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Business Studies · 2025 · 6 marks
CBSE 2025 · Region 6 · Set 1 · Q32
(a) Explain the following factors affecting working capital requirements of a business: (i) Nature of business (ii) Credit availed (iii) Operating…
(a)
Explain the following factors affecting working
capital requirements of a business :
(i)
Nature of business
(ii)
Credit availed
(iii)
Operating efficiency
(iv)
Seasonal factors
OR
(b)
Distinguish between ‘Money Market’ and ‘Capital Market’ on any
six basis.
Marking-scheme solution
• (a) (i) Nature of business:
A trading organisation needs a smaller amount of working
capital as compared to a manufacturing organization as there is
• no processing.
In a manufacturing business, higher working capital is required
as raw material needs to be converted into finished goods before
any sales become possible.
• $\displaystyle 28$
Service industries which do not have to maintain inventory
require less working capital.
• (ii) Credit availed:
Just as a firm allows credit to its customers it also may get
• credit from its suppliers.
To the extent it avails the credit on purchases, the working
capital requirement is reduced.
• (iii) Operating efficiency:
Firms manage their operations with varied degrees of
• efficiency in managing raw material, sales etc.
Operating efficiency reduces the level of raw materials,
finished goods and debtors resulting in lower requirement of
working capital.
• (iv) Seasonal Factors:
In peak season, because of higher level of activity, larger
• amount of working capital is required by the business.
As against this, the level of activity as well as the requirement
for working capital will be lower during the lean season by the
business.
Difference between Money Market and Capital Market:
(Any six )
| Basis | Money Market | Capital Market | |
| (i) | Participants | The participants are RBI, banks, Financial Institutions, | The participants are Financial Institutions, banks, corporate |
| State Governments, Corporate Houses. | entities, foreign investors and retail investors. | ||
| (ii) | Instruments traded | Instruments traded are Treasury bills, Call money, Certificate of deposit, Commercial paper, Commercial bill. | Instruments traded are shares, debentures and bonds. |
| (iii) | Investment Outlay | Investment Outlay is large. | Investment Outlay is small. |
| (iv) | Duration | It deals in short term securities. | It deals in medium and long term securities. |
| (v) | Liquidity | Money market instruments enjoy a higher degree of liquidity as DFHI provides a ready market for these instruments. | Capital market instruments are less liquid as a share may not be actively traded on stock exchange. |
| (vi) | Safety | Money market is much safer with a minimum risk of default . | Capital market instruments are riskier. |
| (vii ) | Expected returns | The investment in money market yields a lesser return for investors. | The investment in capital market generally yields a higher return for investors. |
(vii Expected The investment The investment in ) returns in money market capital market
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CBSE Class 12 Business Studies past-paper question from the 2025 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.