CBSE Class 11 Business Studies

Revision Notes
CHAPTER 4
BUSINESS SERVICES

It has already been stated that commerce consists of trade and auxiliaries to
trade. Auxiliaries or aids to trade refer to the activities related to the buying and
selling of goods and services. These auxiliaries to trade are also known as
business services or facilities. These services are essential and indispensable for
the smooth flow of trade and industry. The examples of business services are
Banking, insurance, transport, Warehousing ,Advertisement and communication.
Banks
Banks occupy an important position in the modern business World. No country
can make commercial and industrial progress without a well organized banking
system. Banks encourage the habit of saving among the public. They mobilize
small savings and channelize them into productive uses.

Meaning of Bank
A bank is an institution which deals in money and credit. It collects deposits from
the public and supplies credit, thereby facilitating exchange. It also performs
many other functions like credit creation, agency functions, general services etc
Hence ,a Bank is an organization which accepts deposits, lends money and
perform other agency functions.

Types of Bank Accounts

A. Fixed Deposit Account: Money is deposited in the account for a fixed period
is called as Fixed Deposit account. After expiry of specified period ,person can
claim his money from the bank. Usually the rate of interest is maximum in this
account. The longer the period of deposit, the higher will be the rate of interest
on deposit.
B. Current Deposit Account: Current deposit Accounts are opened by
businessman. The account holder can deposit and Withdraw money. Whenever
desired. As the deposit is repayable on demand, it is also known as demand
deposit. Withdrawals are always made by cheque. No interest is paid on current
accounts. Rather charges are taken by bank for services rendered by it.
C.Saving Deposit Account: The aim of a saving account is to mobilize savings
of the public. A person can open this account by depositing a small sum of
money. He can withdraw money from his account and make additional deposits
at will. Account holder also gets interest on his deposit. In this account though
the rate of interest is lower than the rate of interest on fixed deposit account.
D.Recurring Deposit Account: The aim of recurring deposit is to encourage
regular savings by the people. A depositor can deposit a fixed amount, say Rs.
100 every month for a fixed period. The amount together with interest is repaid
on maturity. The interest rate on this account is higher than that on saving
deposits.
E. Multiple Option Deposit Account: It is a type of saving Bank A/c in which
deposit in excess of a particular limit get automatically transferred into fixed
Deposit. On the other hand, in case adequate fund is not available in our saving
Bank Account so, as to honour a cheque that we have issued the required
amount gets automatically transferred from fixed deposit to the saving bank
account. Therefore, the account holder has twin benefits from this amount (i) he
can earn more interest and (ii) It lowers the risk of dishonoring a cheque.
A. Bank Overdraft: The customer who maintains a current account with the
bank, takes permission from the bank to withdraw more money than deposited in
his account. The extra amount withdrawn is called overdraft. This facility is
available to trustworthy customers for a small period. This facility is usually given
against the security of some assets or on the personal security of the customer.
Interest is charged on the actual amount overdrawn by the customer.
B. Cash Credit: Under this arrangement, the bank advances cash loan up to a
specified limit against current assets and other securities. The bank opens an
account in the name of the borrower and allows him to withdraw the borrowed
money from time to time subject to the sanctioned limit. Interest is charged on
the amount actually withdraw.
C. Bank Draft: It is a financial instrument with the help of which money can be
remitted from one place to another. Anyone can obtain a bank draft after
depositing the amount in the bank. The bank issues a draft for the amount in its
own branch at other places or other banks (only in case of tie up with those
banks) on those places. The payee can present the draft on the drawee bank at
his place and collect the money. Bank charges some commission for issuing a
bank draft.

ELECTRONIC BANKING SERVICES/E-BANKING

Use of computers and internet in the functioning of the banks is called electronic
banking. Because of these services the customers don't need to go to the bank
every time for every transaction. He can make transactions with the bank at any
time and from any place. The chief electronic services are the following:

