INTERNATIONAL DAILY RISING SCHOOL

BUSINESS STUDIES CLASS 11

NATURE AND PURPOSE OF BUSINESS

(MIND MAP)
 LEARNING OBJECTIVES:
 History of trade & commerce in India: Indigenous Banking System; Rise of Intermediaries;
Transport; Trading Communities; Merchant Corporations; MajorTrade Centres; Major
Imports & Exports; Position of Indian Sub-Continent in theWorld Economy.
 Meaning of business with special reference to economic & non-economic activities.
 Features & Objectives of business.
 Concept & difference of Business, Profession & Employment.
 Role of profit in business.
 Classification of business activities: Industry & Commerce.
 Types of Industry.
 Commerce: Trade & auxiliaries to trade.
 Concept, Nature & Causes of business risk.

History of Trade and Commerce:-

India has Himalayas in the north, bordered by water in south. India got connected to adjoining foreign
countries through the network of roads leading to Silk Route. The maritime routes linked the east and
west by sea and were used for trade of species known as a Spice Route.
Role of business in the development of economy:
Business activities have been undertaken since the ancient era. There existed transfer of goods both
within and outside the country, and the income received from such economic business activities were
used for further investments.
Hundi: It is an instrument of exchange used in old times which involved a contract that warrants the
payment of money, a promise or order which is unconditional, and can be exchanged through transfer
by valid negotiation.
In ancient times many trade centres were developed for the import and export ofgoods like Patliputra,
Peshawar, Taxila, Indraprastha, Mithila, Maduram, Surat etc.

HUNDI AS PRACTICED BY INDIAN MERCHANT COMMUNITIES

Name of Hundi Classification Functions of Hundi

Dhani-jog Darshani Payable to any person-no liability over who received
payment.
Sah-jog Darshani Payable to a specific person, someone ‘respectable’.
Liability over who received payment.
Firman-jog Darshani Hundi made payable to order.
Dekhan-har Darshani Payable to the presenter or bearer.
Dhani-jog Muddati Payable to any person—no liability over who received
payment, but payment over a fixed term.
Firman-jog Muddati Hundi made payable to order following a fixedterm.
Jokhmi Muddati Drawn against dispatched goods. If goods lost in transit,
the drawer or holder bears the coasts & the Drawee
carries no liability.
Rise of Intermediaries:-
• Prominent role in promotion of trade.
• Provide financial security in return of risk taken.
• Comprises of Commission agent, broker and distributor.
• Foreign Trade was financed by loans.
• Later with emergence of credit transaction, exports exceeded import and benefited indigenous
banking system.
• Commercial bank and industrial bank evolved to finance trade and commerce.
• Agricultural bank evolved to provide short-term and long-term finance to agriculturist.

Maritime Trade:-
• Trade maintained by means of sea is referred to as maritime trade.
• Maritime trade was another important branch of global trade network.
• Malabar Coast, on which Muziris is situated. Pepper was particularly valued in the Roman Empire
and was known as ‘Black Gold’.

• It was in the search for an alternate route to India for spices that led to the discovery of America by
Columbus in the closing years of 15th century and also brought Vasco-da-Gama to the shores of
Malabar in 1498.
• Calicut was such a bustling emporium that it was even visited by Chinese ships to acquire items, like
frankincense (essential oil) and myrrh (fragrant resin used in perfumes, medicines) from the Middle
East, as well as, pepper, diamonds, pearls and cotton from India.
• On the Coromandel Coast, Pulicat was a major port in the 17th century. Textiles were the principal
export from Pulicat to Southeast Asia.

Merchant Corporation:-
• Formed to protect the interest of traders.
• Framed their own rules of membership and code of conduct which kings also accepted.
• Trade and industrial taxes were major source of revenue.
• The chief directly deal with king, tax collector and settle market toll on behalf of merchant at fixed
sum of money.

