NEB Class 11 Management Finance Question Paper 2078 Nepal

Finance is the management of money and other valuable assets. It deals with how individuals, businesses, and governments raise funds (financing), allocate or invest those funds, and manage them over time considering risk and return. In short, finance is the study and practice of acquiring, allocating, and using monetary resources to achieve economic goals.

Real assets are tangible or physical assets that have intrinsic value because of their substance and use, such as land, buildings, machinery, and commodities. Financial assets are intangible claims to future cash flows or ownership, such as shares, bonds, and bank deposits; their value comes from a contractual claim rather than physical substance. Real assets generate wealth/income directly, whereas financial assets represent claims on the income produced by real assets.

A letter of credit (L/C) is a written guarantee issued by a bank on behalf of a buyer (importer) promising to pay the seller (exporter) a specified amount within a specified time, provided the seller presents the required documents and meets the stated terms and conditions. It reduces payment risk in trade, especially international trade, by substituting the bank's creditworthiness for that of the buyer.

Fixed income securities are financial instruments that pay the investor a fixed, predetermined amount of return (interest) at regular intervals and return the principal at maturity. Examples include bonds, debentures, and preference shares. The income (coupon/dividend) is fixed regardless of the issuer's profit level, which makes the returns relatively predictable and lower-risk compared with equity.

A DEMAT (dematerialized) account is an account that holds an investor's shares and other securities in electronic (book-entry) form rather than as physical paper certificates. It facilitates easy, safe, and fast trading, transfer, and settlement of securities. In Nepal, DEMAT accounts are maintained through CDSC (CDS and Clearing Limited) and its depository participants.

Microfinance is the provision of small-scale financial services such as small loans (microcredit), savings, insurance, and remittance facilities to low-income individuals, poor households, and small entrepreneurs who lack access to conventional banking. Its aim is to promote financial inclusion, support income-generating activities, and reduce poverty.

Risk is the chance or probability that the actual outcome (return) of an investment or decision will differ from the expected outcome, including the possibility of loss. Examples: market risk (fall in share prices), interest rate risk, credit/default risk (a borrower failing to repay a loan), inflation/purchasing-power risk, and business risk (a firm's earnings becoming uncertain).

Life insurance covers the risk of death or survival of a person; the sum assured is paid on the death of the insured or on maturity of the policy, and it is generally a long-term contract with an element of savings/investment. Non-life (general) insurance covers risks to property and other assets (fire, marine, motor, health, etc.); it is usually a short-term (often annual) contract of indemnity that compensates only for the actual loss suffered, up to the sum insured, and has no maturity/savings benefit.

A mutual fund is a collective investment vehicle that pools money from many investors and invests it in a diversified portfolio of securities such as shares, bonds, and money-market instruments, managed by professional fund managers. Investors hold units of the fund and share in the returns (and risks) in proportion to their investment, which gives small investors the benefits of diversification and professional management.

Compounding is the process of finding the future value of a present amount by adding interest to the principal, so that in each subsequent period interest is earned on both the original principal and the previously accumulated interest (interest on interest). Formula: $FV = PV(1+r)^n$.

Example: If Rs. 1000 is invested at 10% per annum for 2 years, $FV = 1000(1+0.10)^2 = 1000 \\times 1.21 = Rs.\\ 1210$.

The managerial (recurring) functions of a financial manager include:

1. Investment decision (capital budgeting): Deciding where and how much to invest in long-term and short-term assets so as to maximize returns relative to risk.
2. Financing decision: Determining the best mix of debt and equity (capital structure) and the sources from which funds should be raised at the lowest cost.
3. Dividend decision: Deciding how much of the earnings should be distributed to shareholders as dividends and how much should be retained for reinvestment.
4. Liquidity / working-capital management: Managing current assets and current liabilities so that the firm has enough cash to meet its obligations while avoiding idle funds.
5. Financial planning and forecasting: Estimating future fund requirements and arranging them in advance.
6. Coordination and control: Coordinating the finance function with other departments and monitoring financial performance against plans.

The overall objective behind these functions is to maximize the wealth (value) of the shareholders.

