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CHAPTER: 2 BUSINESS SERVICES

BUSINESS SERVICESBanking Meaning:Bank is an institution which deals in money and credit. It accepts deposits from the public and grants loans and advances to those who are in need of funds for various purposes. Banks encourage saving habits among individuals and there by make funds available for their use as and when required. Banks also help in the nation’s development by providing credit to farmers, small scale industries and self employed people as well as to large business houses which lead to balanced economic development of the country.It also helps to raise the standard of living of the people in general by providing loans for purchase of consumer durable goods, houses, cars, etc.A banker is one who undertakes banking activities. Banking is an activity which involves accepting of deposits for the purpose of lending and investing. Banking activities are considered to be the life blood of the national economy. Without banking services, trading and business activities cannot be carried on smoothly.Banks are the distributors and protectors of liquid capital which is of vital significance to a developing country. Efficient administration of the banking system helps in the economic growth of the nation.Definitions:Oxford Dictionary: “Bank is an establishment for custody of money, which it pays out on customer’s order.”

Banking Regulation Act, 1949: “Banking Company is one which transacts the business of banking which means the 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.”

Types of Banks (C3RIEDS2)C- Central Bank:

Central Bank is the apex bank in the banking structure of a country. It plays an important role in a country’s monetary and banking system.

Central Bank is the most important bank of a country. The main function of this bank is to maintain economic stability of the country and in

reference to the underdeveloped countries, its main function is to bring economic development.

This bank issues currency, controls other banks, whenever they face any problem. It is therefore known as the banker’s bank. In India, the Reserve Bank of India, in England, The Bank of England and in America, The

Federal Reserve Bank are the Central Banks.C- Commercial Banks

These banks accept the deposits from the general public and provide short term loans to traders, manufacturers and businessmen by way of cash credits, overdrafts, etc.

Commercial banks provide various services like collecting cheques, Bills of exchange, remitting money from one place to another place, etc.

Nowadays some of the commercial banks are also providing housing loans on a long term basis to individuals.

Commercial banks are of three types i.e. Public sector banks, Private sector banks and Foreign Banks.

(a) Public Sector Banks: These are banks where majority of the stake is held by the Government of India or Reserve Bank

of India. Examples of Public Sector Banks are State Bank of India, corporation Bank, Bank of Baroda, Dena

Bank, etc.

(b)Private Sector Banks: In case of private sector banks majority of share capital is held by private individuals. These banks are registered as companies with limited liability. E.g. The Janmmu & Kashmir Bank Ltd., Bank of Rajasthan Ltd., Global Trust Bank, Vyasa Bank,

etc.

(c)Foreign Banks: These banks are registered and have their headquarters in a foreign country but operate

their branches in our country. Foreign Banks operating in our country have increased since the financial reforms of 1991.

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Prof Bhambwani’sRELIABLE CLASSES / S.Y.J.C. / OC / CHAPTER- 2/ BUSINESS SERVICES

Examples of the foreign banks operating in our country are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express, Standard Chartered Bank, etc.

C- Co-operative Banks: Co-operative Banks are financial institutions registered under the co-operative societies

Act. The main objective of such a bank is to give credit to economically backward people. In India co-operative banks are the main source of rural credit. These banks encourage saving habit among the villagers and give loans at a low rate of

interest. There are three types of co-operative banks at different levels.

(a) Primary Credit Societies: These are formed at the village or town level with borrower and non borrower

members residing in one locality. The operations of each society are restricted to a small area so that members know

each other and can keep a watch over the activities of all the members to prevent frauds.

(b) District Central Co-operative Bank: These banks operate at district levels having the primary credit societies belonging

to the same district as their members and functions as a link between the primary credit societies and state co-operative banks.

(c) State Co-operative Banks: These are the apex co-operative banks in all the states of the country. They mobilize funds and helps in its proper channelization among various sectors. The money reaches the individual borrowers from the state co-operative banks

through the central co-operative banks and primary credit societies.

R- Regional Rural Banks: These banks were established in 1975 to enhance the banking facilities in the rural areas. In these banks, the features of commercial and co-operative banks are found. These banks are sponsored by some commercial banks. 50% of their capital is provided by

the central Government. 35% by the Commercial bank concerned and 15% by the state government concerned. The main functions performed by these banks are to provide loans to small traders, small farmers and for the development of agricultural activities.

I- Indigenous Bankers: In India, Indigenous or native. Domestic bankers have been carrying on banking functions for generations before properly

organized commercial and other banks started functioning. They charge a very high rate of interest on loan. They mainly deal in “hundis” and promissory notes. Hundis are regarded s native Bills of Exchange.

E- Exchange Banks: Exchange banks are mainly concerned with financing foreign trade. Main functions of Exchange bank are remitting money from one country to another country,

discounting of foreign bills, helping import and export trade, etc. Bank of Tokyo, Bank of America are examples of exchange banks working in India.

D- Development Banks: Business often requires medium and long term capital for purchase of machinery and

equipment, for using latest technology or for expansion and modernization. Such financial assistance is provided by Development Banks. They also undertake other development measures like subscribing to the shares and

debentures issued by Companies, in case of under subscription of the issue by the public. Examples of Development Banks are Industrial Finance Corporation of India (IFCI) and State

Financial Corporation of India (IFCI) and State Financial Corporation (SFCs).

S- Specialized Banks: There are some banks which cater to the requirements and provide overall support for setting up business in specific areas. Exim Bank, SIDBI and NABARD are examples of such banks.

(a) Export Import Bank of India (Exim Bank) For setting up business for exporting products or importing products from foreign countries for sale in our country, EXIM Bank ca provide the required support and assistance. The bank grants loans to exporters and importers and also provides information about the international market.

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(b) Small Industries Development Bank of India (SIDBI) : To establish small scale business unit or industry, loan on easy terms can be availed through SIDBI. It also finances modernization of small scale industrial units, use of new technology, etc. The main aim of SIDBI is to promote, finance and develop small scale industries.

(c) National Bank for Agricultural and Rural Development (NABARD) : It is an apex institution for financing agricultural and rural sectors. For people engaged in agricultural or other activities like handloom weaving, fishing, etc. NABARD can provide credit both short term and long term through regional rural banks.

S- Savings Bank: This bank accepts small savings from public who have fixed income. It creates the saving

habit among people. In India, post office saving bank is one of the saving banks. Commercial bank and Co-

operative Bank also play a role of saving bank. Make a list of banks operating in your area and classify them according to their functions.

What are the Functions of Commercial Banks?Commercial bank performs diverse types of functions. It satisfies the financial needs of the sectors such as agriculture, industry, trade, etc. It plays a very significant role in a process of satisfying economic and social needs. The functions performed by banks are changing according to changing time and recently they are becoming customer centric and widening their functions.Functions of the commercial banks are divided into two categories/ types:

1. Primary Functions2. Secondary Functions.

1. Primary FunctionsA. Accepting DepositsThe most important activity of a commercial bank is to mobilize deposits from the public. People who have surplus income and savings, find it convenient to deposit the amounts with banks in different types of deposit accounts which are as follows:Types of Deposits

1. Fixed Deposits:A fixed amount is deposited for a fixed period and it is called fixed deposit account. It is also known as term deposit. The fixed period of time may be from 30 days to 5 years and above. The rate of interest on this account is the highest because the amount accepted is invested elsewhere for a long term by the bank. The depositor is given a fixed deposit receipt. If the depositor is in need of cash before the date of maturity, he can get a loan against the deposit.

2. Savings Account: This account, as the name suggests, is meant for promotion of savings. Persons having fixed and regular income can deposit their savings in this account. A savings account holder is not permitted to have frequent withdrawals from this account as it is meant for saving. The interest on this account is credited to the account once in every six months.

3. Current Account : In this account, a depositor can deposit money any number of times and can withdraw it as and when he requires it. In this account, generally business calls deposits the money. Generally, the bank does not pay any interest on this deposit. If the total amount deposited is less than the minimum amount required, then the bank can charge some service charges. Money is withdrawn from this account by cheque. A current account holder enjoys overdraft facility.

4. Recurring Deposit Account: In this type of account, a depositor deposits a fixed amount of money every month for a fixed period. The money is deposited on monthly basis. This money cannot be withdrawn before the expiry of a fixed term except in certain conditions. The amount of interest which is received on the money deposited in this account is re-deposited along with the principal. This account attracts higher interest in comparison to other accounts except Fixed Deposit Account.

5. Multiple Option Deposit Account: It is a type of Saving Bank Account in which deposit in excess of a particular limit gets automatically transferred into Fixed Deposit. On the other hand, in case adequate fund is not available in our Saving Bank Account so as to honour a cheque that we have issued, the required amount gets automatically transferred from Fixed Deposit to the Saving Bank Account. The balance amount continues as Fixed Deposit and earns interest as per existing rate of interest. One can earn higher rate of interest from a Fixed Deposit Account than from a Saving Bank Account.

B. Granting Loans and Advances : A banker receives money through its deposits at lower rates. Out of these deposits Commercial bank grants loans and advances to the members of the public and to the business community at a higher rate of interest.

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(i) Loans : A loan is granted for a specific time period. The loans are particularly granted to businessmen and members of the public against personal security, gold and silver and other movable and immovable assets. Generally commercial banks grant short term loans. But term loans i.e. loans for more than a year may also be granted. The borrower may withdraw the entire amount in lump sum or in instalments. However, interest is charged on the entire amount of loan.

(ii) Advances: An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally given for a short period of time. The purpose of granting advances is to meet day-to-day requirement of a business. Interest is charged only on the amount withdrawn and not on the sanctioned amount.

Types of Advances(a) Cash Credit : Under Cash Credit system, bank allows the borrower to draw amount

upto a specific limit. A limit of certain amount is sanctioned to the customer can withdraw this amount as and when required. Interest is charged on the amount actually withdrawn.

(b) Overdraft: Overdraft is a credit facility granted by bank to current account holders. A current account holder is allowed to withdraw more than amount of credit balance in his account. It is a temporary arrangement. Overdraft facility with a specific limit may be allowed either on the security of assets or on personal security or both. Bank charges interest on this facility. A current interest on this facility. A current account shows a debit balance where there is an overdraft.

(c) Discounting of Bills: A Bill of Exchange is a negotiable instrument. Banks provide short term finance by discounting bills i.e. making payment of the amount before the due date of the bills after deducting certain amount of discount. The party gets the funds without waiting for the date of maturity of the bills. In case the bill is dishonoured on the due date, the bank can recover the amount from the customer.

