Class 11 Business Studies Notes Chapter 4 (Business Services) – Business Studies Book
Alright class, let's delve into Chapter 4: Business Services. This is a crucial chapter, not just for your Class 11 understanding, but also because questions related to banking, insurance, and other services frequently appear in various government exams. Pay close attention to the definitions, functions, types, and principles discussed.
Chapter 4: Business Services - Detailed Notes for Government Exam Preparation
1. Meaning and Nature of Services
- Definition: Services are intangible economic activities that provide want-satisfying benefits. They involve an interaction between the service provider and the consumer. Examples include banking, insurance, transportation, warehousing, communication, etc.
- Nature/Characteristics of Services (The 5 'I's):
- Intangibility: Services cannot be seen, touched, or physically possessed. You experience them (e.g., a doctor's consultation, a train journey). Quality is often judged after consumption or based on provider reputation.
- Inconsistency (or Heterogeneity): Services are highly variable as they depend on the provider and the context. The same service can differ depending on who provides it, when, where, and to whom (e.g., different experiences with the same airline). Standardization is difficult.
- Inseparability: Production and consumption of services often happen simultaneously. The service provider is usually present when the service is delivered (e.g., a haircut, teaching).
- Inventory (or Perishability): Services cannot be stored for future sale or use. If a service is not consumed when offered, the opportunity is lost forever (e.g., an empty seat on a flight, an unsold movie ticket for a specific show).
- Involvement (or Participation): Often, the customer's participation is essential for the service delivery (e.g., a patient explaining symptoms, a bank customer providing details).
2. Types of Business Services
Business services are those services used by business enterprises to conduct their activities smoothly. Key types include:
(A) Banking
- Definition: Banking involves accepting deposits from the public for the purpose of lending or investment, repayable on demand or otherwise.
- Functions of Commercial Banks:
- Primary Functions:
- Accepting Deposits: Receiving money from individuals and businesses in various forms (Savings, Current, Fixed, Recurring accounts).
- Lending Money: Providing loans and advances (Cash Credit, Overdraft, Loans & Advances, Discounting of Bills).
- Secondary Functions:
- Agency Functions: Acting as an agent for customers (Transfer of funds, Collection of cheques/bills, Periodic payments/collections, Portfolio management, etc.).
- General Utility Functions: Providing various facilities (Lockers, Traveller's cheques, Letters of Credit, Underwriting securities, Foreign exchange dealings, Social welfare programmes).
- Primary Functions:
- Types of Bank Accounts:
- Savings Deposit Account: Encourages saving habits; suitable for individuals; low interest rate; restrictions on withdrawal numbers/amounts.
- Current Deposit Account: Suitable for businesses; no interest typically paid (sometimes charges levied); no restriction on number/amount of withdrawals; overdraft facility available.
- Recurring Deposit Account (RD): Fixed amount deposited regularly (monthly) for a specific period; earns higher interest than savings account.
- Fixed Deposit Account (FD) / Term Deposit: Lump sum deposited for a fixed period (e.g., 1 year, 5 years); higher interest rate; withdrawal before maturity usually incurs a penalty.
- Multiple Option Deposit Account: Combines features of Savings and Fixed Deposits; allows withdrawal of funds in multiples of a certain amount, transferring excess funds over a limit automatically to an FD.
- E-Banking (Electronic Banking): Banking services delivered through electronic channels.
- Benefits: 24x7 services, convenience (anywhere banking), speed, lower transaction costs, financial discipline, reduced risk for banks.
- Services:
- ATM (Automated Teller Machine): Cash withdrawal, balance enquiry, mini-statement, fund transfer, bill payment.
- Debit Card: Allows direct debit from the account for purchases or ATM withdrawals.
- Credit Card: Allows purchases on credit up to a certain limit, repayable later with interest if not paid fully by the due date.
- NEFT (National Electronic Funds Transfer): Transfer funds between banks; operates in hourly batches.
- RTGS (Real Time Gross Settlement): Real-time transfer of large-value funds (minimum threshold applies); transactions settled individually.
- IMPS (Immediate Payment Service): Instant, 24x7 interbank fund transfer via mobile phones, internet banking, or ATMs.
- Mobile Banking: Banking via mobile apps.
- Internet Banking: Accessing bank accounts and services via the internet.
- Digital Payments: Includes UPI (Unified Payments Interface), mobile wallets, QR codes, etc.
