Class XI Session 2025-26

Subject - Business Studies

Sample Question Paper - 8
Time Allowed: 3 hours Maximum Marks: 80

General Instructions:

1. This question paper contains 34 questions.

2. Marks are indicated against each question.

3. Answers should be brief and to the point.

4. Answers to the questions carrying 3 marks may be from 50 to 75 words.

5. Answers to the questions carrying 4 marks may be about 150 words.

6. Answers to the questions carrying 6 marks may be about 200 words.

7. Attempt all parts of the questions together.

1. Exemption from paying taxes for 5 to 10 years is known as ________. [1]

a) tax deduction b) TDS

c) tax holiday d) Value Added Tax

2. Business transaction taking place within the geographical boundaries of a nation is known as a domestic or [1]
national business. It is also referred to as internal business or home trade. Manufacturing and trade beyond the
boundaries of one’s own country is known as international business.
Permitting another party in a foreign country to produce and sell goods under your trademarks, patents, or
copyrights in lieu of some fee is another way of entering into international business. This is through ________.

a) sale of goodwill b) sale of trademark

c) sale of copyrights d) licensing and franchising

3. Assertion (A): There are three major forms that a Public enterprise may take. [1]
Reason (R): Any organisation in the public sector should ensure organisational performance productivity and
quality standards.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

4. Mail order business is most suitable when: [1]

a) Customers are concentrated in one area b) Goods can be graded and standardised

c) Goods are perishable d) Goods are bulky

5. Limit of investment in small scale industry is ________. [1]

a) ten lakh b) five crore

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 c) two crore d) ten crore
6. Expand VPN: [1]

a) Virtual Public Network b) Virtual Personal Network

c) Virtual Popular Network d) Virtual Private Network

7. Statutory corporations are ________. [1]

a) department b) public enterprises

c) sole proprietorship d) private enterprises

8. Assertion (A): If a person, through his/her own initiative, conduct or behaviour, gives an impression to others [1]
that he/she is a partner of the firm, he/she is a partner by Estoppel.
Reason (R): Partner by Estoppel is liable for the debts of the firm.

a) Both A and R are true and R is the correct b) Both A and R are true but R is not the
explanation of A. correct explanation of A.

c) A is true but R is false. d) A is false but R is true.

9. Which of the following is an internal cause leading to sickness and closure of sick small business units? [1]

a) Lack of demand for their products b) Shortage of working capital

c) Delayed payment d) Lack of skilled and trained labour

10. The modern concept of shopping which provides multiple facilities at one place is known as: [1]

a) Retail Shop b) Super Bazar

c) Wholesale Shop d) Malls

11. Which of the following statements is incorrect regarding debentures? [1]
A. Interest paid on debentures is tax-deductible.
B. Debentures do not carry voting rights.
C. It preferred by investors who want fixed income at lesser risk.
D. Issue of debentures dilutes the control of equity shareholders on management.

a) Only A b) Only D

c) Only C d) Only B
12. ________ can check the price fluctuations in the market by holding back the goods when prices fall and [1]
releasing the goods when prices rise.

a) Wholesaler b) Retailer

c) Agent d) Mercantile agent

13. Membership in Joint Hindu Family Business occurs by which of the following modes: [1]

a) residing b) Agreement

c) Birth d) Marriage
14. The government of India used which parameter to explain small industries? [1]

a) Investment in plant and machinery b) Power consumed for business activities

c) Volume of output d) Number of persons employed in business

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15. Which of the following can explain the need for pollution control? [1]

a) Reduced risk of liability b) Reduction of health hazards

c) All of these d) Cost savings

16. Which of the following statements is incorrect about e-banking? [1]

a) Helps to perform virtual banking functions b) Has emerged due to advances in

information technology

c) Services can be availed at any hour d) Has increased the load on the branches
17. Expand SIDBI: [1]

a) Small Industries Development Bank of India b) Society Industrial Development Bank of

India

c) Super Industrial Development Bank of India d) Small Indian Development Bank of India
18. Business risk is not likely to arise due to: [1]

a) Changes in government policy b) Employee dishonesty

c) Good management d) Power failure

19. Which problem is not faced by small businesses in India? [1]

a) Abundant finance to carry out its operations b) High operating cost due to operating below
full capacity

c) Human resources with little managerial and d) Use of outdated technology

technical knowledge
20. A proposed name of the Company is considered undesirable if: [1]
A. It resembles closely with an existing company the name of an existing company.
B. It is an emblem of Government.
C. It is identical with the name.

a) Only A b) All of these

c) Only C d) Only B
21. Write short notes on the following: [3]
i. UNCTAD
ii. MIGA
OR
Differentiate between open and closed indent.
22. Define the terms Economic and Non-Economic activity. [3]
Classify the following activities into economic and non-economic activities:
i. Smita cooking food for her family.
ii. A person selling cold drinks on the station.
iii. A student praying in temple for good marks in the test.
iv. The doctor treating patients at his clinic.
v. An old lady attending 'Satsang'.
vi. A person teaching his daughter for her Board Exams.