2. Secondary functions:In addition to the primary functions of accepting deposits and granting loans and advances, banks perform a number of other functions which are called secondary functions. They are of the following two types:

(a) Agency FunctionsAgency functions include the following:

(i). Collection of cheques, Dividends and interests : As an agent the bank collects cheques, drafts, promissory notes, interests, dividend, etc., on behalf of its customers and credit the amount to their accounts.

Customers may furnish their bank details to companies where investment is made in shares debentures, etc. So that the companies can directly send the warrant/cheques to the bank for credit to customer’s account.

(ii) Payment of rent, insurance premiums, etc : The bank makes the payment such as rent, insurance premiums, subscriptions, etc on standing instructions until further notice. Till the order is revoked the bank will continue to make such payments regularly by debiting the customer’s account ECS means electronic clearing system under which one time instruction is given to the bank for debiting / crediting the account.

(iii) Dealing in foreign exchange: As an agent, the commercial bank purchases and sells foreign exchange for customers as per RBI Exchange Control Regulations.

(iv) Purchase and Sale of Securities: Commercial banks undertake the purchase and sale of different securities such as shares, debentures, bonds, etc on behalf of their customer. They run a separate ‘Portfolio Management Scheme’ for their big customers.

(v) Act as trustee, executor of will, attorney, etc: The bank acts as executives of will, trustees and attorneys. It is safe to appoint a bank as a trustee than to appoint an individual. Acting as attorneys of their customers, they receive payments and sign transfer deeds for the properties of the customers.

(vi) Act as Correspondent: The commercial banks act as a correspondent of their customers. Small banks even get travel tickets, book vehicles, receive letters, et. On behalf of their customers.

(vii) Preparation of Income Tax Returns: They prepare income tax returns and provide advice on tax matters for their customers. For this purpose, they employ tax

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experts and make their services available to their customers.(viii) Bank Drafts: A Bank draft is a financial instrument with the help of which money

can be remitted from one place to another. Anyone can obtain a bank draft after depositing the amount in the bank. The bank charges commission for issuing a bank draft. For bank draft, funds are withdrawn directly from a bank’s fund and not from an individual account. It is less risky for a creditor.

(ix) Underwriting of shares : Underwriting services include guarantee by the bank to the company. In case the company shares are not sold, the bank will take the responsibility of the unsold shares. Bank charges commission for this service.

(x) Demat Account: Demat account facility has been introduced by commercial banks to facilitate the customers who are shareholders.

(a) To keep a record of their shareholding in electronic form.(b) To facilitate buying and selling of shares in the share market.

A statement of holding is issued to the account holder periodically for his information and records.

(B) Utility Functions:Utility functions of Banks include the following:

(i) Safe Deposit vault/lockers: Safety of valuables like jewels, documents, etc is provided by commercial banks by way of safe deposit valuts or lockers. ‘Lockers’ are small receptacles (cabinets) which are fitted in steel racks and kept inside ‘strong rooms’ known as valuts. These lockers are available on half yearly or annual rental basis.

(ii) Traveller’s Cheques: Traveller’s Cheques are used by domestic travelers as well as by international travelers. Bank issues travelers cheques to help carry money safely while traveling within India or abroad. Thus, the customers can travel without fear, theft or loss of money. Travellers cheques are more commonly used by international travelers so as to make their travel more safe and convenient.

(iii) Letter of Credit (L/C) : Letter of Credit is a payment document provided by the buyer’s banker in favour of the seller. This document guarantees payment to the seller upon presentation of documents mentioned in the Letter of Credit evidencing dispatch of goods to the buyer. The Letter of Credit is an important method of payment in international trade. There are four parties to a Letter of Credit.

(a) The buyer or the importer also known as Applicant.(b) The bank which issues the letter of Credit known as opening bank.(c) The seller in whose favour the Letter of Credit is issued also known as Beneficiary.(d) The Credit receiving bank.

(iv) Provides Trade Information : The commercial banks collect information on business and financial conditions etc for their customers which helps them to plan their strategy. Trade information service is very useful for those customers going for business with companies outside the country. It will help traders to know the exact business conditions, payment rules and buyer’s financial status in other countries.

(v) Gift Cheques : The commercial banks offer Gift cheque facilities to the general public. These cheques receive a wider acceptance in India. Under this system by paying equivalent amount one can buy gift cheque for presentation on occasions like wedding, Birthday, etc.Visit a nearby bank and collect information about banking facilities provided by them to the account holder.

What is E-Banking? And explain it types.E-banking refers to electronic banking. E-banking is also called as Virtual Banking for “Online Banking”, E-banking is a result of the growing expectations of bank’s customers. Under E-banking system, all the working of the banks is done on computerized system. An account holder can deposit or transfer the money through online trading i.e. there is no need to go to the bank to deposit the money or withdraw the money. The person can transfer his funds from one account to another through e-banking and the person can get information of his account on the computer itself. E-banking system makes the transaction of banking system much faster.

A-Automated Teller Machine (ATM): ATMs are electronic machines which are used by the customer himself to deposit or to withdraw cash. For using an ATM, the customer has to obtain an ATM card from his bank. The ATM card is magnetically coded. It can be easily read by the machine. To operate an ATM card, the customer has to insert the card in the

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machine, he has to enter the password (number). If the authentication or password is correct, the ATM permits a customer to make entries for withdrawal or for deposit. On completion of the transaction, the customer’s card is ejected from the machine.ATM provides 24 hours service and convenience for the bank customers. It is also beneficial for travelers. It is also beneficial for travelers as they can withdraw money from anywhere in the country or outside the country. ATM provides privacy in the banking transaction, so it is safe and not risky.

C- Credit Cards: Credit Cards (VISA or MASTER CARD) are issued by the bank to the persons who may or may not have an account in their bank. Credit cards are used to make payments for purchase so that the individual does not have to carry cash. Banks allow certain period to the credit card holder to make payment of the credit amount. The bank may charge a high rate of interest if payment is not made till the due date.

D- Debit Card: Banks are now providing Debit cards to their customers having savings or current account in the banks. The customers can use this card for purchasing goods and services at different places instead of cash. The amount paid through debit card is automatically debited from the customer’s account.

E- Electronic Fund Transfer (EFT): Under this system, money can be transferred from one account to another account. There can be Direct credits, which includes dividend on shares, interest on debentures, commission, salary, pension, etc and Direct debits which include telephone and electricity bills, loan instalments, insurance instalments, credit card dues, etc.

C- Core Banking: ‘Core Banking Solution’ or ‘Centralised Banking Solution’ is popularly known as CBS. CBS is that banking system which makes banking convenient by changing the status of a customer from ‘Customer of a Branch’ to ‘Customer of the Bank’ facilitating speedy and effective banking anywhere and at all times. In this system, a customer by opening a bank account in one branch (which has CBS facility) can operate the same account in all CBS branches of the same bank anywhere across the country.

I- Internet Banking: Computer and Internet are commonly used by the people. So as to facilitate them banks have started transactions over internet. The customer having an account in the bank can log on to the bank’s website and access his bank account. He can make payments for bills, give instructions for money transfers, fixed deposits, collection of bills, etc.

P- Phone Banking : Customer of the bank having an account can get information of his account, make banking transactions like fixed deposits, money transfers, demand draft, collection and payment of bills, etc. by using telephone. As most of the people are using mobile phones, phone banking possible through mobile phones. In mobile phone, a customer can receive and send messages (SMS) from and to the bank in addition to all the functions possible through phone banking.

N- National Electronic Funds Transfer (NEFT) : NEFT refers to a nation-wide system that facilitates individuals, firms and companies to electronically transfer funds from any bank branch to any individual, firm or company having an account with any other bank branch in the country, NEFT settles transactions in batches. The settlement takes place at a particular point of time. All transactions are held till that time. E.g. NEFT settlement takes place 6 times a day during the week days (9.30 am, 10.30 am, 12.00 noon, 1.00 pm, 3.00 pm, 4.00 pm) and 3 times during Saturdays (9.30 am, 10.30 am, 12.00 noon). Any transaction initiated after a given settlement time will have to wait till the next given settlement time.

R- Real Time Gross Settlement (RTGS): RTGS refers to fund transfer system where transfer of funds takes places from one bank to another on a ‘Real Time’ and on ‘Gross’ basis. Settlement in ‘Real Time’ means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. ‘Gross’ settlement means the transaction is settled on one to one basis without bunching or netting with any other transaction. This is the fastest possible money transfer system through the banking channel. The RTGS service for customers is available from 9.00 am to 3.00 pm on week days and from 9.00 am to 12.00 noon on Saturdays.

InsuranceIntroductionInsurance is a protection against financial loss arising on the happening of an unexpected event. As an individual’s life is subject to various risks in personal life, death by accident or premature death. In business, person’s business property is subjected to loss by fire, theft and natural calamities. Insurance is a device by which loss suffered from various risks to an individual can be minimised. Insurance provides indemnification against loss arising from happening of some event.

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MeaningInsurance is a contract entered between two parties i.e. the company assuring in the contract of insurance to compensate is known as insurer / assurer. While the person to whom such assurance is given is known as insured / assured. In this contract the insurer is bound to compensate for the specific loss to the insured who in consideration of which pays insurance premium.

1. A contract of insurance may be defined as ‘a contract between two parties whereby the insurer agrees to pay to the insured a certain sum of money on the happening of certain event or agrees to indemnify the insured or assured from losses arising from certain specified event.”

2. According to Insurance Act of 1938, Insurance is defined as “A provision which a prudent man makes against inevitable contingencies.”

Basic TermsInsured: The person to whom a compensation is to be paid, in case of loss is called the insured.

Insurer: The company that agrees to pay compensation on the happening of a specific event against the payment of regular premium is called the insurer.

Premium : Fixed amount to be paid to the insurer by insured.

Policy: The statement of contract between the insured and the insurer. It contains the terms and conditions of the insurance contract.

Subject matter of Insurance: It refers to the subject against which the policy is taken.(a) In life Insurance, the life of the assured is a subject matter.(b) In fire Insurance, the goods and assets or property of the insured is the subject matter.(c) In marine insurance the cargo or ship is the subject matter.

Claim. It is the demand made by the insured on the insurer to compensate for loss on the happening of the event.