MAJOR TRADE CENTRES IN ANCIENT TIMES

1. Pataliputra: Known as Patna today. It was not only a commercial town, but also a major
centre for export of stones.
2. Peshawar: It was an important exporting centre for wool and for the importof horses. It had
a huge share in commercial transactions between India, China and Rome in the first
century A.D.
3. Taxila: It served as a major centre on the important land route between India and Central
Asia. It was also a city of financial and commercial banks. The city occupied an important
 place as a Buddhist centre of learning. The famous Taxila University flourished here.
4. Indraprastha: It was the commercial junction on the royal road where most routes leading
to the east, west, south and north converged.
5. Mathura: It was an emporium of trade and people here subsisted on commerce. Many
routes from South India touched Mathura and Broach.
6. Varanasi: It was well placed as it lay both on the Gangetic route and on the highway that
linked North with the East. It grew as a major centre of textile industry and became famous
for beautiful gold silk cloth and sandalwood workmanship. It had links with Taxila and
Bharuch.
7. Mithila: The traders of Mithila crossed the seas by boats, through the Bay of Bengal to the
South China Sea, and traded at ports on the islands of Java, Sumatra and Borneo. Mithila
established trading colonies in South China, especially in Yunnan.
8. Ujjain: Agate, carnelian, muslin and mallow cloth were exported from Ujjain to different
centres. It also had trade relations through the land route with Taxila and Peshawar.
9. Surat: It was the emporium of western trade during the Mughal period. Textiles of Surat
were famous for their gold borders (zari). It is noteworthy that Surat hundi was honoured in
far off markets of Egypt and Iran.
10. Kanchi: Today known as Kanchipuram, it was here that the Chinese used to come in
foreign ships to purchase pearls, glass and rare stones and in return they sold gold and
silk.
11. Madura: It was the capital of the Pandayas who controlled the pearl fisheries of the Gulf of
Mannar. It attracted foreign merchants, particularly Romans, for carrying out overseas
trade.
12. Broach: It was the greatest seat of commerce in Western India. It was situated on the banks
of river Narmada and was linked with all important marts by roadways.
13. Kaveripatta: Also known as Kaveripatnam, it was scientific in its construction as a city and
provided loading, unloading and strong facilities of merchandise. Foreign traders had their
headquarters in this city. It was a convenient place for trade with Malaysia, Indonesia,
China and the Far East. It was the centre of trade for perfumes, cosmetics, scents, silk,
wool, cotton, corals, pearls, gold and precious stones; and also for ship building.
14. Tamralipti: It was one of the greatest ports connected both by sea and land with the West
and the Far East. It was linked by road to Banaras and Taxila.

All human being, wherever they are, required to perform some or the other activity to satisfy their
needs. They pursue different occupations to earn a livelihood and to get some psychological
satisfaction. Activities which human beings undertake are known as human activities.

Classification of Activities

Economic Activities Non-Economic Activities

1. Economic Activities: Economic activities are any activities that are carried out with the goal of earning
money and livelihood. For example, a worker working in a factory, a teacher teaching in school etc.
It is majorly of three types:

Economic Activities

Business Profession Employment

2. Non-Economic activities: Activities which are performed out of love, affection, sympathy, etc &
without the aim of earning profit are called non-economic activities. For example -Social work,
religious activities etc.
Business:-
Any economic activity that is undertaken regularly and continuously to satisfy the societal needs as
well as to earn profit through the mechanism of sale and purchase of goods and services is called a
Business.
Characteristics of Business Activities:
1. An economic activity: Business consists of sale or exchange of goods and services with the primary
objective of earning money. Hence, it is an economic activity.
2. Sale or exchange of goods and services for creating value: In business there should be transfer or
exchange of goods or services for value. Production of goods for the purpose of personal
consumption is not termed as business.
3. Dealings in goods and services on a regular basis: To constitute a business there should be
dealings in goods and services on regular intervals. Doing one single transaction does not constitute
business. For example selling your old books or furniture and purchasing a new one is not termed as
business.
4. Production or procurement of goods and services: In every business enterprise before the
consumption, production takes place. As a result, a business either manufactures the goods on its
own or purchases them from producers, and then sells them to end customers.

5. Profit earning: The primary objective of every business is to earn more and more profit. No
business can survive without earning profit. Hence all the efforts of the businessman are directed
towards the earning of sufficient profit.
6. Uncertainty of return: It’s not certain how much profit a business is going to earn, as there is a
possibility of losses as well because of the changing environment. Every business has to handle both
losses as well as profits.
7. Element of Risk: Every business is exposed to certain risks, these risks can either be due to natural
factors, human factors, financial factors, or personal factors. Therefore, both profit and losses walk
hand in hand and every business has to take some risk in order to survive.
Profession:
Any economic activity which is carried out by a person with specialised knowledge & skills in order
 to serve society is called Profession.
Employment:
Any economic activity which involves doing work for someone else in consideration of money is
termed as Employment.