(B) Insurance
- Definition: Insurance is a contract (policy) wherein one party (insurer) agrees, in return for a consideration (premium), to pay an agreed sum of money to another party (insured) to make good a loss, damage, or injury to something of value (insurable interest) in which the insured has a pecuniary interest, as a result of some uncertain event (risk).
- Functions of Insurance:
- Provides Certainty: Converts uncertainty of loss into certainty of payment.
- Protection: Offers financial protection against specified risks.
- Risk Sharing: Spreads the risk of loss among a large number of people.
- Assists in Capital Formation: Insurers invest the collected premiums in various developmental activities.
- Principles of Insurance (Very Important):
- Utmost Good Faith (Uberrimae Fidei): Both insurer and insured must disclose all material facts honestly and completely. Non-disclosure can make the contract voidable.
- Insurable Interest: The insured must have a financial/pecuniary interest in the subject matter of insurance. They must stand to benefit from its existence and lose financially from its destruction/damage. (Must exist at the time of taking policy in Life Insurance; must exist at the time of loss in Fire & Marine Insurance).
- Indemnity: Applicable to General Insurance (Fire, Marine, etc.), NOT Life Insurance. Aims to put the insured back in the same financial position they were in just before the loss occurred. Compensation cannot exceed the actual loss suffered.
- Proximate Cause (Causa Proxima): The insurer is liable only for losses proximately (most direct, dominant, effective) caused by the insured peril. Remote causes are ignored.
- Subrogation: Applicable after the insured is compensated. The insurer steps into the shoes of the insured and acquires all rights and remedies against any third party responsible for the loss. Prevents the insured from profiting from the loss.
- Contribution: Applicable when the same subject matter is insured with multiple insurers against the same risk. If a loss occurs, all insurers will contribute proportionately to the compensation, up to the actual loss. Prevents the insured from claiming more than the actual loss.
- Mitigation: The insured must take all reasonable steps to minimize the loss or damage to the insured property, just as any prudent person would do if uninsured.
- Types of Insurance:
- Life Insurance: Contract where the insurer promises to pay a specified sum upon the death of the insured or expiry of a certain period, whichever is earlier. Elements of protection and investment.
- Whole Life Policy: Sum assured payable only on the death of the insured. Premium payable throughout life or for a fixed period.
- Endowment Policy: Sum assured payable on the expiry of a specified period OR on the death of the insured, whichever is earlier.
- Annuity Policy: Provides regular payments (annuity) to the insured starting from a specified date, usually after retirement.
- ULIP (Unit Linked Insurance Plan): Combines insurance cover with investment in market-linked funds (equity, debt, or balanced).
- Other types: Joint Life Policy, Children's Policies, etc.
- General Insurance: Covers risks other than life. Principle of Indemnity applies.
- Fire Insurance: Covers loss/damage due to fire and allied perils (lightning, explosion, etc.). Insurable interest must be present both at the time of taking the policy and at the time of loss.
- Marine Insurance: Covers losses related to marine adventures (sea voyages). Includes Hull (ship), Cargo (goods), and Freight insurance. Insurable interest must exist at the time of loss.
- Health Insurance: Covers medical expenses incurred due to illness or injury.
- Motor Vehicle Insurance: Compulsory Third Party insurance required by law. Comprehensive policies cover damage to own vehicle as well.
- Other types: Burglary, Crop, Cattle, Liability Insurance, etc.
- Life Insurance: Contract where the insurer promises to pay a specified sum upon the death of the insured or expiry of a certain period, whichever is earlier. Elements of protection and investment.
(C) Postal Services (India Post)
- Functions: Provide mail and financial services across the country.
- Mail Services: Parcel facilities, Registration (ensures security), Speed Post (time-bound delivery), Courier services, International Money Transfer, e-Bill Post, etc.
- Financial Facilities:
- Savings Schemes: Public Provident Fund (PPF), Kisan Vikas Patra (KVP), National Savings Certificates (NSC), Monthly Income Scheme (MIS), Recurring Deposits, Savings Account.
- Postal Life Insurance (PLI) & Rural Postal Life Insurance (RPLI).
- Money Order / eMO.
- Allied Services: Retail Post (sale of forms, bill collection), Philately (stamp collection), etc.
- India Post Payments Bank (IPPB): Offers accessible and affordable banking services, especially in rural areas, leveraging the vast postal network.
(D) Telecom Services
- Definition: Services enabling communication over distances using electronic means (telephone, internet, etc.). Vital for modern business operations, information dissemination, and connectivity.