Proposal : It is a written request by the proposer (insured) to the insurance company to issue an insurance policy.Principles of InsuranceInsurance is a contract between two parties. Hence, all the elements of a valid contract should be present in every insurance contract. Besides these elements, there are certain other principles also to be followed essentially at the time of entering into an insurance contract, which are as follows:

1. Principle of Utmost Good Faith (Uberrimae Fidei): “All types of insurance contracts require utmost good faith towards each other. The insurer and the insured must also disclose all material facts, clearly, correctly and completely.

If the insurer finds that certain material fact relating to the contract was not disclosed the insurer may avoid the contract, this principle is more important for life Insurance as the information disclosed will affect the decision of the Insurance Company to decide whether to accept of reject the proposal e.g. Mr. A takes Insurance Policy for Rs.10 Lakhs for himself. He had not disclosed his medical illness (heart problem) in the contract. Mr. A died with a heart attack after 2 years of taking the policy. The insurance company comes to know about Mr. A’s illness only after his death. Under these circumstances, Insurance company is not liable to pay any amount to the dependants of Mr. A, as the contract between Mr. A and insurance company is void. Mr. A did not follow the principle of utmost good faith. Hence, the insurance company can cancel the contract.

2. Principle of Insurable Interest: The insured must have insurable interest (financially) in the subject matter of insurance. In Life Insurance it refers to the life insured. In fire and General Insurance, it must be present at the time of occurrence of loss and in Marine Insurance, the insurable interest exists only at the time of the occurrence of the loss. The owner of the contract is said to have insurable interest as long as he is the owner. It is applicable to all contracts of insurance. Following are the cases of insurable interest.

(a) A person has insurable interest in his own life and his property.(b) A wife has insurable interest in the life of her husband(c) A businessman has insurable interest in the goods he deals with and in the business

property.(d) A creditor has insurable interest in the life of the debtors to the extent of loan given.(e) A partner has insurable interest in the life of other partners (Partnership firm).

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The subject matter of insurance must be a physical object and must be subject to risk. Absence of insurable interest will make the contract of insurance invalid. Insurable interest must be present at the time of taking he policy and at the time of making the claim. E.g. Owner of the house has insurable interest in his house, therefore, he insures the house.

3. Principle of Indemnity : Indemnity means a guarantee or assurance to put the insured in the same position in which he was immediately prior to the happening of the uncertain event. The insurer undertakes to make payment of actual loss incurred by the insured.Insurance contract is signed only for getting protection against unpredicted financial losses arising due to the future uncertainties. Insurance contract is not made for making profit out of the future uncertainties. Compensation is paid in proportion to the losses incurred. The amount of compensation is limited to the amount assured or the actual loss, whichever is less. It is applicable to fire, marine and general Insurance. However, in case of life insurance, the principle of indemnity does not apply because the value of human being cannot be assessed in monetary terms. e.g. If a person has insured his property for Rs.3 lakhs and it is destroyed by fire and actual loss is worth Rs.2 lakhs then he will be paid the actual loss of Rs. 2 Lakhs.

4. Principle of Contribution: This principle is a corollary to the principle of indemnity. It is applicable to all contracts of indemnity. Under this principle the insured can claim the compensation only to the extent of actual loss either from any one insurer or all the insurers. If one insurer pays full compensation then that insurer can claim proportionate claim from the other insurers e.g. (i) Mr. Raj insured his house worth Rs.60 lakhs with three insurance companies. A. Co. Ltd. Rs.10 lakhs, B. Co. Ltd. – Rs. 20 lakhs and C. Co. Ltd. – Rs.30 lakhs. At the time of loss incurred, the compensation will be paid by the insurance companies in the ratio of 1 : 2 : 3. (ii). Mr. S Insures his property worth Rs.1 lakh with 2 insurers, with A. Co. Ltd for Rs.90,000 and with B. Co. Ltd for Rs.60,000. Mr. S. actual property destroyed is worth Rs.60,000, then Mr. S can claim the full loss of Rs.60,000 either from A. Co. Ltd. or B. Co. Ltd. Or he can claim Rs.36,000 from A. Co. Ltd and Rs.24,000 from B. Co. Ltd. in the ratio of 3 : 2.

5. Principle of Subrogation : According to principle of Subrogation, after the insured is compensated for the loss due to damage to property insured then the right of ownership of such property passes on to the insurer. This principle is corollary of the principle of indemnity and is applicable to all contracts of indemnity. This principle is applicable only when the damaged property has any value after the event causing the damage. The insurer can benefit out of subrogation rights only to the extent of the amount he has paid to the insured as compensation. E.g. (i) A person has insured his furniture for Rs.50,000 against fire and a part of the furniture was destroyed by the fire and the actual loss was s.35,000. Applying this principle, a compensation of Rs.50,000 will be paid by the insurer and he will take charge of the remaining furniture. (ii) Mr. A insures his house for Rs.1 Crore. The house is totally destroyed by the negligence of his neighbour Mr. B. The insurance company shall settle the claim of Mr. A for Rs.1 Crore. At the same time, it can file a lawsuit against Mr. B for Rs.1.2 Crores., the market value of the house. If Insurance Company wins the case and collects Rs.1.2 Crores From Mr. B, then the insurance company can retain Rs.1 Crore (which it has already paid to Mr. A) plus other expenses such as court fees, etc. The balance amount, if any, will be given to Mr. A, the insured.

6. Principle of Mitigation of loss: Under this principle, insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like fire outbreak, blast etc. The insured must take all possible measures and necessary steps to control and reduce the losses. The insured must not neglect and behave irresponsible during such events just because the property is insured. Hence, it is responsibility of the insured to protect his insured to protect his insured property and avoid further losses. E.g. Mr. A’s House is on fire due to an electric short circuit. In this tragic incident, Mr. A must try his level best to stop the fire by all possible means like calling fire brigade, use fire extinguishers (if available), etc. He must not remain inactive and watch his house burn, only because it is insured.

7. Principle of Causa – Proxima (Nearest Cause): Principle of Causa-Proxima means when a loss is caused by more than one causes, the proximate (nearest) cause should be taken into consideration to decide the liability of the insurer. The property may be insured against some causes and not against all causes, in such an instance, the proximate cause of loss is to be found. If the proximate cause is the one which is insured against, the insurance company is bound to pay the compensation and vice versa. E.g. A ship was insured against loses resulting from collision. There was a collision and the ship was delayed for a few days. Due to the delay, a cargo of Mangoes in the ship became rotten and unfit for consumption. Now, there are two causes of loss, collision and delay, but the nearest / proximate cause for rotten mangoes was delay. As the ship was insured against collision and not delay, the insured will not get any compensation from insurance company.Types of Insurance

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(a) Life Insurance (b) Fire Insurance (c) Marine InsuranceA. Life Insurance

Meaning:Under Life Insurance contract, the human life is insured against death, old age, sickness, accident etc. Life insurance contract of indemnity. Therefore, the insurer has to pay a definite sum on the maturity of the policy. The sum has to be paid after the death of insured or at the expiry of the term.Life Insurance is not for the person who passes away, but it is for those who survive. It is the responsibility of every earning member to guard against the events that could affect the family in the unfortunate circumstances of his demise. Thus, having a Life Insurance policy is very vital.Definition:Life Insurance can be defined as “A contract where an insurance company undertakes in consideration of regular payment of premium to pay a certain sum of money to the assured on maturity of policy or death, whichever is earlier”.Types of Life Insurance Policy

1. Whole Life Policy: The whole life of a person is insured under this policy. The insured cannot receive the money from the Insurance Company till he is alive. The rate of premium is normally very low. The money becomes payable on the death of the insured person to the nominee or the legal heir of the deceased policy holder. This policy is mere beneficial for the family of the deceased, as it provides financial assistance to the family after the death of the insured person.

2. Endowment Insurance Policy: Under this policy, insurance is taken for a specific period. The sum assured along with bonus is given on his death to the dependents of family or on the expiry of the specific period, the insured himself receives the sum assured along with bonus. It is a popular plan as it protects the family of the deceased or provides old age pension to the insured.

3. Term Insurance Policy: Term Insurance policy is taken for a specific period. It has lowest premium among all Insurance plans. Premium is fixed and does not change during the term of the policy. In case of an untimely death, the dependents will receive the benefit amount specified in the term life insurance agreement.

4. Money – Back Policy: Money-Back policy provides a regular percentage of the sum assured during the life time of the policy and also guarantee the benefit of full sum assured in the event of the death of the insured to the dependents of the family. This policy is suitable for those people who like to have savings and Insurance Cover.

5. Joint Life Policy: Under Joint Life Policy, two or more persons are jointly assured. The person who takes Joint Life Policy must have insurable interest in each other. It is useful for individuals having common interest, requiring joint safety and security to their lives. It can be taken by the partners of the firm or husband and wife. The sum assured is payable at the end of the specified term or the first death of either of the two lives assured, if earlier.

6. Annuity Policy: The insured has to pay to premium in lump sum or instalments over a certain period of time. The insured will receive back a specific sum periodically from a specified date onwards, either for life or for a fixed number of years. Generally, life annuity is opted by a person having surplus wealth and wants to use this money after his retirement.

7. Pension Plan Policy : Pension policy is different from all other forms of life insurance, as it does not provide any life insurance cover but merely offers a guaranteed income either for a life or for a certain period. Therefore, this type of insurance is taken so as to get income after retirement.

8. ULIP (Unit Linked Insurance Plans) : ULIPs is introduced by the private companies and are very popular as they combine the benefits of life insurance policies with mutual funds. A certain part of the premium is invested in listed equities or debt funds or bonds and the balance is used to provide for life insurance and fund management expenses.Visit to your nearest LIC branch and inquire about the insurance policies your family can take.

B. FIRE INSURANCEMeaning:The Fire Insurance protects the insured against the risks of fire. Any property which is subject to damage by fire can be insured against fire. The loss due to fire, lightning and explosion is also covered by Fire Insurance.Fire Insurance is for protection and not for profit. The amount of premium of fire insurance depends upon the value of subject matter, place of storage and extent of risk involved. Fire

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Insurance protects against the risk of damage by fire to property and assets.

Definitions:1. A fire insurance contract may be defined as an agreement whereby one party, in return for

a consideration, undertakes to indemnify the other party against financial loss to property or assets due to fire.

2. According to Indian Fire Insurance Act, 1938: “In addition to other insurances, fire insurance is that insurance contract which takes place against fire and such other risks which are mentioned in the fire insurance contract.”