Comparison of Business, Profession and Employment

Basic Business Profession Employment

1. Mode of Entrepreneur’s decis- Membership of Appointment letter
establishment ion & otherlegal aprofessional body& & serviceagreement.
formalities,if necessary. certificate ofpractice.
2. Nature Provision of goods Rendering of Performing work as per
of work & services to personalised, expert service contract or rules
thepublic. services. of service.
[Link] No minimum Qualifications, expertise & Qualification & training
qualification is training in specific field as as prescribed by the
necessary. prescribed by the Employer.
professional body is a must.
4. Reward Profit earned. Professional fee. Salary or wages.
or return
5. Capital Capital investment Limited capitalneeded for No capital required
investment required as persize & establishment
nature of business.
6. Risk Profits are uncertain& Fee is generally regular and Fixed and regular pay; no
irregular; risk ispresent certain; some risk or little risk

7. Transfer of Transfer possible Not possible. Not possible.

interest with some formalities
8. Code of No code of conduct Professional code of Norms of behaviour laid
conduct is prescribed conduct is to befollowed. down by the employer
are to be followed
9. Example Shop, factory Legal, Jobs in banks,
medicalprofession, insurance companies,
chartered accountancy. government
departments.
 Multiple Objectives of Business

Economic Objectives Social Objectives Human or Personal Objectives

Multiple Objectives of Business:

1. Economic Objectives
2. Social Objectives
3. Human or Personal Objectives.
1. Economic Objectives:- Under economic objectives, the following objectives are included:
(i) Survival: The basic purpose of every organisation is to survive and exist in the competition
market for a long period of time & it is possible only when it is able to cover its cost and earn profit.
(ii) Profit: The most important objective of every organisation is earning adequate amount of profit.
Profit is essential for survival, growth and expansion of business.
(iii) Growth: The success of any organisation is measured by the growth rate and growth is
measured in terms of sales, number of branches etc.
2. Social Objectives:-
(i) Supply of Desired Quality of Products: Customer prefer to buy the products only when they are
of satisfactory quality and are available at a reasonable price. Today’s customer is a quality conscious
customer and he expects value for money.
(ii) Avoidance of Unfair Trade Practices: Anti-social or unfair trade practices include black
marketing, adulteration, hoarding, overcharging, etc. Exaggerating in advertisement s about the uses
of products is also an unfair trade practice.
(iii) Employment Generation: The business man must create employment opportunities and help in
overcoming this basic problem of developing countries. The business employs people to perform
different types of work.
(iv) Social Service or Community Service: The big companies can help in social service
programmes run by NGOs and Government organisations by contributing large amount of funds in
the form of donations, charity, etc.
(v) Avoidance of Pollution: As a businessman has added to spreading of pollution, so it becomes the
moral duty of the businessman come forward and help in solving the problem of pollution.
3. Human or Personal Objectives:-
(i) Providing good working condition.
(ii) Payment of competitive and satisfactory wages and salaries.
(iii) Personal growth and development of employee by imparting training to employees
(iv) Peer recognition and respect by encouraging employees to take initiative and participating in
decision-making.
Role of Profit in the Business:
(i) Survival: A business and businessman cannot survive for a long time without earning
adequate profit. Profit is a source of income for a businessman which becomes his means of
livelihood.
(ii) Expansion and Growth: The business is expanded only when it is earning sufficient amount
of profit. When profit is large, a part of it can always be reinvested for expansion or
diversification of production and other operations of the business.
(iii) Symbol of efficiency or an Index of Performance: Profits indicate whether a business is
being managed efficiently or not. Higher profits indicate the efficiency of management and
lowest profit indicate inefficiency of management.
(iv) Reward for bearing the risk: Profit is considered as a price or reward paid to a businessman
for bearing the risk. The desire to earn profit motivates the businessman to bear the uncertainties
and unexpected risks.
(v) Helps to gain reputation of goodwill: A profit earning company always has a better
reputation in the market as compared to companies which are running in loss.
Classification of business activities:-
The business activities are mainly classified into:
A. Industry
B. Commerce
 Trade
 Auxiliaries to Trade

