Chapter 4: Business Services

Q1. Answer the Following

Sol.
(A) Meaning:
Insurance is a contract under which one party (insurer) agrees in return of a consideration
(insurance premium) to pay an agreed sum of money to another party (insured) to make good
for a loss, damage or injury to something of value, in which the insured has financial interest
as a result of certain event.
(B) Principles of Insurance:
(1) Principle of Utmost good faith:
In all types of insurance contracts both the parties must have utmost good faith towards each
other. The insurer and insured must disclose all material facts clearly, completely and
correctly. The insured must provide complete, clear and correct information of the subject
matter of insurance to the insurer. Similarly, the insurer must provide relevant information
regarding terms and conditions of the contract. Failure to provide complete, correct and clear
information may lead to non-settlement of claim.
Example: Mr. Shantanu has not provided information regarding his heart surgery at the time of
taking policy. After his death, insurance company comes to know about this fact. As Mr.
Shantanu has not provided correct and complete information at the time of taking policy,
insurance company can refuse to give compensation to his family members.
(2) Principle of Insurable interest:
Insurable interest means some financial interest in the subject matter. The insured must have
insurable interest in the subject matter of insurance. Insurable interest is applicable to all
insurance contracts. It is said to have insurable interest in subject matter, when the existence
of that subject matter puts the insured in financial benefit. Whereas non-existence of subject
matter put him into financial loss.
Example:
(i) a person has insurable interest in his own life and property.
(ii) a businessman has insurable interest in the goods he deals and in the property of business.
In life insurance, the insurable interest refers to the life insured. Insurable interest must exist
at the time of taking a life insurance policy,
(3) Principle of Indemnity:
Indemnity means a guarantee or assurance to put the insured in same financial position in
which he was immediately prior to the happening of the uncertain event. This principle is
applicable to fire, marine and general insurance. It is not applicable to life insurance as loss of
life can never be measured in monetary terms. In case of death of the insured, the actual sum
assured is paid to the nominee of the insured. Under this principle, the insurer agrees to
compensate the insured for the actual loss suffered. The amount of actual compensation is
limited to the amount assured or the loss, whichever is less.
Example: If property is insured for Rs. two lacs and if the loss by fire is Rs. One lac, then the
insured can claim compensation of Rs. One lac only.
(4) Principle of Subrogation:
This principle is applicable to all contracts of indemnity. As per this principle, after the insured
is compensated for the loss due to damage of the property insured, then the right of
ownership of such property passes on to the insurer. This principle is applicable only when the
damaged property has any value after the event causing the damage.
Example: Mr. A owns a two-wheeler. The vehicle was stolen and subsequently Mr. A filed a
complaint in local police station. Upon receiving report from police, the insurance company
compensated fully Mr. A for the loss of the vehicle. Later on the stolen vehicle was recovered
by police. In this situation, the owner of the vehicle does not have any claim over the vehicle
as he has already subrogated ie. transferred the ownership rights of the vehicle to the insurer.
The insurer gets every right to sell or to scrap the said vehicle.
(5) Principle of Contribution:
This principle is applicable to all contracts of indemnity where the insured has taken out more
than one policy for the same risk or subject matter. Under this principle, the insured can claim.
the compensation only to the extent of actual loss either from one insurer or all the insurers. If
the one insurer pays full compensation then that insurer can claim proportionate amount from
other insurers from whom insured has taken policy.
Example: Ms. Sayali insures her property of Rs. Two Lac Fifty Thousand with two insurers, with
T Insurance Co. for Rs. One Lac(2/5th of the property value) and R Insurance Co. for Rs. One
Lac Fifty Thousand (3/5th of the property value). If Ms. Sayali 's property is destroyed and the
loss is worth Rs. One Lac Twenty Thousand, then both insurance companies will contribute
towards actual loss i.e. Rs. One Lac Twenty Thousand. Thus company T will pay Rs. 48,000/-
(2/5th of the loss) and company R will pay Rs. 72,000/-(3/5th of the loss).
(6) Principle of Mitigation of loss:
Insured must always try to minimize the loss of the property, in case of uncertain events. The
insured must take all possible measures and necessary steps to control and reduce losses.
Hence, it is the responsibility of the insured to protect the property and avoid loss.
Example: A house of Mr. Jayant is on fire due to electric short circuit. In this case, Mr. Jayant
cannot remain passive and must try his best to save his house from fire. Mr. Jayant must be
active and cannot watch his house burn, just because house is insured.