Types of Fire Insurance Policy1. Valued Policy : This is a type of policy where the value of the subject matter of Insurance

is agreed upon at the time of making the contract. The insurer has to pay a specified amount or value irrespective of the amount of loss caused due to fire. Valued policy is taken for those goods whose value becomes difficult to calculate in case of loss by fire. This types of policy can be taken for art work, paintings, etc where the value of the damaged articles become difficult to assess/measure.

2. Average Policy: It is a policy which contains an average clause. If the subject matter is not insured as per the exact market value or undervalued, then the insurer is liable to pay that percentage of the loss for which it is insured. e.g. If a policy is taken for Rs.50,000 against the market value of Rs.1,00,000. The loss incurred due to fire is Rs.40,000, then the insurance company will pay Rs.20,000 (50% of Rs.40,000).

3. Specific Policy: In case of a specific policy, the property is insured for a definite sum irrespective of the market value. If there is a loss, the stated amount will have to be paid to the policy holder. But the actual value of the subject matter is not considered in this respect. e.g. A property of value Rs.1,00,000 is insured for Rs.60,000 and the loss due to fire is Rs.30,000 then the insurance company will pay Rs. 30,000 in full as compensation.

4. Floating Policy: This policy can be taken for those goods which are lying in different localities or godowns or warehouses. Since the quantity of goods lying at different places fluctuate from time to time, it becomes difficult for the owner to take specific policy so businessmen and traders take fluctuating policy. Such a policy is usually taken for one sum and one premium for goods lying at different places.

5. Comprehensive Policy: Comprehensive policy covers all types of risks like fire, burglary, riots, explosion, strikes, etc. This policy is also called as all in one policy. This type of policy is not popular in India but very popular in the countries like UK, USA, etc.

6. Excess Policy: Excess policy is taken when the value of the stock in the market constantly fluctuates. In such an instance it is not advisable to take one policy of certain sum, but instead two policies an be taken.

(i) One policy is for a minimum amount below which value of the stock never falls.(ii) Another policy is for a difference / excess amount (for a maximum amount of stock) by

which price fluctuates e.g. If the value of stock ranges between Rs.100,000 and Rs. 130,000, then one policy is taken for Rs.100,000 and another policy for excess amount i.e. Rs.30,000.

7. Reinstatment Policy: This is a type of Fire Insurance Policy where the insurer undertakes to replace the property or goods lost by fire. In this policy instead of paying compensation for the property lost by fire, the property is replaced. While paying compensation, the depreciation amount of the property is not taken into consideration. The rate of premium is higher in Reinstatement Policy.

8. Blanket Policy: Blanket Policy covers all fixed and current assets of the assured in one policy. Under this policy all the assets lying at different places are covered under one premium and one policy.

C. Marine InsuranceMeaning:Marine Insurance gives protection against losses caused due to the dangers of the sea. Marine Insurance is very useful for foreign trade i.e. for exporters and importers. It has become mandatory for exporters and importers to insure their goods. It also covers the loss or damage to the passengers in cruise during journey on the sea. Marine Insurance covers the dangers of the sea such as sinking of the ship, storm, fire, explosion in the ship, crashing with icebergs, pirates, etc.

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Definitions:1. According to Marine Insurance Act, 1963 “An agreement whereby the insurer

undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against losses incidental to marine adventure. It may cover loss or damage to vessels, cargo or freight.”

2. Marine Insurance can be defined as a contract under which the insurer undertakes to indemnify the insured against the losses incidental to marine adventure.

Types of Marine Insurance Policies1. Voyage Policy: It is a policy in which the subject matter is insured for a particular voyage

irrespective of the time involved in it. In this case, the risk begins only when the ship starts on voyage e.g. Voyage from Mumbai to New York.

2. Time Policy: Time Policy is one in which subject matter is insured for a definite period of time against the perils / dangers at sea. A time policy cannot be for a period exceeding one year, but it may contain continuation clause. The continuation clause means that if the voyage is not completed within the specified time, the risk shall be covered until the voyage is completed or till the arrival of the ship at the port.

3. Mixed Policy: This policy is the combination of time and voyage policy. It therefore, covers the risks for both, particular voyage and for a specified period of time. e.g. A policy can be taken from Mumbai to New York for 40 days voyage starting from 1st February 2012.

4. Valued Policy: Under this policy, goods are insured for an agreed value between the insurer and insured. This is taken, when it becomes difficult for the insurer to assess the value of the goods. In case of cargo this value means the cost of goods plus freight and shipping charges plus 10% to 15% margin for anticipated profits. This agreed value is more than the actual value of goods.

5. Floating Policy: Floating Policy is taken for a large sum covering several shipments. This policy is mostly taken by exporters in order to avoid trouble of taking out a separate policy for every shipment. This policy covers several shipments till the amount insured is exhausted.

6. Blanket Policy: Under blanket policy, the maximum limit of the required amount of protection is estimated which is purchased in lump sum. The amount of premium is usually paid in advance. This policy describes the nature of goods insured, specific route, ports and places of voyages and covers all the risks accordingly.

7. Port Risk Policy: Port risk policy covers all the risks of a vessel while it is anchored at the port for a particular period of time. This policy is applicable till the departure of the vessel from the port.

8. Composite Policy: This type of policy is purchased from more than one insurers. The liability of each insurer is separate and distinct. This policy is taken when the amount of insurance is very high.

WarehousingMeaning:We always need different types of goods in our day-to-day life. We may buy some of these items in bulk and stock them in our house. Similarly, businessmen also need a variety of goods for their use, some of them may not be available all the time, but we may need those goods throughout the year, e.g.Sugarcane is produced during a particular period of the year. Since sugar production takes place in certain season, there is a need to supply sugarcane continuously. So proper storage is needed for sugarcane and after production, sugar is also needed to be stored for sometime before distribution. Storage involves proper arrangement for preserving goods from the time of production till its actual use or consumption. When this storage is done on a large scale in a specified manner, it is called warehousing. The place where goods are kept is called ‘warehouse’. Warehousing creates time utility and makes goods available at the time of requirement.Definition:A warehouse is defined as “an establishment for the storage or accumulation of goods”.Functions of WarehousingWarehouses preserve goods on a large scale in a systematic and orderly manner. They provide protection to goods against heat, wind, storm, moisture, etc. and also cut down losses due to spoilage, wastage, etc. This is the basic function of every warehouse. There

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are many other functions in addition to these basic functions which are as follows:

1. Storage of goods: The basic function of warehouse is to store large stock of goods. These goods are stored from the time of their production or purchase till their consumption or use.

2. Protection of goods: A warehouse provides protection to goods from loss or damage due to heat, wind, dust, etc. It makes special arrangements for different products according to their nature. It also helps to reduce the losses due to spoilage or wastages during storage.

3. Financing: When goods are kept in a warehouse, the depositor gets a receipt which acts as a proof about the deposit of goods. The warehouse, also issues a document in favour of the owner of goods which is called a warehouse-keeper’s warrant. The warehouse warrant and receipt are negotiable instrument and can be negotiated by endorsement and delivery. Thus the owner of the goods can raise finance from banks, financial institutions, etc.

4. Risk – Bearing: The entire responsibility of the goods stored in the warehouse is passed to the warehouse keeper, once the goods are handed over to him for storage. Thus, the risk of loss or damage to goods in storage is borne by the warehouse-keeper. Since he is bound to return the goods in the same condition, warehouse becomes responsible for any loss, theft, damage, etc. Thus warehouses take all precautions to prevent the goods from any loss.

5. Grading and Branding: Warehouses also perform the functions of grading and branding of goods on behalf of the manufacturer, wholesaler and the importer of goods. It also provides facilities for packaging of goods for the convenience of handling.

6. Processing: Certain commodities are not consumed in the form they are produced. Processing is required to make them consumable. e.g. Paddy is polished, timber is seasoned, fruits are ripened, etc. Sometimes warehouses undertake these activities on behalf of the owners.

7. Transportation: Warehouses can provide transport facility to the bulk depositors. It collects goods from the place of production and also sends goods to the place of delivery on the request of the depositors.

8. Time and Place Utility : Warehouses create time utility by preserving the goods till it is demanded. It also creates place utility by providing the goods at the place, where they are required.

Types of WarehousesWarehouse is a storage structure constructed for the protection of the quality and the quantity of the stored goods. A businessman has to keep different kinds of goods, so there is always a need for different types of warehouses, which are as follows.

1. Private Warehousing: Private warehouses are owned and managed by the manufacturers or traders to store their own goods. Big business firms which need large storage capacity on a regular basis construct their own warehouses. The private warehouses are licensed to private person only for the goods imported by him or on his behalf are to be stored in such warehouses. Generally these warehouses are constructed by farmers near their fields, by wholesalers and retailers near their business areas and by manufacturers near their factories. The facilities provided therein are according to the nature of products to be stored.

2. Public / Commercial Warehouse: This type of warehouses are established to provide storage facilities to the general public for payment of certain fees. It may be owned by an individual, partnership firm, company, etc. These warehouses have to obtain the license from the government and work as per the rules framed by the government. They are generally located near railway stations, highways, air port, seaport, etc. Many facilities are provided by these warehouses such as packaging, grading, inspection to be done by prospective buyers, etc.

3. Government Warehouses: These warehouses are owned, managed and controlled by central and state governments or public corporations or local authorities. It is difficult for the small traders, farmers, businessmen, etc. to own a warehouse, so these government warehouses assist them in storing their goods at a nominal charge. Central Warehousing Corporation of India, State Warehousing Corporation and Food Corporation of India are examples of agencies maintaining government warehouses.

4. Bonded Warehouses: Bonded warehouses are licensed by the government for storing imported goods till the custom duty is not paid. They are located within the dock area. They are either operated by the government or custom authorities. The warehouse-keeper is required to give an undertaking or Bond that it will not allow the goods to be removed

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without the consent of the custom authorities. The goods are held in bond and cannot be withdrawn without paying the custom duty.Such warehouses are very useful to importer and exporters. If an importer is unable to pay custom duty after the arrival of goods, he can store the goods in a bonded warehouse and by making payment of custom duty in instalments, can proportionately withdraw the goods. Goods lying in a bonded warehouse can be packaged, graded and branded for the purpose of sale. Central warehousing corporation operates 75 custom bonded warehouses.

