risk-taking
Answer:
(a) Monetary Policy
Questions 9.
Credit Rating is called –
(a) Personal Loan
(b) Credit Test
(c) Both (a) and (b)
(d) None of them
Answer:
(c) Both (a) and (b)
Questions 10.
At first, Credit Rating Agency in Developing countries was established in which country?
(a) Sri Lanka
(b) India
(c) Nepal
(d) Bhutan
Answer:
(b) India
Questions 11.
Credit Rate Agency was established in India in the year –
(a) 1988
(b) 1847
(c) 1970
(d) 1987
Answer:
(a) 1988
Questions 12.
World’s first credit rating agency was established in –
(a) In 1841
(b) In 1988
(c) In 1970
(d) In 1987
Answer:
(a) In 1841
Questions 13.
Fitch Reading, Moody Investor Service and Standard and Poor are credit rating agencies of which country?
(a) Japan
(b) Malaysia
(c) America
(d) Australia
Answer:
(c) America
Questions 14.
The Regulation of Credit Rating Agencies in India is done by –
(a) RBI
(b) SEBI
(c) SBI
(d) None of them
Answer:
(b) SEBI
Questions 15.
India’s Credit Rating Agency is –
(a) CRISIL
(b) ICRA
(c) CARE
(d) All of the above
Answer:
(d) All of the above
Questions 16.
Credit Rating for different states, namely. Maharashtra, Tamil Nadu, Madhya Pradesh, Andhra Pradesh and Kerala is done by –
(a) CRISIL
(b) CARE
(c) ICRA
(d) None of them
Answer:
(a) CRISIL
RBSE Class 11 Business Studies Chapter 4 Very Short Answer Type Questions
Question 1.
What do you mean by Risk?
Answer:
The possibility of incurring a loss due to some calamity or disaster.
Question 2.
“Risk is the possibility of loss or damage”. Who said it?
Answer:
Bourne and Kurtz.
Question 3.
Business Insurance is divided into how many parts? Name them.
Answer:
Business Insurance is divided into 2 parts –
- Pure Risk
- Speculative Risk
Question 4.
What is Speculative Risk?
Answer:
Type of risk where the possibility of loss and gain is equal.
Question 5.
The risk found in every business is divided into how many parts?
Answer:
Into two Parts:
- Economic Risk
- Non – Economic Risk.
Question 6.
What are Economic Risks?
Answer:
The risks that directly affect the monetary and profit – earning activities of the business.
Question 7.
What is the effect on management of the fund, in the absence of currency and capital?
Answer:
The risk of managing the fund increases
Question 8.
What is the effect of Tax Structure formed by the government on the risk factor?
Answer:
Rigid Tax structure increases the risk
Question 9.
In developing countries, which policy is used as an important tool to manage public debt, determine the suitable interest rate, etc.?
Answer:
Monetary Policy.
Question 10.
Mention two Economic Risks.
Answer:
- Current and Capital Risk.
- Risk Related to Tax Structure.
Question 11.
Which steps are taken under the activities implemented for managing the Risks?
Answer:
- Identification of Risk
- Analyzing the risk
- Evolution of risk
- The decision to bear the risk.
Question 12.
Which country among the developing countries were the first to establish a credit rating agency?
Answer:
India.
Question 13.
Which are the biggest credit rating agencies of the world?
Answer:
- Fitch Reading
- Moody Investors Services
- Standard and Poor.
Question 11.
The main Indian Credit Rating agencies are –
Answer:
- CRISIL
- ICRA
- CARE
RBSE Class 11 Business Studies Chapter 4 Short Answer Type Questions (SA – I)
Question 1.
Explain the term ‘Risk’.
Answer:
Business is an economic activity related to the future. Future is uncertain and therefore these uncertainties affect the business and such uncertainties are called ‘Risk’.
Question 2.
Explain the risks related to conditions of the money and capital market.
Answer:
When the financial market works favourably in the right direction then adequate funds are available for development and this reduces the risk of fund management. The unfavourable condition of the market and capital market increases the risk of fund management.
Question 3.
What is the effect of any change in the tax structure on the business activities?
Answer:
Tax structure includes various parts, viz. income tax, corporation tax, sales tax, state duty, customs duty, etc. Any change in the tax structure by the government creates risk. Rebate in tax reduces the number of risks and an increase in tax increases the risks.
Question 4.
What is Monetary Policy? Explain.
Answer:
Monetary policy is an integral part of the economic policy of a nation. This policy aims at controlling the amount of money and credit as well as the banking activities of a country. In India, RBI makes and implements monetary policy. In developing countries, monetary policy is used as an important tool to manage public debt, determine the suitable interest rate, formation and expansion of financial institutions, to maintain price stability, etc.
Question 5.
“Political Environment is the controlling ingredient of Industry and Business”. Explain.
Answer:
The business risk increases with the political unrest, and especially in the condition of “President Rule”. Only a stable political environment provides the desired protection and promotion to business. Therefore, the political environment is the controlling ingredient of Industry and Business.
Question 6.
How can the risk and uncertainty of business be reduced? Explain.
Answer:
By properly identifying and analyzing, with the help of correct planning and controlling. Entrepreneur’s Managerial skills, optimistic attitude and skilled knowledge are very important to reduce the risk.