Chart Showing Business Activities

A. INDUSTRY
It is basically concerned with the production of goods and services for an economic motive. It is
further divided into following categories:
1. Primary Industry.
2. Secondary Industry.
3. Tertiary Industry.
1. Primary Industry:
It includes all those activities which are concerned with the extraction & production of natural
resources and development of plants, etc.
It is further divided into two parts:
(a) Extractive industries: These industries provide some basic raw materials that are mostly products
of the natural environment. It includes farming, mining, etc.
(b) Genetic industries: These industries do breeding of plants and animals for their use in further
reproduction. Example- Cattle breeding, Poultry farms etc.
2. Secondary industries:-
These industries are concerned with further processing of the material extracted at the primary sector so
as to convert them into a finished product. Example, Mining of iron ore etc.
It is further divided into two parts:
(a) Manufacturing industries: These industries engage in producing goods through processing of raw
materials and creating utilities.

It is further divided into four parts:

(i) Analytical Industry: These industries separate and bifurcate different elements from the basic
material, so as to produce various by-products from the same element. For example, petrol, diesel etc.
all are made from one basic material that is crude oil.
(ii) Synthetic Industry: These industries bring together materials and ingredients from varied sources
and combine them to form a new product. For example, the cement industry.
(iii) Processing Industry: These industries are involved in the extractionand processing of resources
and raw materials, so as to produce semi-finished or finished products. For example, the Sugar
industry, Paper industry, Textile industry etc.
(iv) Assembly Industry: These industries bring together different components of various firms to
form a new product. For example, different components of various industries are brought together to
assemble them and convert it into a television, computer, car etc.
(v) Construction industries: These industries are involved in the construction sector, and it involves
constructive works such as building dams, bridges, buildings, etc.
3. Tertiary industry:-
These industries provide support services to primary and secondary industries so that they can
perform their work without any hindrances. For Example, Banking industry, Transportation industry,
Communication industry, etc.
B. Commerce:-
Commerce includes all the activities which are required for the exchange of goods and services. It
also involves all the activities that assists in removal of hindrances of people, place, time, finance,
risk, information faced during the exchange of goods and services.

1. Removing the hindrance of person- by marking goods available to consumers from the producers.
through trade.
2. Transportation removes hindrance of place- by moving goods from the place of production to the
markets for sale.
3. Storage and warehousing activities remove the hindrance of time- by facilitating holding of stock
of goods to be sold as and when required.
4. Insurance removes hindrance of risk of loss or damage of goods due to theft, fire, accidents etc.
5. Banking removes hindrance of finance- by providing funds to a businessman for acquiring assets,
purchasing raw materials and meeting other expenses.
6. Advertising removes hindrance of information- by informing consumers about the goods and
services available in the market.
Classification of Commerce:-
It includes two types of activities:
(a) Trade.
(b) Auxiliaries to Trade.