(7) Principle of Causa-Proxima:
Principle of Causa-Proxima means, when a loss is caused by more than one causes, then
proximate cause of loss should be taken into consideration to decide the liability of the
insurer. The property is insured against some causes and not against all causes, in such a case,
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 compensation and vice versa.
Example: A house was insured against the risk of theft. There was a theft in the house and
before leaving, the house was set on fire by thieves. Now, there are two causes of loss, theft
and fire, and the nearest cause of loss was fire. As the house was insured against theft and not
by fire, the insured will not get any compensation from insurance company for loss by fire.
But, he will get the compensation for the property lost by theft.

Sol
(A) Meaning:
The term bank comes from the French word 'Banco' which means a 'bench'. A bank is a
financial institution that accepts deposits from the public and creates a demand for deposits.
Bank also provides many other services related to money or financial requirements of
consumers.
(B) Definition:
As per The Indian Banking Regulation Act, 1949 banking company means - "any company
which transacts the business of banking in India" and the word banking has been defined as
"accepting for the purpose of lending or investment of deposits of money from public,
repayable on demand or otherwise, and withdrawable by cheque, draft and order or
otherwise."
(c) Types of bank:
(1) Central Bank:
1.The central bank is the apex bank of an economy/banking structure of a country. Every
country has their own central bank.
2. The Reserve Bank of India (RBI) is the central bank and was established in 1935 under the
Reserve Bank of India Act, 1934.
3. It issues currency notes, maintains/controls the flow of currency in the economy and lays
down rules and regulations for other banks.
4. It controls inflation (price rise) and stimulates growth.
5. Acts as a banker to the government and does not deal with the public.
6. Acts as a banker's bank to commercial and other banks in India
(2) Commercial Banks:
Commercial banks play an important role in economic and social development of a country. It
performs important functions of accepting deposits and granting short, middle and long term
loans to individuals and business enterprises (primary functions) and agency and utility
functions (secondary functions).
They are classified as –
A) Public Sector Banks:
- Majority of shares held by government/central bank
- State Bank of India (SBI), Bank of Baroda, etc.
B) Private Sector Banks:
- Majority shares held by private individuals/entities.
- HDFC bank, ICICI bank, AXIS bank, etc.
C) Foreign Banks:
- Registered outside India or incorporated
- Citibank, Standard Chartered bank, HSBC bank, etc.
(3) Co-operative Banks:
→ They are registered under the Indian Co-operative Societies Act of the state concerned
regulated under Banking Regulations Act, 1949.
→ Co-operative banks are popular in semi-urban and rural areas.
→ Main aim is to provide credit to economically backward people, farmers and small scale
units.
→ Co-operative banks works at three different levels –
(a) Primary Credit Societies:
→ operates at village level.
→ collects deposits from members and common public.
→ get funds from State Co-operative Bank and District Co-operative Bank.
(b) District Central Co-operative Bank
→ operates at district level
→ obtains deposits from public.
→ get funds from State Co-operative Bank and provides loans to its members.
→ is a link between Primary Credit Societies and State Co-operation Societies.
(C) State Co-operative Bank
→ operates at highest level, i.e., state level.
→ mobilises funds and helps in proper channelization among various other societies, i.e.,
Central Co-operative Societies, Primary Credit Societies, District Bank, Credit Co-operative
Societies, etc.
(5) Exchange Banks:
→ Exchange banks are commercial banks whose main business is to assist and finance foreign
trade transactions like -
(i) Investing in import and export trade
(ii) Discounting bills of exchange
(iii) Dealing in foreign exchange
(iv) Issue of letter of credit
(v) Remittances of dividend, interests and profits, etc.
→ Example: American Express bank, Barclays bank, Bank of Tokyo, etc.
(6) Regional Rural Banks (RRBs):
→ Regional Rural Banks were established in 1975 and were sponsored by large public sector
banks.
→ Capital contributed by Central Government (50%), State Government (15%) and Sponsored
Banks (35%).
→ Main purpose is to mobilise financial resources from the rural areas and grant loans to small
and marginal farmers, agricultural labourers and rural artisans.
(7) Savings Bank:
→ Main objective is to cultivate the habit of saving among the people, specially in rural areas.
In India, the postal saving bank is very common.
→Other savings banks are commercial banks and co-operative banks.
(8) Investment Bank:
→ Provides financial and advisory assistance to their customers and clients, i.e. business firms
and government organisations. It does not deal with general public directly.
→ Facilitates mergers and acquisitions by undertaking research and providing advise on
investment decisions.