- Types:
- Cellular Mobile Services: Voice and non-voice communication, data services, internet access via mobile devices.
- Fixed Line Services: Traditional telephone services using physical lines; includes voice and data communication (e.g., broadband via DSL).
- Cable Services: Primarily for television broadcasting, but increasingly used for broadband internet access.
- VSAT (Very Small Aperture Terminal) Services: Satellite-based communication useful for remote areas, providing reliable data, voice, and video connectivity.
- DTH (Direct To Home) Services: Satellite-based television broadcasting directly to homes.
(E) Warehousing
- Definition: Warehousing involves the storage of goods and includes activities necessary to maintain their value and availability (e.g., protection, preservation). It bridges the time gap between production and consumption.
- Functions of Warehousing:
- Storage: Basic function; holding goods until demanded.
- Protection of Goods: Safeguarding goods from loss/damage due to heat, cold, moisture, pests, theft, etc.
- Risk Bearing: Warehouse keepers assume responsibility for goods under their custody (loss due to negligence). Goods can also be insured.
- Financing: Warehouse receipts can be used as collateral to obtain loans from banks.
- Price Stabilization: Helps stabilize prices by regulating the supply of goods based on demand.
- Grading and Packing: Warehouses often provide facilities for grading, sorting, branding, and packaging goods according to customer requirements.
- Transportation Arrangement: Some warehouses arrange transport for bulk depositors.
- Types of Warehouses:
- Private Warehouses: Owned and operated by manufacturers or traders for their own storage needs. Offer better control but involve high fixed costs.
- Public Warehouses: Owned by individuals or agencies and offered to the public for storage on payment of rent/fees. Licensed and regulated. Economical for businesses needing flexible storage.
- Bonded Warehouses: Licensed by customs/excise authorities to accept imported goods before payment of customs duty. Goods can be withdrawn in parts upon payment of proportionate duty. Useful for importers for deferred payment and re-export activities.
- Government Warehouses: Owned and managed by government bodies (e.g., Food Corporation of India - FCI, State Trading Corporation - STC, Central Warehousing Corporation - CWC).
- Co-operative Warehouses: Set up by marketing or agricultural co-operative societies for their members at economical rates.
Multiple Choice Questions (MCQs)
-
Which characteristic of services implies that they cannot be stored for future use?
a) Intangibility
b) Inseparability
c) Perishability (Inventory)
d) Inconsistency -
Which type of bank account is most suitable for business firms with numerous daily transactions?
a) Savings Account
b) Fixed Deposit Account
c) Recurring Deposit Account
d) Current Account -
The principle of insurance stating that the insured must have a financial stake in the subject matter of insurance is known as:
a) Utmost Good Faith
b) Indemnity
c) Insurable Interest
d) Subrogation -
RTGS (Real Time Gross Settlement) is primarily used for:
a) Small value retail payments
b) Large value fund transfers settled instantly
c) Withdrawing cash from ATMs
d) Paying utility bills via mobile app -
Warehouses that are licensed to accept imported goods prior to payment of customs duty are called:
a) Private Warehouses
b) Public Warehouses
c) Bonded Warehouses
d) Co-operative Warehouses -
Which function of warehousing helps in maintaining a steady supply of goods in the market, thus avoiding sharp price fluctuations?
a) Risk Bearing
b) Financing
c) Grading and Packing
d) Price Stabilization -
In Life Insurance, the principle of ______ is NOT applicable.
a) Utmost Good Faith
b) Insurable Interest
c) Indemnity
d) Proximate Cause -
Which of the following is an example of an Agency Function performed by a commercial bank?
a) Accepting deposits
b) Providing overdraft facility
c) Collecting cheques on behalf of customers
d) Providing locker facility -
VSAT services fall under which category of business services?
a) Banking
b) Insurance
c) Warehousing
d) Telecom -
The simultaneous production and consumption is a feature of which characteristic of services?
a) Intangibility
b) Inconsistency
c) Inseparability
d) Inventory
Answer Key:
- c) Perishability (Inventory)
- d) Current Account
- c) Insurable Interest
- b) Large value fund transfers settled instantly
- c) Bonded Warehouses
- d) Price Stabilization
- c) Indemnity
- c) Collecting cheques on behalf of customers
- d) Telecom
- c) Inseparability
Make sure you revise these concepts thoroughly. Understanding the nuances, especially the principles of insurance and the functions of different services, is key for competitive exams. Good luck with your preparation!