Chapter 6 BS 2 2PUC

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Types of Bank Accounts

a) Savings Bank Accounti. If a person has limited income and wants to save money for future needs, the Saving

Bank Account is most suited for his purpose.ii. This type of account can be opened with a minimum initial deposit that varies from

bank to bank. Money can be deposited any time in this account. Withdrawals can be

made either by signing a withdrawal form or by issuing a cheque or by using ATM

card.

iii. Normally banks put some restriction on the number of withdrawal from thisaccount.

iv. Interest is allowed on the balance of deposit in the account. The rate of interest onsavings bank account varies from bank to bank and also changes from time to time.

v. A minimum balance has to be maintained in the account as prescribed by the bank.b) Current Deposit Account

i. Big businessmen, companies and institutions such as schools, colleges, and hospitalshave to make payment through their bank accounts.

ii. Since there are restrictions on number of withdrawals from savings bank account,that type of account is not suitable for them. They need to have an account from

which withdrawal can be made any number of times.

iii. Banks open current account for them. Like savings bank account, this account alsorequires certain minimum amount of deposit while opening the account.

iv. On this deposit bank does not pay any interest on the balances. Rather theaccountholder pays certain amount each year as operational charge. For the

convenience of the accountholders banks also allow withdrawal of amounts in

excess of the balance of deposit.

v. This facility is known as overdraft facility. It is allowed to some specific customersand up to a certain limit subject to previous agreement with the bank concerned.

c) Fixed Deposit Account (also known as Term Deposit Account)i. Many a time people want to save money for long period.

ii. If money is deposited in savings bank account, banks allow a lower rate of interest.iii. Therefore, money is deposited in a fixed deposit account to earn a interest at a

higher rate.

iv. This type of deposit account allows deposit to be made of an amount for a specifiedperiod. This period of deposit may range from 15 days to three years or more during

which no withdrawal is allowed.

v. However, on request, the depositors can en-cash the amount before its maturity. Inthat case banks give lower interest than what was agreed upon.

vi. The interest on fixed deposit account can be withdrawn at certain intervals of time.vii. At the end of the period, the deposit may be withdrawn or renewed for a further

period. Banks also grant loan on the security of fixed deposit receipt.


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d) Recurring Deposit Accounti. This type of account is suitable for those who can save regularly and expect to earn a

fair return on the deposits over a period of time.

ii. While opening the account a person has to agree to deposit a fixed amount once ina month for a certain period.

iii. The total deposit along with the interest therein is payable on maturity. However,the depositor can also be allowed to close the account before its maturity and get

back the money along with the interest till that period.

iv. The account can be opened by a person individually or jointly with another, or bythe guardian in the name of a minor.

v. The rate of interest allowed on the deposits is higher than that on a savings bankdeposit but lower than the rate allowed on a fixed deposit for the same period.

Procedure to Open Bank Account

The following are the steps to opening a bank account

1. To open a savings bank account in a commercial bank, you have to first decide what amountof money you would like to deposit initially.

2. You may enquire and find out from the nearest bank what the minimum amount to bedeposited while opening a savings bank account.

3. You have to deposit at least that amount or more, if you want.4. On entering a bank (any branch of a bank) you will find a counter for enquiry (or a counter

with: May I help you board).

5. Having known the minimum amount to be deposited, you should ask for a form ofapplication for opening Savings Bank Account.

6. Filling up the Formi. The application form has to be filled up giving the following necessary information:

ii. Name of the person (applicant)iii. His/her occupationiv. Residential Addressv. Specimen signature of the applicant

vi. Name, address, account number and signature of the person introducing theapplicant

7. Proper Introductioni. Every bank requires that a person known to the bank should introduce the applicant.

ii. It may be convenient to be introduced by a person having already an account in thatbank.

iii. Some banks may accept the attested copy of Passport or Driving Licence, if any, ofthe applicant. In that case personal introduction is not necessary.

iv. Introduction is required to prevent the possibility of opening of account by anundesirable person.


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8. Specimen Signaturei. The applicant has to put his/her specimen signatures at the blank space provided on

the application form for that purpose.

ii. In addition, specimen signatures have to be put separately on a card on which aphotograph of the applicant may be pasted, along with his/her name and account

number.

iii. After the above steps have been taken and the officer concerned is satisfied that theapplication form is in order, money is to be deposited at the cash counter after filling

in printed Pay-in-slip.

9. An account number will then be allotted and written on the application form as well as thecard having your specimen signatures. At the same time you will be issued a Passbook with

the initial deposit recorded in it. If you want to use cheques for withdrawal or payment of

money out of your deposits, a cheque book will be issued on your request. A cheque form is

a printed form in which you may issue an order to the bank to pay the amount specified in it

to a person.

Recent Developments in Banking

a) Core Banking: All the branches of a bank are connected by way of WAN. Core bankingfacilitates greater service delivery mainly for outstation cheques to be credited. Movement

of funds are faster. It depends on web based technology and allows easy debit and credit of

accounts. Sharing of network also allows usage of ATMs. Currently almost all the banks in

India have core banking facility.

b) Electronic Fund Transfer (ETF): Part of core banking solutions where funds are transferredwithout the physical movement of cheques or cash. All transactions are done via computers.

Transactions are processed based on specific codes that allow movement of funds.

c) Telebanking: Accessing account information using telephones using VOIP (Voice overInternet Protocol) is called Telebanking. Customers can get details on account balance,

transfer of funds, stop payment instructions, loan information and confirm term deposit

maturity. Banks may charge something extra for customers who opt for this facility.