RBSE Class 11 Business Studies Chapter 4 Short Answer Type Question (SA – II)
Question 1.
How do demographic risks affect business activities?
Answer:
Business does not remain untouched from the changes in the level of population of a country. Size of population, growth rate, age, sex, literacy level, etc. directly affect business activities. For example, the business in which the different classes of customers are differentiated on the basis of their caste, religion, language, etc., it becomes difficult to fulfil the wants of heterogeneous customers. In the same way, with the change in demographics profile, the demand pattern and marketing strategies also undergo changes, increasing the possibility of risks.
Question 2.
Comment on the risks related to the socio-cultural environment.
Answer:
A business can’t ignore the benefits, values, ethical assumptions and lifestyle of different sections of society. The concept of consumerism on one hand and the concept of social responsibility on the other have made business consumer and society oriented. Therefore, business risks have increased today. Today, a businessman has to continuously assess the socio-cultural environment to understand human wants. A businessman has to respect human society, its culture, its value system, its social norms, etc.
Question 3.
How is risk evaluated in business?
Answer:
Risk evaluation is another step in business after analyzation, It includes unique product specification, what is better in comparison of other product? What is the income level? Which are consumers that can adapt to it easily? The capital invested in it includes what risk? What are the possible alternatives? Will it be worth the credit rating? This is how risks are evaluated in a business.
Question 4.
Why is venture capital established by the government?
Answer:
The students of modern technical education have creative ideas to do something new, but due to lack of capital. they can’t give a practical shape to their ideas. Therefore, the government has created a venture capital fund to provide the required capital to convert their abstract ideas and techniques into concrete form. Presently, the government and private banks, many companies of the financial market.
Encourage such entrepreneurs by providing capital for their business. Venture capital is a way in which investors support entrepreneurial talent with finance and business skills to explore market opportunities in exchange for an equity share in the business. The investor companies of venture capital fund not only provide equity capital but also provide support in running the business, production management, marketing and sales management.
Question 5.
How do ‘Credit Rating Agencies’ help the directors?
Answer:
Credit rating establishes a link between risk and return. They thus provide a yardstick against which to measure the risk inherent in any instrument. An investor uses the rating to assess the risk level and compares the offered rate of return with his expected rate of return to optimize risk-return trade-off. In India, the main credit rating agencies are CRISIL, ICRA and CARE.
Question 6.
How do Credit Rating Agencies help investors?
Answer:
Credit Rating establishes a link between risk and return. In this way, it can be assessed that how much risk is included, well in advance. In this way, the investor can ensure the rate of return on the investment made by them. And thus it helps them to make the decision, whether they want to invest in the company or not. In India, the main credit rating agencies are – CRISIL, ICRA and CARE.
RBSE Class 11 Business Studies Chapter 4 Essay Type Questions
Question 1.
How can risk be managed in a business? Explain.
Or
Explain the Risk Management system in detail.
Answer:
The first step in risk management is to identify the risks. Here, it is to be made clear that risk is related to which factor – to market, to finance, to marketing, to production to technology. or to business environment factors, namely- social, legal, economic, political or technological.
Process of Risk Management:
1. Risk Identification – Risk Identification is the first step in managing the risk. Here, it is to be made clear that risk is related to which factor- to market, finance, to marketing or to which business environment.
2. Risk Analysis – After identification, proper analysis needs to be done. Under risk analysis. it is seen that to what extent it will be successful to produce a new product and to launch it in the market.
3. Risk Evaluation – Under the third step of risk management. the evaluation of risk is done. For example, assessment of the unique features of a new product, its superiority over existing products, its price level, is done. It is evaluated that which target group of consumers will be the first to accept it. what amount of risk is involved in investing the fund in it? What are the possible obstacles? On the basis of the evaluation of these important points. steps are selected to minimize the risk involved.
4. The decision on Bearing Risk – The last step is to decide to bear the risk. It is important to note that all the business risks can’t be eliminated but on a priority basis. steps can be taken to control and minimise them.
Question 2.
Explain Venture Capital and Credit Rating of Business risk.
Answer:
1. Venture Capital – The students of modern technical education have creative ideas to do something new, but due to lack of capital. they can’t give a practical shape to their ideas. Therefore, the government. has created venture capital fund to provide the required capital to convert their abstract ideas and techniques into concrete form. Presently the government, and private banks, many companies of the financial market. encourage such entrepreneurs by providing capital for their business. The investor companies of the venture capital fund not only provide equity capital but also provide support in running the business.
2. Credit Rating – With the globalisation of the economy, the business risk has become more widespread and extended in open economies. Now, the scope of the business has increased to money, capital and foreign exchange markets. Therefore, it is getting more complex to earn profits in business. And on the other hand, investors who supply their funds for business also want to ensure the rate of return on the investment made by them in the securities of newly established companies.
Whether their investment will be profitable or not? For all these decisions. credit rating is important. Credit rating is also called creditworthiness of the investment. It provides a yardstick against which to measure the risk inherent in any instrument. These days, credit rating is done not only for equity shares, preference shares. debentures. bonds, commercial papers, issued by the companies, but it is also done for rating economies of different countries, development and chit fund, banks and for rating the real estate owners.