Depository institutions are financial intermediaries that accept deposits from the public and use those funds to make loans and investments. In Nepal, as licensed by Nepal Rastra Bank, they are mainly classified into four classes:

• Class 'A' – Commercial Banks: Largest banks that accept all types of deposits and provide a full range of banking services, including L/C, foreign exchange, and large-scale lending.
• Class 'B' – Development Banks: Accept deposits and provide credit mainly for development and sectoral activities; smaller scope than commercial banks.
• Class 'C' – Finance Companies: Accept deposits and provide credit such as hire-purchase, housing, and consumer financing on a smaller scale.
• Class 'D' – Microfinance Financial Institutions (Laghubitta): Provide small deposits and microcredit to low-income and rural people to promote financial inclusion.

In addition, savings and credit cooperatives also act as deposit-taking institutions at the community level.

The main types of bank deposits are:

1. Current (demand) deposit: Money that can be withdrawn at any time without notice through cheques; usually no or very little interest is paid. Suitable for businesses with frequent transactions.
2. Savings deposit: Designed to encourage saving among the general public; a modest rate of interest is paid and there may be some restrictions on the frequency/amount of withdrawals.
3. Fixed (time/term) deposit: Money deposited for a fixed period at a fixed, higher rate of interest; it cannot normally be withdrawn before maturity without penalty.
4. Recurring deposit: A fixed sum is deposited at regular intervals (e.g. monthly) for a set period and repaid with interest at maturity.
5. Call deposit: A short-term deposit (between current and fixed) that earns some interest and can be withdrawn at short notice/on call.

The internationally recognized principles of cooperatives (ICA principles), also followed in Nepal, are:

1. Voluntary and open membership – open to all without discrimination.
2. Democratic member control – one member, one vote regardless of capital contribution.
3. Member economic participation – members contribute capital equitably and democratically control it; surplus is used for the cooperative's development and member benefit.
4. Autonomy and independence – cooperatives are self-help, self-governing organizations.
5. Education, training, and information – providing education to members, officials, and the public.
6. Cooperation among cooperatives – working together through local, national, and international structures.
7. Concern for community – working for the sustainable development of their communities.

The stock closed at Rs. 1070 on the trading day (the figure shown under the "Close" column).

OR (C-ASBA): C-ASBA (Centralized Application Supported by Blocked Amount) is an online share-application system used in Nepal whereby an investor applies for shares (IPO/FPO/right shares) through a designated bank/BFI. The application amount is not transferred but only blocked in the applicant's own bank account; the funds keep earning interest and are debited only to the extent of shares actually allotted, with the remaining (blocked) amount released. It is operated through CDSC and linked to the investor's DEMAT/BOID, making the application process transparent, fast, and convenient from anywhere.

Diff% (percentage change) is calculated as:

\\text{Diff\\%} = \\dfrac{\\text{Close} - \\text{Previous Close}}{\\text{Previous Close}} \\times 100

$= \\dfrac{1070 - 1021}{1021} \\times 100 = \\dfrac{49}{1021} \\times 100 \\approx 4.80\\%$.

It means the closing price of the stock increased by about 4.80% compared with the previous day's closing price, i.e. it measures the day's percentage gain (or loss) in the stock's price.

From the 52-week columns of the quote: the highest trading price during the last 52 weeks was Rs. 1343 and the lowest was Rs. 751.

Definition: Insurance is a contract (policy) in which one party, the insurer, agrees to compensate or indemnify another party, the insured, for a specified loss arising from a particular risk, in return for a periodic payment called the premium. It is a device for sharing/transferring risk from an individual to a group (the pool of policyholders).

Fundamental principles of insurance:

1. Utmost good faith (uberrimae fidei): Both parties must disclose all material facts honestly and completely.
2. Insurable interest: The insured must have a financial interest in the subject matter, so that loss to it causes financial loss to the insured.
3. Indemnity: The insured is compensated only for the actual loss suffered, not more, so as to restore them to the same financial position as before the loss (does not apply fully to life insurance).
4. Subrogation: After the insurer pays the claim, it acquires the insured's rights to recover from any third party responsible for the loss.
5. Contribution: If the same risk is insured with more than one insurer, each shares the loss proportionately; the insured cannot profit by claiming the full amount from each.
6. Proximate cause (causa proxima): The insurer is liable only if the nearest/most effective cause of the loss is a peril covered by the policy.
7. Mitigation of loss: The insured must take reasonable steps to minimize the loss when it occurs.