5. Duty Paid Warehouses: If an importer faces any problem in transportation of goods, after making payment of duty, then goods can be stored at a Duty Paid Warehouses. All duty paid warehouses are public warehouses which are available to all the importers whether big or small. Duty paid warehouse helps the importers as proper care of goods is taken, processing of goods can be done like sorting, re-packing etc. Such warehouses are more helpful for some businessman, who re-export the goods.

6. Co-operative Warehouses: These warehouses are owned, managed and controlled by cooperative societies. They mainly provide warehousing facilities at the rural areas. These type of warehouses are very useful for farmers and traders. They provide warehousing facilities at the most economical rates to the members of the society and also to the public.

7. Cold Storage Warehouses: Cold Storage warehouses provide facilities for perishable commodities like fisheries, poultry, dairy products, vegetables, fruits, flowers, etc. In cold storage warehouse, goods are stored and refrigerated at very low temperatures so as to preserve them and us them in the future. International trade for these products has become possible only with cold storage warehouses. E.g. Green Peas produced in India are exported to foreign countries.Collect the information regarding the products kept in the cold storage warehouse.TransportMeaning:In India, transport plays an important role in nation’s economy. Since the economic liberalization of the 1990’s, development of infrastructure within the country has progressed at a rapid pace and today there is a wide variety of modes of transport by Land, Water and Air are available in India.Transportation is the movement of people, animals and goods from one location to another Transport infrastructure consists of the fixed installations necessary for transport, and may be roads, railways, airways, waterways, canals and pipelines and terminals such as airports, railways stations, bus stations, trucking terminals and seaports. Terminals may be used both for interchange of passengers and cargo and for maintenance.Indian public transport system is among the most heavily used in the world. India’s rail network is the 4th largest and most heavily used system in the world, transporting over 6 billion passengers and over 350 million tons of goods annually.Role of Transport

1. Helps in Production: Transport system helps the manufacturer to take the raw materials and other requirements quickly from the places, where it is available to the production centres. It helps the movement of the labour from their houses to the place of their work. It also makes possible quick dispatch and distribution of finished goods to the centres of consumption.

2. Expanding Markets : It reduces the gap between the producers and consumers. It helps to cover the wider area of market places by making the goods available, whenever need arises. Transport plays an important role in distribution and marketing of goods. Air transport plays an important role in the success of an international trade.

3. Creates Place Utility: Transport is useful for carrying the goods from the place of its availability to the place of its requirement. Only, because of transport, it has been possible for the people staying at far places to get the benefit of goods, which are not available near to them e.g. Apples from Kashmir are transported throughout the country, Mangoes from India are exported to different countries, etc.

4. Stability of Prices: Transport helps to maintain the prices of the goods by providing the goods at the proper time and satisfying the consumer demand for the goods. It helps to maintain balance between the demand and supply of goods, which ensures stability of prices. If there is a shortage of goods at a certain place, it can easily be satisfied with the help of efficient transport system.

5. Creates Employment: Transport provides direct employment to transport owners, drivers, mechanics, helpers and so on. It also provides indirect employment by facilitating he movement of goods and people from one place to another. So, it provides direct and indirect employment to the number of people.

6. Improves Standard of Living : Transport helps people to enjoy a better standard of living by providing them with goods of their choices from faraway places or places of its

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availability. As transport creates employment, it gives an opportunity to people to earn good amount of income. E.g. Imported cars can be transported from foreign countries.

7. Cost Reduction : The cost of Production and distribution can be reduced with the help of efficient, cheap and quick means of transport. The goods can be sold at low prices which in turn will increase demand and expand market. Increase in demand for goods and lead to large scale production and demand can be fulfilled by transporting finished goods to the places of its demand for consumption.

8. Provides help during Emergency: People are badly affected during natural calamities like floods, earthquakes, landslides, etc. and also during riots, bomb blasts, accidents, fire, etc. Transport helps the people by providing them with the necessities like food, water, medicines, etc. and also helps them to travel to their destinations. Various transport facilities can be used during the time of emergency and rescue operations can be done with helicopters, fire brigades, etc.

9. National Defence: Transport plays an important and special role in the defence of the country. An efficient transport network system ensures quick movement of troops, arms and ammunition from one place to another. It also keeps a check on external aggression on the boundaries of the country.

10. Economic Development: Economic development of a country depends on a good network of transport system and industrial development. New industries are established where there is a good network of transport. Due to industrialization, employment opportunities have generated standard of living. This leads to increase in demand for goods and services. Increase in demand for goods induces a producer to conduct production on large scale. This all gives rise to economic development of a nation.Means of TransportMeaning:Transport is possible through land, air and water, which are called as different modes of transport. On land, we use trucks, tractors, etc. to carry goods, train, bus, cars to carry passengers. In air transport, we have aeroplanes, helicopters to carry passengers as well as goods. In water transport, we have ships, cargo, etc. to carry goods and passengers. All these are known as different means of transport.Traditional Means of TransportInitially, there were traditional means of transport available which are as follows:

1. Walking : People used to cover long distances on foot. Walking still continues as an important means of transport in rural areas. MMRDA has commenced the constructions of more 50 skywalks as a part of the Mumbai skywalk project.

2. Palanquin : Palanquin also known as palkis, were one of the luxurious methods used by the rich and noblemen for traveling. In the past, it was used to carry a deity or idol of the god. Modern use of the palanquin is limited to Indian weddings and pilgrimage.

3. Bullock Carts and Horse Carriages: These were traditionally used for transport, especially in rural India. Today, they are used in smaller towns and referred as Tonga or Buggies. Victorias of Mumbai are still used for tourist purpose.

4. Bicycles: Bicycles are a common means of travel in most part of India. Along with walking, cycling accounts for 50 % to 75% of usage in rural areas. India is the second largest producer of bicycles in the world. Pune is the first city in India to have dedicated lanes for cycles. It was built for the 2008 Commonwealth Youth Games.

5. Hand Puller: This type of transport is still available in Kolkata wherein a person pulls the rickshaw by hand. The Government of West Bengal proposed a ban on these rickshaws in 2005 describing them as “inhuman”.

6. Cycle Rickshaw: Cycle rickshaws were introduced in India, in 1940’s. They are bigger tricycles, where two people sit on an elevated seat at the back and a person pedals from the front.

7. Trams: During British Era, Trams were introduced in many cities including Mumbai and Kolkata. They are still in use in Kolkata and provide an emission-free means of transport.

MODERN MODES OF TRANSPORTDifferent modes of transport includes Rail, Road, Water, Air, Cable, Pipelines and Space which are as follows:1. Road Transport2. Rail Transport3. Water Transport4. Air Transport5. Other Modes of Transport

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Make a list of different means of transport available on different occasions.1. Road Transport

Roads are the means that connect one place to another on the surface of the land, different vehicles plying on roads like bullock carts, cycles, motorcycles, cars, truck, buses, etc. All of these constitute different means of road transport. Extension of roads in every corner of the country have also enhanced the use of motor driven transport. The types of motor Vehicles used to carry goods and passengers include taxis, auto-rickshaws, scooters, vans, buses, tempos and trucks, etc.

The livery of the taxis in India varies from state-to state. In Delhi and Maharashtra, most taxicabs have yellow-black livery while in West Bengal, taxis have yellow livery. Private taxi operators are not required to have a specific livery.

An auto rickshaw is a three –wheeler vehicle for hire that has no doors and is generally characterized by a small cabin for the driver in the front and seat for passengers in the rear.

Buses take up over 90% of public transport in Indian cities, and serve as a cheap and convenient mode of transport for all classes of society. Services are mostly run by state government owned transport corporations. Bus Rapid Transit (BRT) systems and air conditioned buses have been taken by the various state governments to improve the bus public transport systems in cities. Besides these buses, the country also have Double Decker Buses. Double Decker Buses are found in cities like Mumbai, Chennai, Kochi, Trivendrum.India has a network of National Highways connecting all the major cities and state capitals, forming the economic backbone of the country. All national highways are metalled, but very few are constructed of concrete, the most notable being the Mumbai – Pune Expressway.India has a number of iconic bridges ranging from the recently constructed Bandra – Worli Sea Link.

Advantages of Road TransportRoad transport has the following advantages.

(i) It is a relatively cheaper mode of transport as compared to other modes.(ii) Perishable goods can be transported at a faster speed by road carries over a short distance.(iii) It is a flexible mode of transport as loading and unloading is possible at any destination.(iv) It provides door-to-door service.(v) It helps people to travel and carry goods from one place to another, in place which are not

connected by other means of transport like hilly areas.Limitations of Road TransportRoad Transport has the following limitations.

(i) Due to limited carrying capacity road transport is not economical for long distance transportation of goods.

(ii) Transportation of heavy goods or goods in bulk by road involves high cost.(iii) It is affected by adverse weather conditions. Floods, rain, landslide, etc., sometimes create

obstructions to road transport(iv) There is a possibility of road accidents which are common, mainly on highways.(v) It causes pollution due to the use of diesel, which affects the health of people. It also causes

noise pollution.

Rail TransportRail services in India, first introduced in 1853, are provided by the state-run Indian Railways, under the supervision of the Ministry of Railways. Indian Railways provides an important mode of transport in India, transporting over 18 million passengers and more than 2 million tonnes of freight daily across one of the largest and busiest rail networks in the world.Transportation of goods and passengers on rail lines through trains is called rail transport. It occupies an important place in land transport system of our country and is the most dependable mode of transport to carry goods and passengers over a long distance. Besides long distance, local transport of passengers is also provided by local trains or metro-rail in some metropolitan cities.The Mumbai Suburban Railway is the first rail system in India which began services in Mumbai in 1867, transports 6.3 million passengers daily and has the highest passenger density in the world.

MonorailMonorails in India are generally considered as feeder systems for the Metro. The Mumbai Monorail will be the first monorail in India.The first modern rapid transit in India was the Kolkata Metro, with operations stated in 1984, Chennai MRTS in 1997 Delhi metro in 2002. The Namma Metro in Bangalore in 2012. Currently, rapid transit systems have been deployed in these cities and more are under

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construction or in planning in several major cities of India.

The Indian Railways has also initiated a number of highly ambitious projects to provide connectivity to the remote and inaccessible areas of the country like The Konkan Railway, Mangalore and Mumbai Kashimir Railway.