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 OR
Distinguish between Business, Profession and Employment on the following basis:
i. Nature of work
ii. Reward
iii. Risk
23. Distinguish between Wholesaler and Retailer on the basis of Capital and Profit margin. [3]
24. Mayank has a surplus money of Rs. 25,00,000, which he wants to invest either in equity shares or in preference [3]
shares. Two real estate companies (Magic Estate and Skylark Enterprises), with almost the same
creditworthiness, are launching their public issue. Magic Estate is coming up with a public issue of preference
shares, while Skylark Enterprises is coming up with equity shares. Mayank is confused about the two issues. He
consulted his friend Gaurav, who is a portfolio manager and Gaurav convinced him to invest the money in
Magic Estate due to ‘Preferential Rights’ of preference shareholders over equity shareholders.
State the ‘Preferential Rights’ stated by Gaurav, which convinced Mayank to invest in Magic Estate.
25. Rakhi Footwear Ltd. deals in shoes. This company has opened 500 shops in different places in the whole [4]
country. The specialty of the business of this company is that at all its shops the goods available are of the same
type and their price also is the same. By starting this type of business the company has done away with the
Middlemen. The people are happy to buy goods from the producer or manufacturer directly.
Identify the trade of 'Rakhi Footwear Ltd.' and describe any five of its advantages.
26. What do you mean by auxiliaries to trade? Briefly explain the common auxiliaries to trade. [4]
OR
People misinterpret business as having only economic objectives. Make the concepts clear regarding the objectives of
the business.
27. After completing a course in gemology, Esha joins her father in the family business of fashion jewellery. Her [4]
father owns two showrooms at different locations in the city and operates his business through them. However,
Esha intends to expand the business by venturing into online retailing. She also intends to introduce flexible
manufacturing with the use of computer networks wherein the marketing department can interact constantly with
the production department and get the customized products made as per the requirements of the individual
customer.
a. How is the mode of business that Esha intends to adopt different from the one that her father has been
following over the years?
b. Distinguish between the two different modes of business as identified in part (a) of the question by giving
any four points.
28. Statutory Corporation has several merits as compared to other public sector enterprises. Discuss any four such [4]
merits.
OR
Define Public-Private Partnership. Enlist its main features.
29. Indian Oil Corporation has taken several initiatives like providing clean drinking water, operating child and [4]
maternity health centres, construction of school buildings, libraries, and providing financial help to deserving
students from poor and needy families through scholarship.
i. Why do you think IOC needs to take such initiatives?
ii. Identify two values which are followed by IOC by doing such activities.

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30. What is the process of registration of copyright? [4]
31. Rahul, the owner of a commercial printing press in Mysore, is looking to expand his business by upgrading his [6]
equipment. He plans to import a state-of-the-art printing machine from Germany, which offers the latest
technology in printing. With this new addition, Rahul aims to enhance the quality and efficiency of his services,
cater to a larger client base, and stay competitive in the market. This investment will enable him to offer
advanced printing solutions and improve the overall productivity of his business.
As he is a new entrant in international trade you are requested to appraise him about the various steps of the
import procedure that he needs to perform before placing an order?
32. Discuss the types of partners. [6]
OR
Explain the factors to be considered while selecting a form of organization.
33. Qureshi had aspired to start a Thai food restaurant from his childhood. On completing his education he shared [6]
his childhood dream with his father. Therefore, the father-son duo decided to approach a nearby bank for
obtaining a loan. His father's foremost concern was to raise finance for the business as his savings would be
insufficient for starting a business.
In the context of the above case answer the following:
a. Define the term business finance.
b. Briefly outline the importance of business finance.
c. The two types of funds on the basis of ownership are being discussed above. Identify and differentiate
between them by giving any three suitable points.
34. Explain the functions of commercial banks with an example of each. [6]
OR
An Employer wants to get himself insured against the loss likely to be suffered on account of the fraud, dishonesty
and embezzlement of his employees. State the type of Insurance which the employer will have to get done. What do
you know about this type of Insurance?