(9) Specialised Banks:
These banks provide support for setting up business in specific area of activity only. Some of
the specialised banks are –
(a) Export and Import Bank (EXIM)
→ Provides support and assistance for setting up business for exporting products abroad or
importing products from foreign countries with a view to promote country's international
trade.
(b) Small Industries Development Bank of India (SIDBI)
→ Established on 2nd April, 1990 under an Act of Indian Parliament
→ Acts as principal financial institution for promotion.
→ financing and development of Micro, Small and Medium Enterprise (MSME).
→ Coordination of functions engaged in similar activities.
(c) National Bank for Agriculture and Rural Development (NABARD)
→ Taking rural India forward.
→ Apex regulatory body for financing agriculture and rural sector.
→ Provides short term and long term credit through regional rural banks.
→ Provides finance to financial institutions rather than the individuals.

Sol.
A) Meaning:
Warehouse is a place where goods are kept on a large scale in systematic manner. The process
of storing goods in warehousing in systematic manner is called warehousing. It is concerned
with the storing function of goods and commodities. It creates time utility by preserving the
goods and place utility by making the goods available at the time of requirement.
B) Definition:
"An establishment for the storage or accumulation of goods."
C) Functions of Warehouses:
(1) Storage:
The basic function of warehousing is to provide the facility of storage for goods which are not
needed immediately. It stores the goods from the date of production till the date of
consumption. Surplus commodities which are not needed immediately can be stored in
warehouses. They can be supplied as and when needed by the customers.
(2) Price Stabilisation:
It plays an important role in the process of price stabilisation and creates time utility. When
the supply of goods in the market is in excess the fall in the prices of goods can be avoided by
storing some stocks. Similarly, in case of increasing demand, the rise in the prices of goods can
be stabilised by releasing the goods from the warehouse.
(3) Risk Bearing:
Warehouses take over the risks related to storage of goods. Once goods are handed over to
the warehouse-keeper for storage, the responsibility of goods or loss or damage, theft,
deterioration, etc., in the storage is borne by the warehouse keeper. For any loss or damage
sustained by goods, warehouse keeper shall be liable to the owner of the goods.
(4) Financing:
Loans can be raised from the warehouse keepers or financial institutions or businessmen on
the security of goods stored in the warehouses. Thus, it acts as a source of finance for the
businessmen for meeting business operations.
(5) Grading and Packing:
Warehousing provides the service of packing the goods in convenient packages or suitable
sizes. They also do the grading of goods into different categories as per their standards and
quality.
(6) Transportation:
Warehouses provide transportation facility by collecting goods from the place of production
and sending those goods to the place of delivery on the request of the owner.
(7) Time and Place Utility:
Warehouses create time and place utility by bridging the gap between the production and
consumption of goods by making available the goods required or demanded by the customers
at the right time in the right place.
(8) Processing:
Warehousing provide the function of processing also. Certain commodities require processing
of goods as they cannot be consumed in the form they are produced.
Example - Paddy is polished, fruits are ripened, etc.

Sol.
(A) Meaning:
In the recent past, the role of service sector in the Indian economy is growing faster than
agriculture and industry. Business services are referred to as the activities that assist business.
Example: Information technology is one such business service that supports various other
business services such as shipping, procurement and finance.
(B) Definitions:
"Activities, benefits or satisfactions which are offered for sale or provided in connection with
the sale of goods." - American Marketing Association
(C) Types of Business services:
1) Banking:
a. The term bank comes from the French word 'Banco' which means a 'bench'.
b. A bank is a financial institution that accepts deposits from the public and creates a demand
for deposits.
c. Bank also provides many other services related to money or financial requirements of
consumers.
d. As per The Indian Banking Regulation Act, 1949 banking company means - "any company
which transacts the business of banking in India" and the word banking has beer defined as
"accepting for the purpose of lending or investment of deposits of money from public
repayable on demand or otherwise, and withdrawable by cheque, draft and order or
otherwise."
2) Insurance:
Insurance is a contract under which one party (insurer) agrees in return of a consideration
(insurance premium) to pay an agreed sum of money to another party (insured) to make good
for a loss, damage or injury to something of value, in which the insured has financial interest
as a result of certain event.
3) Transportation:
a. Transportation is the movement of people, animals and good from one location to anther.
Transportation is the foundation of economic infrastructure and has progressed at a rapid
pace after 1991.
b. In India, transport plays an important role in nation's economy. After 1991, development of
infrastructure within the country has progressed at a rapid pace and today there are different
modes of transport used.
c. The various modes of transport used today are - roadways, railways, airways, waterways,
monorail and metro, ropeways and pipeline.
d. Transport helps in the development of trade, industry and commerce, which leads to rapid
economic growth of the country.