Proposals have been made to introduce high-speed rail in India. A proposal has been made to build a Maglev track within the city at Mumbai, connecting it to the national Capital of New Delhi, as well as other parts of Maharashtra in the form of the Mumbai Maglev.

Advantages of Rail transport:Rail Transport has following advantages:

(i) It is a convenient mode of transport for traveling long distances.(ii) It is comparatively faster than road transport.(iii) It is suitable for carrying heavy goods in large quantities for long distances.(iv) Its operation is less affected by adverse weather conditions like rain, floods, fog, etc.(v) It ensures safety and security of goods. Even costly and delicate goods can be sent by Rail.

Limitations of Railway transport:Rail Transport has following limitations.

(i) It is relatively expensive for carrying goods and passengers over short distances.(ii) It is not available in remote parts of the country.(iii) It provides service according to fixed time schedule and is not flexible for loading or

unloading of goods at any place.(iv) It involves heavy losses of life as well as goods in case of accident.(v) It does not provide door to door services. It does not reach remote areas.

3. Water TransportWater transport refers to movement of goods and passengers on waterways by using various means like boats, steamers, launches, ships, etc. With the help of these means goods and passengers are carried to different places, both within as well as outside the country. Within the country, rivers and canals facilitate the movement of boats, launches, etc. Since the goods and passengers inside the country, this type of transport is called inland water transport. When the different means of transport are used to carry goods and passengers on the sea route it is termed as ocean transport.India has an extensive network of inland waterways in the form of rivers, canals, backwaters and creeks. Freight transport by waterways is highly under utilised in India compared to other larger countries. Cargo is transported in an organised manner is confined to a few waterways in Goa. West Bengal, Assam and Kerala. The Inland Waterways Authority of India (IWAI) is the statutory authority in charge of the waterways in India. The following waterways have been declared as National Waterways:

1. Allahabad – Haldia Ganges – Bhagirathi – Hooghly river2. Saidiya – Dhubri Brahmaputra river.3. Kollam – Kottapuram Champakara and Udyogmandal canals.4. Bhadrachalam – Rajahmundry and Wazirabad – Vijaywada Krishna - Godavari river

Kakinada Pondicherry canal.5. Mangalgadi – Paradeep and Talcher – Dhamara Mahanadi – Brahmani river.

Advantages of water transport: Water Transport has the following advantages:

(i) It is a relatively economical mode of transport for bulky and heavy goods.(ii) It is a safe mode of transport with respect to occurrence of accidents.(iii) The cost of maintaining and constructing routes is very low as most of them are naturally

made.(iv) It promotes international trade.(v) It protects the goods from sun, rain, wind dust, etc. as goods are mostly carried in

containers, tankers, etc.Limitations of water transportWater transport has the following limitations.

(i) The depth and navigability of rivers and canals vary and thus, affect operations of different transport vessels.

(ii) It is a slow moving mode of transport and therefore not suitable for transport of perishable goods.

(iii) It is adversely affected by weather conditions.(iv) Sea transport requires large investment on ships and their maintenance.(v) It has high maintenance costs for ship and tankers as it requires constant repairs and

painting of ships.AIR Transport

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This is the fastest mode of transport. It carries goods and passengers through airways by using different aircrafts like passenger aircraft, cargo aircraft, helicopters, etc. Besides passengers it generally carries goods that are less bulky or of high value. In hilly and mountainous areas where other mode of transport is not accessible, air transport is an important as well as convenient mode. It is mostly used for transporting goods and passengers during natural calamities like earthquake and flood, etc. During war, air transport plays an important role in carrying soldiers as well as supplies to the required areas. Air transport may be classified as domestic and international air transport. Air transport is carried out in fixed are routes, which connect almost all the countries.

Rapid economic growth in India has made air travel more affordable. Air India, India’s flag carrier, presently operates a fleet of 159 aircrafts and plays a major role in connecting India with the rest of the world. Several other foreign airlines connect Indian cities with other major cities across the globe.Chhatrapati Shivaji International Airport in Mumbai is currently India’s busiest airport in terms of passenger traffic.Pawan Hans Helicopters Limited is a public sector company that provides helicopter services to ONGC to its off-shore locations, and also to various State Governments in India Particularly in North east India. There were 40 heliports in India. Indian also has the world’s highest helipad at the Siachen Glacier a height of 6400 metre (21,000 ft) above mean sea level.Advantages of Air transport :Air transport has the following advantages.

(i) It is the fastest mode of transport(ii) It is very useful in transporting goods and passengers to the area, which are not accessible

by any other means.(iii) It is the most convenient mode of transport during natural calamities.(iv) It provides vital support to the national security and defence.(v) It is less polluting as compared to road transport.

Limitations of air transport:It has the following limitations.

(i) It is relatively more expensive mode of transport.(ii) It is not suitable for transporting heavy and bulky goods.(iii) It is affected by adverse weather conditions.(iv) It is not suitable for short distance travel.(v) In case of accidents, it results in heavy losses of goods, property and life.5. Other Modes of Transport(a) Ropeway transport: Ropeway refers to a mode of transport, which connects two places on

the hills, or across a valley or river. In the hilly areas, trolleys move on wheels connected to a rope and are used for carrying passengers or goods, especially building materials, food, etc. the famous “Urban Khatola Jagdamba” in Gujarat that carries pilgrims to the temple is an example of ropeway transport which carries more than 100 passengers at a time.

(b) Pipeline transport: Pipeline transport sends goods through a pipe, most commonly liquid and gases are sent, but pneumatic tubes can also send solid capsules using compressed air. Liquids/gases, any chemically stable liquid or gas can be sent through a pipeline. Short –distance systems exist for sewage, slurry, water, while long – distance networks are used for petroleum and natural gas.

(c) Cable transport : Cable transport is a broad mode where vehicles are pulled by cables instead of an internal power source. It is most commonly used at steep gradient. Typical solutions include aerial tramway, elevators, escalator and ski lifts; some of these are also categorized as conveyor transport.

(d) Spaceflight: Spaceflight is a transport out of Earth’s atmosphere into the outer space by means of a spacecraft. While large amounts of research have gone into technology, It is rarely used except to put satellites into orbit, and conduct scientific experiments. However, man has landed on the moon, and probes have been sent to all planets of the Solar System.

Distinction BetweenCODE.

Point Distinction(S2WIM PINC Bro)

Life Insurance Fire Insurance Marine Insurance

S. Subject Matter In Life Insurance, the life of the insured is a subject matter.

In Fire Insurance, the goods and assets or property of the insured is the subject matter.

In Marine Insurance, goods in ship, cargo and freight is the subject matter.

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S Surrendering of Policy

The policy can be surrendered before the expiry of the term subject to certain conditions.

It cannot be surrendered.

It cannot be surrendered.

W Who takes it It can be taken by an individual for his own life or for his family members

It can be taken by individuals for their properties or by businessmen for their goods, properties business liabilities, etc.

It can be taken by exporters, importers and shipping companies.

I Insurable Interest

It must exist at the time of contract.

It must exist both at the time of contract and also at the time of loss.

It must exist at the time of loss.

M Meaning A contract whereby the insurance company undertakes to pay a certain sum of money either on death or maturity (whichever is earlier) for consideration (Premium).

A contract in which insurer promises to pay compensation to insured if something happens to the subject matter due to fire or related events.

A contract whereby the insurance company undertakes to pay compensation to the insured in case of loss to him due to dangers (perils) of the sea.

P Period The Policy can be issued for any number of years, even until death of the assured.

It is generally for a short period like one year.

It is generally for a short period and may range from one month to a year Normally, it does not exceed one year.

I Principle of Indemnity

It is not applicable as a human life cannot be valued be valued in terms of money for calculating the actual loss.

It is applicable as insurance compensates for the financial loss and the insured is brought back to the same financial condition that he was before the event.

It is applicable as insurance company compensates for the financial loss and the insured is brought back to the same financial condition that he was before the event.

N Number of Policies

Insured can take any number of policies on the same life.

Generally, only one policy can be taken. However, double insurance is possible.

Generally, only one policy can be taken. However, double insurance is possible.

C Compensation It is paid either on death or maturity whichever is earlier

It is paid only if there is loss due to fire during the term of policy.

It is paid only if there is a loss causing event during the term of the policy.

Bro Beneficiary The beneficiary can be insured (if he survives the selected term) or else the nominee or the legal heir on the death of the assured.

The beneficiary is the insured who has insured the property or goods.

The beneficiary is the insured person or company.

Distinguish Between

Sr.No.

Point of DistinctionWWW.MINFO

Current Account

Savings Account

Fixed Deposit Account

Recurring Deposit Account

W Who takes it It is suitable for traders, businessmen, firms or institutions.

It is suitable for fixed income group, wage or salary earners.

It is suitable for any person with temporary idle cash.

It is suitable for fixed income group.

W Constraints on operations and

There are no restrictions on the operation

The customer have certain restrictions on

Payment is received only on expiry of the

Payment is received after the expiry of

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withdrawals of a current account as long as there is balance in the account.

withdrawals. fixed period. If withdrawn earlier, then the rate of interest will be less than applicable

the fixed period.

W Withdrawals Customers can withdraw money by cheques.

Customers can withdraw either by cheques or by withdrawal slips

Customers cannot withdraw during the fixed period. If withdrawn earlier, rate of interest will be less than applicable

Customers cannot withdraw during the fixed period. If withdrawn earlier, rate of interest will be less than applicable.

M Meaning It is that account which is maintained by businessman and others who have regular bank transactions.

It is that account which is opened by individuals in order to save a part of their income.

It is that account where a fixed sum of money is deposited for a fixed period.

It is that account where depositors can regularly save fixed amount for a specific period.

I Rate of Interest

Normally, interest is not given.

Interest rate is low.

Interest rate is higher. Longer the period, higher will be the rate of interest

The rate of interest is higher than savings account but less than fixed deposit account.

N Nature of Account

It is of continuous nature

It is of continuous nature

It is for fixed period of time except when the fixed deposit receipt renewed.

It is for a fixed period of time.

F Facilities The bank gives a passbook, cheque book, statement of account and pay-in-slip book to the customers.

The bank gives a pass book, cheque book and pay-in-slip book to the customers.

The bank gives a fixed deposit receipt to the customers.

The bank gives a pass book and pay-in-slip book.

O Other Facilities

Temporary overdraft facility is given

No overdraft facility is given.

90% of the amount of fixed deposit can be given as loan.

90% of the amount in the account can be given as loan.