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 Solution

1.
(c) tax holiday
Explanation:
Exemption from paying taxes for 5 to 10 years is known as Tax Holiday.

2.
(d) licensing and franchising
Explanation:
Permitting another party in a foreign country to produce and sell goods under your trademarks, patents or copyrights in lieu of
some fee is another way of entering into international business is through licensing and franchising.

3.
(b) Both A and R are true but R is not the correct explanation of A.
Explanation:
The 3 forms of organisation that a public enterprise may take are as follows:
i. Departmental undertaking
ii. Statutory corporation
iii. Government company

4.
(b) Goods can be graded and standardised
Explanation:
C

5.
(d) ten crore
Explanation:
A small enterprise is an enterprise whose investment in plant, machinery and equipment does not exceed Rs.10 crore, and
turnover does not exceed Rs.50 crore.

6.
(d) Virtual Private Network
Explanation:
A VPN, or Virtual Private Network, is a type of network connection that allows users to browse the web securely and
anonymously.

7.
(b) public enterprises
Explanation:
Statutory corporations are public enterprises brought into existence by a special act of the parliament.

8.
(b) Both A and R are true but R is not the correct explanation of A.
Explanation:
Partners by Estoppel are held liable for the debts of the firm because in the eyes of the third party they are considered partners,
even though they do not contribute capital or take part in its management.

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 9.
(d) Lack of skilled and trained labour
Explanation:
Small business firms cannot afford to pay higher salaries to employees.

10.
(d) Malls
Explanation:
Malls are the place where multiple facilities are provided.

11.
(b) Only D
Explanation:
Debenture holders are a debt of the company and are not allowed to take their own decisions in the company.

12. (a) Wholesaler

Explanation:
Wholesalers can check the price fluctuations in the market by holding back the goods when prices fall and releasing the goods
when prices rise.
13.
(c) Birth
Explanation:
The basis of membership in the business is Birth in a Particular family

14. (a) Investment in plant and machinery

Explanation:
The parameter used to describe small industries is investment in plant and machinery.
15.
(c) All of these
Explanation:
Reduced risk of liability, reduction of health hazards, cost savings can explain the need for pollution control.

16.
(d) Has increased the load on the branches
Explanation:
E-banking has decreased the load on the branches.

17. (a) Small Industries Development Bank of India

Explanation:
Small Industries Development Bank of India (SIDBI) is a wholly-owned subsidiary of IDBI.
18.
(c) Good management
Explanation:
Business risk is the possibilities a company will have lower than anticipated profits or experience a loss rather than making a
profit. Business risk is influenced by numerous factors, including sales volume, per-unit price, input costs, competition, and the
overall economic climate and government regulations. Good management means taking proper decisions avoiding risk.

19. (a) Abundant finance to carry out its operations

Explanation:

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 Small businesses are always in a lack of finance problems.
20.
(b) All of these
Explanation:
A proposed name of the Company is considered undesirable if it resembles closely with an existing company the name of an
existing company, it is an emblem of Government and it is identical with the name.

21. i. United Nations Conference on Trade and Development (UNCTAD): UNCTAD that comes into being in 1964 is the
international institution shaping international trade. The widening trade gap between developed and developing countries. The
general dis-satisfaction of developing countries with the GATT and the need for international economic cooperation led to the
setting up of UNCTAD.
Few basic functions of UNCTAD are:
(i) To promote international trade with a view to accelerating economic development.
(ii) To formulate principles and policies on international trade and related problems of economic development.
ii. MIGA : The Multinational Investment Guarantee Agency was established in April 1988 to supplement the functions of the
World Bank and International Finance Corporation.
Few objectives of MIGA are :
(i) To encourage the flow of direct foreign investment into the less developed member countries.
(ii) To provide insurance cover to investors against political risks.
(iii) To provide promotional and advisory services.
(iv) To establish creditability.
OR
The close indent is that document which restrict or limit the agent to named the manufacturer from whom the goods need to be
bought or purchased. The open indent is that document which provide the agent a free hand in gaining the goods from any source.
22. Economic activities: Economic activities are those activities which are performed to earn a livelihood.
Non-economic activities: Non-economic activities are those activities which are performed to satisfy social, psychological and
emotional needs.
i. Smita cooking food for her family - Non-Economic Activity
ii. A person selling cold drinks on the station - Economic Activity
iii. A student praying in temple for good marks in the test - Non-Economic Activity
iv. The doctor treating patients at his clinic - Economic Activity
v. An old lady attending 'Satsang' - Non-Economic Activity
vi. A person teaching his daughter for her Board Exams - Non-Economic Activity
OR
Basis Business Profession Employment

Performing work as per

Provision of goods and Rendering of professional
(i) Nature of work services contract or rules of
services expert services.
services

(ii) Reward Profits earned. Professional fees. Wages or salaries.