Trade
The buying and selling of goods and services with an aim to earn profit is termed as trade. The
people who are involved in trade are referred to as traders. Trade can be bifurcated as:
(a) Internal Trade and, (b) External Trade.
(a) Internal Trade: - It refers to buying and selling of goods or services within the geographical
boundaries of a country.
(i) Wholesale trade: It refers to buying and selling of goods and services in large quantities.
(ii) Retail Trade: It refers to buying and selling of goods and services in small quantities.
(b) External Trade: - It refers to buying and selling of goods or services beyond the geographical
limits of the country. It involves:
 (i) Imports: It refers to the purchase of goods and services from other countries.
(ii) Exports: Selling goods and services to other countries.
(iii) Entreport: Importing goods and services from one country & exporting to some third
country.
Auxiliaries to Trade:-
Auxiliaries to trade assists the buying and selling of the goods and services by removing the
hindrances of place, people, time, finance, risk and information.
The auxiliaries to trade are:
(a) Transport and Communication: Transportation helps in the movement of raw material and
finished products from the place of production to the place of consumption. Communication enables
easy interaction by one party with another, who is far away from each other. It assists in removal of
the hindrance cause due to place.
(b) Banking and finance: It helps business activities to overcome the problem of finance by lending
loans and credit facilities since business can't survive if funds are not available for procuring
material. It assists in removal of the hindrance cause due to finance.
(c) Insurance: It provides protection to businesses from various types of risks such as due to fire,
theft etc. It assists in curbing hindrances of risk.
(d) Warehousing: It helps business firms to overcome the problem of storage and facilitates the
availability of goods. It assists in curbing hindrances of time.
(e) Advertising and Public Relations: It helps them to increase the sales and widen the customer
base by promoting business products or services at a wide spectrum. It is a tool to influence
customers. It assists in curbing hindrances caused due to information.
(f) Middlemen: These people act as mediators between the producer and consumers. These include
wholesalers, retailers etc. It assists in curbing hindrances of persons.
Business Risk:-
The risk caused due to inadequate profits or losses as a result of uncertainties or unexpected events
is called business risk.
Nature of Business Risks:-
(i) Risk is an essential part of every business: Every business has some risk. No
business can avoid risk, although the amount of risk may vary from business to business.
Risk can be minimised,but cannot be eliminated.
(ii) Business risks arise due to uncertainties: Uncertainty refers to the lack of
knowledge about what is going to happen in future. Natural calamities, change in demand
and prices, changes in government policies and prices, improvement in technology,
etc., are some of the examples of uncertainty which create risks for business because the
outcomes of these future events are not known.
(iii) Degree of risk depends mainly upon the nature & size of business: Nature of
business (i.e., type of goods & services produced and sold) and size of business (i.e.,
volume of production & sale) are the main factors which determine the amount of risk in a
business. For ex, a business dealing in fashionable items has a high degree of risk.
Similarly, a large-scale business generally has a higher risk than what a small scale has.
(iv) Profit is the reward for risk taking: ‘No risk, no gain’ is an age-old principle which
applies to all types of business. Greater the risk involved in a business, higher is the chance
of profit. An entrepreneur undertakes risks under the expectation of higher profit. Profit is
thus the rewardfor risk taking.
Causes of business risks:
(a) Natural causes: These are due to natural causes such as floods, earthquakes, etc. Every person
has little control or no control over these causes.
(b) Human causes: These causes include unexpected events caused by man, such as negligence of
employees, power failure, employee’s or customer’s dishonest practices etc.
(c) Economic causes: The economic causes involve the changes and variations taking place in the
economy such as uncertainties due change of technology and method of production, political
disturbances, change in prices, tax rates etc.
(d) Other causes: All those causes which cannot be considered under the above causes are the other
causes, such as exchange rate fluctuations etc.
Factors for Starting a business:
1. Selection of type of business: First step is to decide the nature and size of business which person
wants to do. It depends upon customer requirements inthe market and also the knowledge that person
has about the product. A person can enter primary, secondary or tertiary industry, based on the
possibility of profit, demand, customer preference etc.
2. Size of Business: Every person has to decide whether it wants to operate on alarge scale or at a
medium scale. It depends upon demand for the product & the necessary capital that person has. If a
person is optimistic about all the factors, he can open up his business on a large scale & vice- versa.
3. Location of business enterprise: It's another important factor while starting a business. The
location of business is dependent on the easy availability of raw material & labour, banking
services, transportation services nearby etc. Any mistake in this can result in high losses to
business.
4. Financing the proposition: For every business, availability of capital or funds is an important
factor while starting a business. Because capital is needed in each activity and aspect of business,
such as in investment in fixed assets, stocks, meeting day to day expenses, etc.
5. Physical facilities: Availability of Machines, Equipment & Building is also considered while
starting a business. The extent of physical facilities dependsupon the nature and size of business &
availability of funds.
6. Competent and committed workforce: Every business needs competent workforce to run its
business operations smoothly. Proper planning and training should be done for hiring employees at
the right position and at the right time and cost.
7. Launching the enterprise: After all these steps, a person can go ahead with starting a business. It
can be a partnership firm, a sole proprietorship firm, a company etc.
8. Tax planning: Because of increasing tax laws in the country every business has to do proper tax
planning in advance to save itself from any problem in future.
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 SELF ASSESSMENT:

1. State the meaning of business.

2. How would you classify business activities?
3. Distinguish between business, profession & employment.
4. What are the various types of industries?
5. State the causes of risks involved in business?
6. What is the role of profit in business?