4) Warehousing:
a. Warehouse is a place where goods are kept on a large scale in systematic manner.
b. The process of storing goods in warehousing in systematic manner is called warehousing.
c. It is concerned with the storing function of goods and commodities.
d. It creates time utility by preserving the goods and place utility by making the goods available
at the time of requirement.
5) Communication:
a. Communication is simply the act of transferring information, exchanging ideas, facts, etc.,
from one person, place or group to another.
b. It is a very simple process where message is being cransferred from a sender to the receiver.
c. In this fast moving and competitive world, it is essential to have advanced technology for
quick exchange of information with the help of electronic and other media.

Sol.
(A) Meaning:
Communication is simply the act of transferring information, exchanging ideas, facts, etc., rom
one person, place or group to another. It is a very simple process where message is being
transferred from a sender to the receiver.
In this fast moving and competitive world, it is essential to have advanced technology for quick
exchange of information with the help of electronic and other media.
(B) Types of Communication:
(i) Postal Services (ii) Modern means of communication
(i) Postal Services –
The postal services in India come under the Department of Post and Telegraph which is the
part of Ministry of Communication and Information Technology. The Department of Posts,
with its network of 1,54,965 Post Offices, is the largest postal network in the world.
Types of Postal Services
(1) Mail Services (2) Specialised Postal Services
(3) Money Remittance Services (4) Retail Services
(1) Mail Services -
(a) Inland Letter:
Communication is contained on a sheet of paper with prescribed size & folding. Inland letter
card is used for transmission within India only. The written portion of the inland letter is folded
and sealed. Only the name and address of the receiver is visible from outside. Therefore,
inland letter ensures confidentiality of the message.
(b) Envelope:
It enables to send confidential messages as well as enclosures like cheques, photos, resumes
etc. Envelope ensures safety of documents and confidentiality of messages
(c) Parcel:
Under parcel post services, parcels of specified size and weight can be sent across the country
as well as outside the country. Anything can be sent in a parcel except those items which are
prohibited. Parcels can be insured. An extra charge is to be paid for insurance. If the insured
parcel is lost in transit, the post office pays the insured amount.
(d) Book-Post:
Printed books, magazines, journals etc. can be sent through book post. Packets containing
books and other printed matter can be inserted in the packets. For each book post parcel/
packet, it is necessary to mention "Book Post" on the face of the packet or parcel
(2) Specialised Postal Services -
(a) Business Post:
Business Post provides complete mailing solutions right from mail preparation to mail delivery,
ideal for small businesses as well as large companies. Customers can choose from a range of
cost-effective and professional mailing services, including printing, collating. inserting, sealing,
and addressing to meet their specific business needs. India Post has set up Business Post
Centers in major cities specially to handle Business Post consignments.
(b) Logistics Post:
Logistics Post provides business customers a cost-effective and efficient solution, which
manages the entire value chain from collection to storage to transmission to distribution
across the country.
(c) Bill Mail Service:
Communications in the nature of financial statements, bills, monthly account bills or any such
other items of similar nature may be posted by a service provider to customers at least once in
90 days under this service. The minimum quantity of articles to be posted at a time is 5000.
The maila will be received at identified location provided Bill Mail shall be fully sorted pin code
wise and bundled delivery post office wise. There is no credit facility
(3) Money Remittance Services-
(a) Electronic Money Transfer (eMO):
A money order is an order issued by the Post Office for the payment of a sum of money to the
person whose name is mentioned in the money order. It is sent through the agency of the Post
Office. A 'Payee' is the person named in money order as the person to whom the money is to
be paid. The advantage of sending money to someone through money order is that the money
is delivered at the house or his place of stay.
(b) Instant Money Order (IMO):
India Post presents Instant Money Order (IMO), the instant on-line money transfer service that
is instant, convenient, reliable and affordable. IMO is an instant web based money transfer
service through Post Offices (iMO Centre) in India between two resident individuals in Indian
territory. One can transfer money from INR 1,000/- to INR 50,000/from designated IMO Post
Offices. It is simple to send and receive money
(c) International Money Transfer:
Money Transfer Service Scheme is a quick and easy way of transferring personal remittances
from abroad to beneficiaries in India. Only inward personal remittances are permissible.