The fee is generally regular No or little risk as wages or

(iii) Risk Is subject to maximum risk.
and certain; minimum risk. salaries is fixed.

23. Basis Wholesaler Retailer

Wholesaler requires a large amount of capital for

Capital The retailer can manage with small capital.
his business.

Profit The wholesaler sells at a very low-profit margin The retailer sells at a higher profit margin because of expenses
margin due to fast turnover. on the window dressing.
24. The preference shareholders enjoy two preferential rights over equity shareholders:
i. Right to receive a fixed rate of dividend before any dividend is paid to equity shareholders.
ii. Right to receive repayment of capital on winding up of the company, before the capital of equity shareholders is returned.

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25. The name of trade of 'Rakhi Footwear Ltd.' is 'Chain Store'. Its main merits/advantages are the following:
Merits of Chain Store are as follows:
1. Economies of scale: As there is central procurement, the multiple-shop organisation enjoys the economies of scale.
2. Elimination of middlemen: By selling directly to the consumers, the multiple-shop organisation is able to eliminate
unnecessary middlemen in the sale of goods and services.
3. No bad debts: Since all the sales in these shops are made on cash basis, there are no losses on account of bad debts.
4. Transfer of goods: The goods not in demand in a particular locality may be transferred to another locality where it is in
demand. This reduces the chances of dead stock in these shops.
5. Low cost: Because of centralised purchasing, elimination of middlemen, centralised promotion of sales and increased sales,
the multiple shops have lower cost of business.
26. Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are generally referred to as
services because these are in the nature of facilitating the activities relating to industry and trade. Transport, banking, insurance,
warehousing, and advertising are regarded as auxiliaries to trade, i.e., activities playing a supportive role.
Auxiliaries to trade are briefly discussed below:
i. Transport and Communication: Production of goods generally takes place in particular locations.
ii. Banking and Finance: Business activities cannot be undertaken unless funds are available for acquiring assets, purchasing
raw materials and meeting other expenses. Necessary funds can be obtained by businessmen from a bank. Thus, banking helps
business activities to overcome the problem of finance.
iii. Insurance: Business involves various types of risks. Factory building, machinery, furniture etc. must be protected against fire,
theft and other risks. Materials and goods held in stock or in transit are subject to the risk of loss or damage.
iv. Warehousing: Goods are not sold or consumed immediately after production. They are held in stock to make them available
as and when required. Special arrangement must be made for storage of goods to prevent loss or damage.
v. Advertising: Advertising is one of the most important methods of promoting the sale of products, particularly, consumers
goods like electronic goods, automobiles, soaps, detergents etc. Most of these goods are manufactured and supplied in the
market by numerous firms-big or small.
OR
Along with economic objectives, the business also has social objectives which are as follows:
i. Supply good quality products: Businessmen should produce and supply products of proper quality and at reasonable prices
to satisfy the expectations of consumers.
ii. Avoidance of unfair trade practices: Practices such as black marketing, adulteration, etc. should be avoided.
iii. Employee welfare: Employers should provide good working conditions, fair and just treatment, and impressive wages along
with social security to their employees.
iv. Generation of employment: A businessman must create employment opportunities so that different sections of the society
can earn their livelihood.
v. Conservation of the environment: Business enterprises should take the necessary steps to protect the environment. A proper
arrangement should be made for the disposal of effluents, wastes, etc.
vi. Contribution to social welfare: Business plays a proactive role in the general welfare of society. The Business lends support
to social, cultural, religious, research, and development organizations by building schools, hospitals,etc.
27. a. Esha intends to start e-business, whereas her father is following the traditional business.
b. The difference between e-business and traditional business is as follow:
S. Basis of
Traditional business e-business
No distinction

Ease of The procedure involved in setting up the business is The procedure involved in setting up the
1.
formation difficult. business is simple.

Physical
2. Required Not required
presence

Cost of Investments are low as there is no need for

3. High investment is needed
setting up physical facilities

4. Operating Operating cost is high due to fixed charges associated with The operating cost is low since the business
cost an investment in procurement and storage, production, operates on a network of relationships rather
marketing, and distribution facilities. than ownership of resources.