Distinction Between Sr. No.

Point of DistinctionC2AMS DOTS3

Road Transport Rail Transport Water Transport

Air Transport

C Carrying Capacity

It has limited carrying capacity

It has huge carrying capacity

It has a very huge carrying capacity

It has limited carrying capacity

C Cost of construction and maintenance

It requires limited capital investment in terms of construction of roads, vehicles and their main-tenance

The cost of construction of trains, railway tracks is high. Also the maintenance of trains, tracks and stations is high.

It uses waterways which are natural high-ways and hence there is not cost involved. However,

It uses airways which are natural and hence there is no cost involved. However, there is a huge cost for

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there is high cost involved for construction of ships and ports and also maintenance of ships and ports.

constructions of aircrafts and airports. These costs are very high compared to other modes of transport.

A Accidents Chances of accidents are more due to poor road conditions and negligent drivers.

Chances of accidents are less because of one way track and good signal system.

Chances of accidents are less in waterways.

Chances of accidents are less because of good maintenance and expert pilots.

M Means of Transport

It uses animals, animal carts, motor –cycles three and four wheelers.

It uses passenger and goods train.

It uses boats, big ships, liners, tankers, etc.

It uses aircraft, helicopeters, jets, etc.

D Distance Recommended for short distance

Recommended for both short and long distance

Suitable for long distances specially across countries and continents.

Suitable for long distances.

D Door to door service

It provides door to door service.

It does not provide door to door service

It does not provide door to door service.

It does not provide door to door service.

O Ownership Ownership is in the hands of private parties.

Ownership is in the hands of the government

It is owned by both private sector as well as public sector.

It is owned by both private sector as well as public sector.

T Transport Charges

Transport charges are not fixed but are high due to increased fuel prices.

Transport charges are relatively low and are fixed according to the distance.

Transport charges are lowest.

Transport charges are the very high.

S Suitability It is suitable for transporting the goods inrelatively smaller quantities for short distance.

It is suitable for transporting heavy goods in large quantity over longdistance.

It is suitable for transporting very heavy goods, machineries in large quantities to any part of the world.

It is suitable for transporting light weight perishable and valuable goods to any part of the word.

S Speed Road transport has limited speed due to bad road conditions, accidents, etc.

It has considerable speed since it runs on tracks which rarely gets disturbed.

It is the slowest mode of transport.

It is the fastest mod of transport.

S Safety It provides limited safety to goods from sun, rain, wind, etc.

Goods are kept in locked wagons which provides protection against sun, wind, rain etc.

Goods are safe as they are specially packed.

Goods are safe as they are specially packed.

Cheque and Bank DraftSr. No.

Points of DistinctionFARM BD2P

Cheque Bank Draft

F Facility extended to Cheque facility is extended Draft facilities is extended to 43


to account holders of the bank only.

both account holders of the bank as well as outsiders.

A Aim It aims at facilitating businessman for effecting local payments.

It aims at facilitating immediate outstation payments.

R Reliable Cheques issued by an individual may not be cleared due to many reasons such as sign not matching, post dated, less balance, etc.

A bank draft is more reliable as it is issued by the bank only after receipt of payment.

M Meaning According to the Indian Negotiable Instrument Act, A cheque is an unconditional order directing the banker to pay a certain sum of money only to the order of a certain person.

A draft is an order to pay money drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand.

B Bank Charges The bank may not charge for issuing cheque book.

The bank charges a nominal amount to issue a draft.

D Drawer The drawer is the account holder of the bank

The drawer is the bank its self

D Dishonour The cheque may or may not be dishonored.

A draft can never be dishonored at it is already paid for.

P Payments Payment of crossed cheques cannot be obtained immediately.

Payment of bank draft can be obtained immediately.

Loans and OverdraftSr. No.

Points of DistinctionMIS PRAISED

Loans Overdraft

M Meaning It is an arrangement under which a certain amount is advanced for a certain fixed period.

It is an arrangement under which the current account holder is allowed to overdraw from the account.

I Rate of Interest It is lower than that of overdraft.

It is higher than that of loans.

S Separate Account Separate account is to be maintained.

No separate account is required.

P Purpose The purpose is to meet long term requirements.

The purpose is to meet short term working capital requirement.

R Repayment Amount of loan is to be repaid in instalments or in lump sum on the due date.

Amount of overdraft is adjusted against the deposits in the current account.

A Amount Amount of loan is larger. Amount of overdraft is smaller.

I Interest Charged Interest is charged on the amount of loan sanctioned, whether with drawn or not.

Interest is charged on the amount actually withdrawn.

S Security Some valuable assets are to be given as security.

Overdraft is sanctioned against hypothecation of stock.

E Eligibility Any account holder i.e. current. Savings, fixed deposit can get a loan.

Only current account holders can get overdraft facility.

D Duration It is for a long period. It is for a short period.

Commercial Bank and Central BankSr. NO.

Points of DistinctionM2ONA-FPL

Commercial Bank Central Bank (RBI)

M Monetary Policy The Commercial Banks do not frame any Monetary Policy.

The Central Bank frames the Monetary and credit policy.

M Monitoring The commercial Bank does not keep check on the

The Central Bank keeps a check on the Commercial

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Central Bank Bank.O Ownership It can be owned by private

and / or by government agencies.

It is owned and controlled by the government of India.

N Number There are many Commercial Banks in India

There is only one Central Bank (RBI) in India.

A Acceptance of Deposits

The commercial bank accepts deposits from public

The Central Bank does not accept deposits from public.

F Function The main function is to accept deposits from public for lending to industry and others.

The main function of the central bank (RBI) is to regulate money supply in the country.

P Printing of Currency The commercial bank cannot print currency notes.

The Central Bank can print currency notes.

L Loans The commercial banks provide loan to industry and commerce.

The Central Bank provide loan to Banks and financial institutions.

Bonded Warehouse and Duty paid WarehouseSr No. Points of

Distinction(M2OLDS – Pyar)

Bonded Warehouse Duty Paid Warehouse

M Meaning Bonded Warehouse is the warehouse where imported goods on which duty is not paid are stored.

Duty Paid Warehouse is the warehouse where imported goods on which duty is already paid are stored.

M Markets The imported goods stored here are mostly re-exported.

The imported goods stored here are mostly for the domestic markets.

O Ownership Such warehouses may be owned by private or dock authorities.

Such warehouses are owned by public authorities.

L Location They are located within the dock area.

They are located in a port-town outside the dock area.

D Delivery Delivery of goods is done after payment of import duty. In case of re-export, the import duty need not be paid, only rent and service charges need to be paid.

Delivery of goods can be obtained after payment of the rent charges of the warehouse.

S Supervision The customs authority closely supervises the working of these warehouses.

These warehouses are not supervised by the customs authority. They are supervised by port authority.

Pyar Purpose Main purpose would be either the importer needs to re-export the goods or the importer may not be in a position to pay import duty.

Main purpose would be that the importer does not have suitable warehousing facility. Also, he may not require immediate delivery of goods.

****Objectives

Q1A. Select the proper option from the options given below and rewrite complete sentences.

1. Overdraft facility is given to _________.(a) Saving account (b) Current account (c) Fixed account

2. The account suitable for creating a saving habit is ________.(a) Current account (b) Recurring deposit account (c) saving account.

3. There is no limit on the frequency of withdrawals from a ________.(a) saving account (b) Fixed account (c) Current account

4. Principle of utmost good faith is applicable to _______.(a) Life Insurance (b) Marine Insurance (c) All types of insurance

5. Principles of Indemnity is not applicable to ___________.(a) Life insurance (b) Fire Insurance (c) Marine Insurance

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6. Insurable interest must exist in _______(a) Life Insurance contracts only (b) Marine insurance contract only(c) Every insurance contract

7. Bonded warehouses are located at _________.(a) Railway station (b) Villages (c) Ports

8. Perishable goods are stored in ___________.(a) Bonded warehouses (b) Duty-paid warehouses(c) Cold storage warehouses

9. Postal services are administered by ___________(a) Private companies (b) Government of India (c) Panchayat

10. In case of Urgency and to avoid delays ________ is sent.(a) Registered post (b) Speed post (c) Insured post

11. In India, Railways are owned and managed by _______(a) Private companies (b) Government (c) Individuals

12. Door to Door service is offered by _____(a) Rail transport (b) Road transport (c) Air transport

13. The costliest means of transport is ________.(a) Railway transport (b) Water transport (c) Air transport

14. Road transport is suitable for ________ distance.(a) Short (b) Long (c) Medium

Ans.1.(b) 2.(c) 3.(c) 4.(c) 5.(a) 6.(c) 7.(c) 8.(c) 9.(b) 10.(b) 11.(b) 12.(b) 13.(c) 14.(a) (B) Match the correct pairs.

I Group A Group B1. RBI a. Recurring deposit account2. Overdraft b. 12 hours service3. Saving Account c. Withdrawals after fixed period of

time4. ATM d. Central Bank5. Fixed Deposit Account e. Current account

f. Salaried peopleg. 24 hours serviceh. Commercial banki. Cash Creditj. Withdrawal before fixed period of

time.Ans. (1-d), (2-e), (3-f), (4-g), (5-c)

II Group A Group B1. Life Insurance a. Claim b insured2. Mitigation of loss b. Perishable goods3. Premium c. Insurable Interest4. Cold Storage d. Maximum loss5. Warehousing e. Transfer of goods from one place

to anotherf. To Minimize the lossg. Imported goodsh. Principle of Indemnityi. Storage of goodsj. Payment made by policy holders.

Ans. (1-c), (2-f), (3-j), (4-b), (5-i)

III Group A Group B1. Road Transport a. Government owned2. Rail Transport b. Co-operative societies3. Air Transport c. Self –employed4. Postal Department d. Owned by private companies5. Courier Services e. Door to door service

f. Owned by individualsg. Costliest means of transporth. Huge Carrying capacityi. Difficulty in transportj. Cheapest means of transport

Ans. (1-e), (2-h), (3-g), (4-a), (5-f)46


Q.1(C) Write a word or a phrase or a term which can substitute each one of the following.