Types of Digital Payments

1. Electronic. Fund Transfer: Under it, a bank transfers wages and salaries
directly from the company s account to the accounts of employees of the
company. The other examples of EFTs are online payment of electricity bill, water
bill, insurance premium, house tax etc.
2. Automatic Teller Machines: (ATMs) ATM is an automatic machine with the
help of which money can be withdrawn or deposited by inserting the card and
entering personal Identity Number (PIN). This machine operates for all the 24
hours.
3. Debit Card: A Debit Card is issued to customers in lieu of his money
deposited in the bank. The customers can make immediate payment of goods
purchased or services obtained on the basis of his debit card provided the
terminal facility is available with the seller.
4. Credit Card: A. bank issues a credit card to those of its customers who enjoy
good reputation. This is a sort of overdraft facility. With the help of this card ,the
holder can buy goods or obtain services up to a certain amount even without
having sufficient deposit in their bank accounts.
5. Tele Banking: Under this facility, a customer can get information about the
account balance or any other information about the latest transactions on the
telephone.
6. Core Banking Solution Centralized Banking Solution: In this system
customer by opening a bank account in one branch (which has CBS facility) can
operate the same account in all CBS branches of the same bank anywhere across
the country. It is immaterial with which branch of the bank the customer deals
with when he/she is a CBS branch customer.
7. National Electronic Fund Transfer: NEFT refers to a nationwide system
that facilitate individuals, firms and companies to electronically transfer funds
from any branch to any individual, firm or company having an account with any
other bank branch in the country. NEFT settles transactions in batches. The
settlement takes place at a particular point of time for example, NEFT settlement
takes place 6 times a day during the week days (9.30am, 10.30 am, 12.00 noon,
1.00 pm. 3.00 pm & 4.00pm) and 3 times during Saturday 9.30 am, 10.30 am
and 12.00 noon) Any transaction initiated after a designated settlement time is
settled on the next fixed settlement time.
8. Real Time Gross Settlement: RTGS refers to a funds transfer system where
transfer of funds takes place from one bank to another on a Real-time and on
Gross basis. Settlement in Real time means transactions are settled as soon as
they are processed and are not subject to any waiting period. Gross settlement
means the transaction is settled on one to one basis without bunching or netting
with any other transaction. This is the fastest possible money transfer system
through the banking channel. The RTGS service for customers is available from
9.00 am to 3.00 pm on weekdays and from 9.00 am to 12.00 noon on Saturdays.
The basic difference between RTGS and NEFT is that while RTGS transactions are
processed continuously, NEFT settles transactions in batches.
Insurance
Insurance is a contract under which one party (Insureror Insurance Company)
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 some
uncertain event.
Principles of Insurance: These principles are :
1. Utmost Good Faith: Insurance contracts are based upon mutual trust and
confidence between the insurer and the insured. It is a condition of every
insurance contract that both the parties i.e.insurer and the insured must disclose
every material fact and information related to insurance contract to each other.
2. Insurable Interest: It means some pecuniary interest in the subject matter
of insurance contract. The insured must have insurable interest in the subject
matter of insurance i.e., life or property insured the insured will have to incur loss
due to this damage and insured will be benefitted if full security is being
provided. A businessman has insurable interest in his house, stock, his own life
and that of his wife, children etc.
3. Indemnity: Principle of indemnity applies to all contracts except the contract
of life insurance because estimation regarding loss of life cannot be made. The
objective of contract of insurance is to compensate to the insured for the actual
loss he has incurred. These contracts ‘provide security from loss and no profit
can be made out of these contracts.
4. Proximate Cause: The insurance company will compensate for the loss
incurred by the insured due to reasons mentioned in insurance policy. But if
losses are incurred due to reasons not mentioned in insurance policy than
principle of proximate cause or the nearest cause is followed.
5. Subrogation: This principle applies to all insurance contracts which are
contracts of indemnity. As per this principle, when any insurance company
compensates the insured for loss of any of his property, then all rights related to
that property automatically gets transferred to insurance company.
6. Contribution: According to this principle if a person has taken more than one
insurance policy for the same risk then all the insurers will contribute the amount
of loss in proportion to the amount assured by each of them and compensate for
the actual amount of loss because he has no right to recover more than the full
amount of his actual loss.
7. Mitigation: According to this principle the insured must take reasonable steps
to minimize the loss or damage to the insured property otherwise the claim from
the insurance company may be lost.
Life Insurance:
Under life insurance the amount of Insurance is paid on the maturity of policy or
the death of policy holder whichever is earlier. If the policy holder survives till
maturity he enjoys the amount of insurance. If he dies before maturity then the
insurance claim helps in maintenance of his family. The insurance company
insures the life of a person in exchange for a premium which may be paid in one
lump sum or periodically say yearly, half yearly quarterly or monthly.
Fire Insurance: It provides safety against loss from fire. If property of insured
gets damaged due to property as compensation from insurance company. If no
such event happens,then no claim shall be given.
Features:
1. Utmost Good Faith
2. Contract of Indemnity
3. Insurable Interest in Subject matter.
4. Subject to the doctrine of causa proxima.
5. It is a contract for an year. It generally comes to an end at the expiry of the
year and may be renewed.
Marine Insurance: Marine Insurance provides protection against loss during
sea voyage. The businessmen can get his ship insured by paying the premium
fixed by the insurance company. The functional principles of marine insurance
are the same as the general principles of Insurance.