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28. i. They enjoy independence in their functioning and a high degree of operational flexibility. They are free from undesirable
government regulation and control
ii. Since the funds of these organisations do not come from the central budget, the government generally does not interfere in
their financial matters, including their income and receipts.
iii. Since they are autonomous organisations they frame their own policies and procedures within the powers assigned to them by
the Act. The Act may, however, provide few issues/ matters which require prior approval of a particular ministry.
iv. A statutory corporation is a valuable instrument for economic development. It has the power of the government, combined
with the initiative of private enterprises.
OR
Public-Private Partnership refers to an enterprise in which a project or service is financed and operated through a partnership of
Government and private enterprises.
The following are the main features of PPP:
i. PPPs are related to high priority government planned projects.
ii. PPP's main objective is to combine the skills, expertise, and experience of both the public and private sectors to deliver high-
quality services.
iii. PPP's divide the risk between the public and private sectors.
iv. The government remains accountable for the quality and costs of the services.
29. Need for IOC to do such activities are because:
i. To play a fair role in civic affairs.
ii. To provide and promote general amenities and help in creating better living conditions in general.
iii. To preserve and promote social and cultural values.
iv. To take steps for developing backward areas through providing free education to children of slum areas.
Two values upheld by IOC by discharging such activities -
i. Maintenance of society.
ii. Holding business responsible for Society Related Issues.
30. The process of registration of copyright:
i. A completed application form. In most instances, you can submit an online form or mail a paper form. Online applications
have lower filing fees and faster processing times than paper applications.
ii. A filing fee for online forms or paper forms.
iii. Copies of the work you are registering.
31. Before placing an order for the import of a printing machine, Rahul needs to perform the following steps:
a. Trade inquiry: Rahul should explore the websites of the relevant dealers and send a written request to the shortlisted exporter
for quotations. A quotation contains information regarding the price and various terms and conditions on which the latter is
ready to export goods.
b. Procurement of import license: Rahul needs to obtain an import license. It is obligatory in India for every importer to get
registered with the Directorate General Foreign Trade (DGFT) or Regional Import Export Licensing Authority and obtain an
Import Export Code (IEC) number which is required to be mentioned on most of the import documents.
c. Obtaining foreign exchange: After obtaining the licence (or quota, in case of an established importer), the importer has to
make arrangement for obtaining necessary foreign exchange since the importer has to make payment for the imports in the
currency of the exporting country.
32. i. Active partner: Active partner is one who contributes capital, participates in the management of the firm, shares its profits
and losses and is liable to an unlimited extent to the creditors to the firm.
ii. Sleeping or Dormant partner: Partners who do not take part in the day to day activities of the business are called Sleeping
Partners. Sleeping Partner contributes capital to the firm, shares its profits and losses, and has Unlimited Liability.
iii. Secret partner: A partner whose association with the firm is not known to the general public is called a secret partner. He
also contributes capital, shares profits, and losses, participates in the management of the business, and has unlimited liability.
iv. Nominal partner: A partner who allows the partnership firm to use his/her name but does not contribute any capital or take
part in the management and affairs of the business. He does not share the profits and losses of the firm but he is liable to the
creditors for the repayment of the firm's debts.
v. Partner by estoppel: Partner by estoppel is a partner who, through his/her conduct or behavior, gives the impression that
he/she is a partner of a particular firm. Although such a person neither contributes capital nor participates in the management