1. The account suitable for salaried people -2. Overdraft facility is given to a certain definite account holder –3. An account holder enjoys the privileges of any number of withdrawals –4. An account where fixed amount is kept for a specific period –5. A bank which is known as bankers bank –6. The type of insurance where the principle of indemnity is not applicable –7. The policy under which cargo is insured for a specific period and voyage –8. The Principle of insurance under which the insurer and the insured must show complete

faith towards each other –9. A device through which calls and messages can be sent and received –10. An electronic letter through which the messages can be exchanged on the computer –11. A warehouse where goods can be stored after the payment of import duty –12. The type of warehouse where perishable goods are stored –13. The costliest mode of transport –14. The means of transport carrying bulk and heavy goods for international trade –15. Mode of transport which helps to get goods and passengers of their door –

Ans.1.(Saving Account) 2.(Current Account holder) 3.(Current Account holder) 4.(Fixed Deposit Account) 5.(Central bank) 6.(Life Insurance) 7.(Mixed Policy) 8.(Utmost good faith) 9.(Mobile telephone) 10.(e-mail) 11.(Duty paid warehouse) 12.(Cold storage warehouse) 13.(Air Transport) 14.(Water Transport) 15.(Road Transport)

Q2. State with reasons whether the following statements are True or False.1. Central Bank (RBI) cannot accept deposits from public.Ans. This statement is True.

Reasons:1. Central Bank is Bankers Bank. It cannot accept deposits of money from public.2. Central bank does not give advances to public. It is banker to government.3. It makes collection and payments for governments for government. It is an agent and

an advisor and it regulates banking business.4. It executes monetary policy through commercial banks and financial institutes. It is

supreme authority of banking business.5. Maintains economic stability of the country, and also provides guidance to other

banks, whenever they face any problem. It helps economic development.6. Issues paper currency and directs and guides banking sector in the national interest.7. Central Bank fixes foreign exchange rate, and also provide guidance to other.

2. Overdraft facility is given to Saving Account holders.Ans. This statement is False.

Reasons:1. Saving Account is operated by common people.2. Overdraft facility is a temporary credit facility allowed to only current account holder.3. Bank overdraft is allowed up to a fixed limit to current account holder to meet their

business payments.4. Overdraft facility encourages trade, commerce and industry. It helps to pay routine

business expenses.5. A collateral security of fixed deposits may be taken by bank.6. The current account holder is allowed to draw up to agreed limit over and above his

balance in account.7. Interest is charged on actual amount overdrawn from 15% to 18% p.a.8. This facility is allowed for short period like one year and can be renewed.9. No separate account is opened/.10. In case of overdraft used current account shows debit balance.

3. Current Account is suitable for salaried people.Ans. This statement is False

Reasons.1. Current account is more suitable for traders, business firms, corporate, institutes etc.2. Savings account is more suitable for salaried people.3. Current account has no restriction on deposits and withdrawals.4. Current account is more useful to businessman to make frequent deposits and

withdrawals.5. Salaried people have fixed income and they have restriction on their savings

account.6. Purpose of savings account is to promote habit of savings among common people.7. Savings account credit balance gets interest of 4% to 6% p.a. to salaried and

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common people.8. Current account deposits has no benefit of earning of interest.9. Bank service charges are higher for current account holders than savings account.10. Savings account does not get any credit facility.

4. Cash can be withdrawn from ATM at any time.Ans. This statement is True.

Reasons:1. Automated Teller Machine (ATMS) are electronic machines, operated by customers

for depositing or withdrawing the cash.2. It is 24 hours service to customers.3. It allows ATM cardholders to draw cash any time needed by them.4. It allows to get record of balance in accounts also.5. It provides convenience to customers and it is more efficient and time saving.6. ATM maintains secrecy and confidential data is safeguarded.7. Money can be withdrawn from ATMs of the same bank or any other banks.8. Bank charges are debited when ATMs of other banks are used by account holders.9. It provides privacy, safety and precision.10. It is free from personal bias, red tapism, delays and prejudices.

5. The principle of Indemnity applies to Life Insurance.Ans. This statement is False.

Reasons:1. Indemnity principle does not apply to Life Insurance.2. Value of life of a person is infinite and unlimited.3. Loss of life cannot be compensated in terms of money.4. Life Insurance is an assurance of certain cover of money value on death of the

insured, during policy period.5. Indemnity means compensation in monetary terms.6. Indemnity principle applies to fire, marine and general insurance.7. It makes payment equal to actual loss of insured property.8. Loss of life or body organ cannot be compensated in money.9. In property insurance, indemnity helps to re-instate lost property.10. In life insurance only two principles are applicable.

The utmost Good faith and The Insurable Interest.6. Insured must have insurable interest in the subject matter at the time of taking

the policy.Ans. This statement is True.

Reasons:1. Insurable interest means risk of monetary loss, in case of damage of property or

death of person insured.2. Insurable interest is essential for every insurance contract.3. Ownership and legal possession or user status creates Insurable interest in any

subject or property.4. Family Relations like husband-wife, parents-children also makes insurable interest.5. Pecuniary interest between partners of a business firm, a creditor and debtors an

employer and employees also makes Insurable Interest.6. Insurable interest is necessary at the time of talking life insurance policy.7. In Fire, Insurance, Insurable Interest must exist at the time of taking Fire policy as

well as at the time of actual loss by fire, to insured subject.8. In Marine Insurance, insurable interest is essential, at the time of actual loss of ship,

cargo or freight lost with seaperils.9. Insurance contract is void when there is no insurable interest to policy holder or the

insured.10. Insurable interest is applicable to all insurance contracts.11. Due to insurable interest the insured suffers from a loss in money value on loss

destruction or death of the subject insured.7. An individual must always try to minimize the loss by fire as far as possible.Ans. This statement is True.

Reasons:1. An insured must take care of insured subject.2. In case of loss by fire the insured must minimize the risk of loss and save the

property.3. Principle of Mitigation explains that every insured person must take care of insured

property against risk of loss.4. It means in case of risk of loss by fire the insured must call for Fire Brigade take help

from neighbours to put off fire and to save goods from fire as much as possible.5. If the insured is found negligent, careless and reckless in his effort to save insured

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property form cause of risk, he will not get Indemnity.6. Every insured person must protect his insured property and take all reasonable man

of ordinary prudence.7. Mitigation is applicable in fire, marine and general insurance.8. It prevents scope for malicious acts and deliberate loss to insured subject.9. In absence of mitigation, no indemnity will be paid.10. Lack of mitigation denotes gross negligence on the part of the insured.

8. Air – Transport is suitable for short distance.Ana. This statement is False.

Reasons:1. Air – Transport is suitable for a long distance.2. It is the most expensive mode of transport and useful for light, precious and portable

articles.3. It is affordable to elite, rich customers like traders, businessmen, executives etc.4. It is not suitable for very short distance. It is not convenient in hilly, remote,

mountains areas.5. It has natural ways in space and has higher fare and freight to charges.6. It has huge capital investment and higher cost of maintenance.7. It cannot offer door services. Forest, mountains, hills etc. are speed breakers to air

transport.

9. Transport helps in raising standard of living.Ans. This statement is TRUE

Reasons :1. Transport links industry to market.2. It generates employment and income makes regular supply of essential commodities

to public, like food grains, medicines.3. It helps to make regular flow of seasonal goods.4. It makes supply of luxuries and comforts from international markets.5. It offers varieties of brands, designs, product, novelties, luxuries, necessaries

medicines etc. to global customers.6. It ensure price stability of products and promotes sectoral growth of Agriculture,

industry, trade, commerce, tourism, education recreation etc.7. It improves market demand, production employment, income and consumption

expenditure of people.8. It raises purchasing power and tendency for consumption among people.9. It integrates demand supply of goods and services from local to regional to global

market.10. It satisfies changing needs of people with varieties of trends, fashion, preferences,

tastes, flairs, likes and individual choice.11. It raises standard of living and improves lifestyles of people.

10. Water Transport is the costliest means of transport.Ans. This statement is False.

Reasons1. Water Transport is the cheapest transport and it has natural waterways.2. It has huge capacity to carry on goods and passengers.3. It has a large scale turnover charges for economic fare ad freight.4. It has low cost of fuel and power, labour and operation.5. It is affordable to large scale international transport of heavy and bulky goods.6. It has continuous business with loading and unloading of cargo on its voyage.7. It has relative low speed and is most economic for coastal transport.8. Most of the global trade is done through water transport.

11. Rail Transport provides door to door services.Ans. This statement is False

Reasons:1. Railway Transport is run on Rail Tracks.2. It does not operate on roads and it cannot give interior, local transport.3. It cannot give door services to customers.4. It is owned and operated by Railway Ministry.5. Rail transport is public sector service and cannot give personalized services.6. It is more suitable for long distances and it has huge network at national level.7. It is a service for masses and not for individual needs.

12. Post offices provide money remittances services.Ans. This statement is TRUE

Reasons:

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1. Post office provides remittances of money by ‘Money Order’ up to Rs.5000 at 5% commission, to the door of the payee, along with small message on Money Order form.

2. It offers remittance of money for exam fees by crossed ‘Indian Postal Orders’ in denomination of Rs. 5, Rs.10, Rs.20, Rs.50 and Rs.100 for competitions of students.

3. ‘Electronic Money Order’ (EMO) is provided from 10.10.2008, to remit quick and safe payment at the door of the payee.

4. ‘Instant Money Order’ (IMO) is provided to remit money up to Rs.50,000 to payee, who can collect or get credited it to his account.

5. ‘Money Order Videsh’ provides remittances to foreign countries and receiving remittances to foreign countries, from 24th October, 2009.

6. ‘International Money Transfer’ provides quick and easy way to remittances from abroad to the beneficiaries in India. It provides inward personal remittance to families of NRI, visiting foreign students and tourists in India.

7. ‘Money Gram’ payment system provided with cooperation from 29 th September, 2011.

8. ‘Foreign Exchange Services’ are provided with cooperation of HDFC Bank to foreign students tourists and businessmen.

9. ‘Electronic International Money Order Services’ are provided from February, 2008, between people of India and UAE. It is operated by International Financial System (IFS) of Universal Postal Union (UPU)

13. E-Payment facility is not available to general public.Ans. This statement is FALSE

Reasons :1. E-payment facility is available to general public.2. It is provided by post office, to pay bills under one roof.3. General public can pay their payments of telephone, electricity, taxes, fees etc.4. It provides simple and convenient e-payment solution.5. Post office collects such payments and pays to its client by consolidated cheques.6. This facility is operated with web-based software and it is an economic convenient

and time-saving.7. It provides safety and security of payments8. It helps all payments at one stop to customers.

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