Department of Posts, Government of India with the Western Union Financial Services, a state
of the art International Money transfer Service is now available through the Post Offices in
India, which enables instantaneous remittance of money from around 195 countries and
territories to India
(4) Retail Services -
(a) Retail Post:
Through 'Retail Post the department offers convenience to the general public by making third
party products and services available in their vicinity through selected Post Offices. Under
Retail Post, a range of services are offered including the collection of electricity bills. collection
of taxes, collection of other hills and fee for the Government etc. Further, under Retail Post,
the Post Office sells application forms.
(b) e-Post:
Department of Posts has introduced ePOST service. Through ePOST, customers can send their
messages to any address in India with a combination of electronic transmission and physical
delivery through a network of more than 1,55,000 Post Offices. ePOST sends messages as a
soft copy through internet and at the destination it will be delivered to the addressee in the
form of hard copy. ePOST can also be availed by the corporate customers, by having a business
agreement with India Post. Corporate customers will get special ePOST rates and other value
additions
B) Modern Means of Communication
(i) Courier Service:
An individual or a company responsible for the exchange of items between two or more
parties is known as courier service. Courier services are usually employed by a company and
they charge a flat rate to the party using the courier service. Courier services are different
from ordinary mail services by features such as speed, security, tracking, signature and swift
delivery times. As a premium service, courier service is usually more expensive than usual mail
services. Some examples of courier services are DHL, DTDC,UPS etc.
(ii) Internet:
The Internet (interconnected network) is the global system of interconnected computer
networks that use the Internet protocol suite (TCP/IP) to link devices worldwide. It is a
network of networks that consists of private, public, academic, business, and government
networks of local to global scope, linked by a broad array of electronic, wireless, and services,
such as the inter-linked hypertext documents and applications of the World Wide Web
(WWW), electronic mail and file sharing.
(iii) E-mail (Electronic Mail):
Electronic mail (email or e-mail) is a method of exchanging mail between people using
electronic devices. Today's email systems are based on a store-and-forward model. Email
servers accept, forward, deliver, and store messages. Neither the users nor their computers
are required to be online simultaneously, they need to connect only briefly, typically to a mail
server or a webmail interface for as long as it takes to send or receive messages.

Sol.
Roads are means that connect people and places on the surface of the land. This mode of
transport helps to transfer the goods and people from one place to another by various means
such as bullock carts, autos, buses, trucks, cargo, cycles, rickshaws, etc. India has a network of
village roads, district roads, state highways and national highways, which form the economic
backbone of the country.
In India. Ministry of Road Transport and Highways (MoRTH) looks after the development of
surface transport throughout the country. It also introduced Bus Rapid Transit (BRT) system to
improve public transport.
Advantages-
(a) Less Cost:
-It requires less capital investment, low cost of operation and low maintenance cost as
compared to other modes of transport.
(b) Suitable for Short Distance:
-It is more economic and quicker for carrying goods and people over short distances.
-Goods can be loaded directly into a road vehicle and transported straight to their place of
destination.
(c) Flexible Service:
-Road transport has a great advantage over other modes of transport for its flexible service.
-Its routes and timings can be adjusted and changed to individual's requirement without much
inconvenience.
(d) Door to Door Service:
-The outstanding advantage of road transport is that it provides door to door or warehouse to
warehouse service.
-As road transportation is flexible Le. its routes and timing can be changed as per the
requirement, it provides door to door services. This reduces cartage, loading and unloading
expenses.
(e) Service in Rural Areas:
-Road transport is most suited for carrying goods and people to and from rural areas which are
not served by rail, water or air transport
-Exchange of goods, between large towns and small villages is made possible only through
road transport.
Disadvantages:
(a) Unsuitable for Long Distance and Bulky Traffic:
-This mode of transport is unsuitable and costly for transporting cheap and bulky goods over
long distances
(b) Seasonal Nature:
-Motor transport is not as reliable as rail transport. During rainy season or flood, roads
become unfit and unsafe for use
-It is adversely affected by the weather conditions. Instability in weather creates obstruction
to road transport.
(c) Accidents and Breakdowns:
-There are more chances of accidents and breakdowns in case of motor transport.
-Possibility of road accidents is high mostly on highways. Thus, motor transport is not as safe
as rail transport.
(d) Slow Speed:
-The speed of motor transport is comparatively slow and limited.
-Speed in road transportation does not exceed due to busy traffics and non - development of
road.
(e) Lack of Organisation:
- The road transport is comparatively less organised. More often, it is irregular and
undependable.
- The rates charged for transportation are also unstable and unequal. Thus, road
transportation is less organised.