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 of the business. In the eyes of the third party, he is known as a partner of that firm. Hence, he too is liable for the debts of the
firms.
vi. Partner by holding out: A person, who is not actually a partner of a firm but knowingly allows himself/herself to be
represented as a partner of the firm. Such a person can be held liable for the repayment of debt extended to the firm due to
such representation. In order to avoid this liability, such a person should immediately clarify his position to the third party,
stating the fact that he is not a partner. Failure in clarifying the same would make him liable to the third party for repayment of
any debts taken by the partnership firm.
OR
It is evident that each form of organization has certain advantages as well as disadvantages. Therefore, it is important to choose an
appropriate form of organization by keeping the below factors in mind:-
i. Cost and ease in setting up the organization: From the point of view of initial cost, a sole proprietorship is the preferred
form as it requires very small investment. A company form of organization, on the other hand, is more complex and involves
greater costs.
ii. Liability: In the case of sole proprietorship and partnership firms, the liability of the owners/ partners is unlimited. In Joint
Hindu Family Business, only the Karta has unlimited liability. In Co-operative societies and companies, however, liability is
limited.
iii. Continuity: In case the business needs a permanent structure, the company form is more suitable. For short term ventures,
Sole proprietorship is mostly preferred.
iv. Management ability: A sole proprietor may find it difficult to have expertise in all functional areas of management. In other
forms of organizations like partnership and company, there is no such problem. The company is the most favored option here.
v. Capital consideration: Companies are in a better position to collect a large amount of capital by issuing shares to a large
number of investors. Partnership firms also have the advantage of the combined resources of all partners. But the resources of
a sole proprietor are limited.
vi. Degree of control: If direct control over operations and absolute decision-making power is required, a sole proprietorship
may be preferred. But if the owners do not mind sharing control and decision making, partnership or company form of
organization can be adopted.
33. a. The funds required by the business to carry out its various activities is called business finance.
b. Finance is called the lifeblood of any business. The need for funds arises from the point when an entrepreneur decides to start
a business. Funds are required to buy fixed assets like plant and machinery. Som e funds are also required for meeting day-to-
day business operations, like purchasing raw materials, paying salaries to employees, bills and so on. Moreover, funds are
needed for the expansion of a business.
c. The two types of funds on the basis of ownership, being discussed above are owned funds and borrowed funds. The difference
between them is as follows:
S.
Basis Owned Funds Borrowed Funds
No

The funds that are invested by the owners of an enterprise,

like a sole proprietor or partners or shareholders of a The funds raised through loans or
1. Meaning
company are known as owner's funds. It also includes borrowings are known as borrowed funds.
retained profits.

These funds are provided for a specified

These funds remain invested in the business for a longer
period, on certain terms and conditions and
2. Time period duration and is not required to be refunded during the life
have to be repaid after the expiry of that
period of the business.
period.

Management Such capital forms the basis on which owners acquire their The providers of these funds do not acquire
3.
and control right of control of management. any right of control of management.

34. A commercial bank is a profit-based financial institution that grants loans, accepts deposits, and offer other financial services such
as overdraft facilities and electronic transfer of funds.
The main functions of commercial banks are-
i. Collection of deposits: These banks accept deposits from their clients. The depositors can withdraw their money from their
accounts in the form of cash or through cheques and drafts. Higher rate of interest is paid on fixed deposits as compared to the
savings accounts.

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 ii. Granting loans: Banks grants loans to industry, trade, and commerce. These loans can be given in the form of overdrafts, cash
credits, discounting trade bills, term loans, consumer credits, and other miscellaneous advances.
iii. Collection of cheques and bills: Banks collect the cheques for their customers drawn on other banks. There are two types of
cheques mainly:
(a) Bearer cheques, which are encashable immediately at bank counters and
(b) Crossed cheques are to be deposited only in the payee's account.
To collect cheques, banks have clearinghouses.
iv. Allied Services: These banks also provide allied services such as bill payments, locker facilities, underwriting services. Banks
also perform other services like opening Demat and trading accounts of customers for buying and selling shares and
debentures on instructions and other personal services like payment of insurance premium, collection of dividends, etc.
v. Custodial services: Commercial banks act as custodians by providing protection to the valuable articles of their clients.
vi. Issue of letter of credit: Letter of credit is a very important document in external trade. It gives assurance of payment on
behalf of the importer. The letter of credit is issued by the importer’s bank to the exporter’s bank to give assurance of payment
on delivery of goods in the importer’s county.
OR
The employer will have to get the 'Fidelity Insurance to protect himself against such a risk.
Fidelity Insurance: Fidelity insurance contract is between an insurance company and some employer. Under this insurance, the
insurance company compensates for the loss suffered by the insured employer on account of the fraud, dishonesty, and
embezzlement of his employees. It can, therefore, be said that this insurance provides security against the breach of faith by the
employees and the subsequent loss caused by such a breach of faith. This insurance is mostly taken where the employees are in
charge of the cash and goods of the company. If some employee indulges in fraud, dishonesty, and embezzlement, the loss is
compensated by the insurance company.
Features: The chief features of fidelity insurance are the following:
i. Subject matter: The subject-matter is tangible in other insurance contracts. In other words, it can be seen or touched e.g.
building, goods, ships etc. But the subject matter of the fidelity insurance is intangible. This insurance is got in respect of the
fidelity of the employees and fidelity cannot be seen or touched.
ii. Service Conditions: The service conditions of the group of employees or an individual employee for whom the insurance
policy is taken cannot be changed without consulting the insurance company.

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