Customer number and pass number is given to the customer so as to maintain secrecy.

d) Mobile Banking: Mobile banking is for those who are unable to visit the bank or make callsto perform their transactions. All banking activities can be performed on the go using a cell

phone. The most common transactions and inquiries done are checking balance, stop a

cheque, paying utility bills and get account information. SMS banking brings customer and

banks closer by allowing query based transactions to be done using SMS. (Account travels

with customer)

e) Anywhere Banking: This is offered under core banking solution and is based on web andinternet. ATM networks can be shared allowing customers to withdraw cash anywhere in

the world. Banks and branches are networked. Account holder will be in a position to access

his account information without any delay. It brings about accessibility, transparency and

freedom to operate the account.


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Insurance Sector

Insurance is a contract between the insurer and insured whereby the insurer undertakes to pay the

insured a fixed amount, in exchange for a fixed sum (premium), on the happening of a certain event

(like at a certain age or on death), or compensate the actual loss when it takes place, due to the riskinsured.

Insurance provides financial protection against a loss arising out of happening of an uncertain event.

A person can avail this protection by paying premium to an insurance company.

Need and Importance

a) Insurance serves as a very useful means of spreading the effects of personal as well asbusiness risks by way of loss or damage among many. Thus, the insured have a sense of

security.

b) It is an aid to both trading and industrial enterprises, which involve huge investments inproperties and plants as well as inventories of raw materials, components and finished

goods.

c) Insurance plays a significant role particularly in view of the large-scale production anddistribution of goods in national and international market.

d) The members of business community feel secured by means of insurance as they getassurance that by contributing a token amount they will be compensated against a loss that

may take place in future.

e) From the national economic point of view, insurance enables savings of individuals toaccumulate with the insurance companies by way of premium received. These funds are

invested in securities issued by big companies as well as Government.

f) Individuals who insure their lives to cover the risks of old age and death are induced to savea part of their current income, which is by itself of great importance.

g) Insurance is also a source of employment for the people. The people get employed directlyin its offices spread over the country and it also provides opportunities to the people to earn

their livelihood by working as agent of the insurance companies.

General Principles of Insurance

a) Utmost faith in goods: Insurance contracts are the contract of mutual trust and confidence.Both parties to the contract i.e., the insurer and the insured must disclose all relevant

information to each other. For example, while entering into a contract of life insurance, the

insured must declare to the insurance company if he is suffering from any disease that may

be life threatening.

b) Insurable interest: In case of life insurance, a person taking the policy must have insurableinterest at the time of taking the policy. For example, a man can take life insurance policy on

the name of his wife and if later they get divorced this will not affect the insurance contract

because the man had insurable interest in the life of his wife at the time of entering into the

contract.


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c) Indemnity: The word indemnity means to restore someone to the same position that he/shewas in before the event concerned took place. This principle is applicable to the fire and

marine insurance. It is not applicable to life insurance, because the loss of life cannot be

restored.

d) Contribution: The same subject matter may be insured with more than one insurer. In such acase, the insurance claim to be paid to the insured must be shared or contributed by all

insurers.

e) Mitigation: In case of a mishap the insured must take all possible steps to reduce or mitigatethe loss or damage to the subject matter of insurance. This principle ensures that the

insured does not become negligent about the safety of the subject matter after taking an

insurance policy. The insured is expected to act in a manner as if the subject matter has not

been insured.

f) Causa-proxima (nearest cause): According to this principle the insured can claimcompensation for a loss only if it caused by the risk insured against. The risk insured should

be nearest cause (not a remote cause) for the loss. Then only the insurance company is

liable to pay the compensation. For example a ship carrying orange was insured against

losses arising from accident. The ship reached the port safely and there was a delay in

unloading the oranges from the ship. As a result the oranges got spoilt. The insurer did not

pay any compensation for the loss because the proximate cause of loss was delay in

unloading and not any accident during voyage.

Life Insurance

A contract of life insurance (also known as life assurance) is a contract whereby the insurer

undertakes to pay a certain sum either on the death of the insured or on the expiry of a certain

number of years.

In return, the insured agrees to pay an amount as premium either in a lump sum or in periodical

instalments, annually or half-yearly. The risk insured against in this case is certain to happen.

It provides for the payment of a fixed sum to the insured either on a fixed date or on the happening

of an event, which is certain. Businessmen can provide for life insurance of all their employees by

way of group insurance. It also develops loyalty among employees and can be used as a security for

raising loans. Hence, life insurance is also referred to as life assurance. The written form of contract

is known as life insurance policy

Types of Life Insurance

1. A whole life policy runs for the whole life of the insured and premium is payable all along.The sum assured becomes due for payment to the heirs of the insured only after his death.

2. An endowment policy on the other hand, runs for a limited period or up to a certain age ofthe insured. The sum assured becomes due for payment at the end of the specified period or

on the death of the insured, if it occurs earlier.

3. Joint life policy: It means life insurance policy is taken out on more than one life. It is payableafter expiry of certain period or death of any of the insured person.


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4. Annuity policy: It means the sum assured becomes payable in instalments after specifiedperiod but not in lump sum.

5. Janata policy: refers to insurance of low income group or working population. Janata policyscheme aims at benefit for working population.

6. Policy with profits: under this policy, the assured is paid the amount of insurance and also ashare in the profits of insurer as a bonus to the insured.

7. Policy without profits: under this policy, the assured is paid the amount of insurance but noshare in the profits of insurer.

8. Convertible whole life policy: In this policy, a whole life policy can be converted into anendowment policy after a specified period.

9. Group insurance: it is a plan under which the lives of several persons can be covered underone policy which is usually taken out by an employer on the lives of his employees.

10.Pension policy: Insured have to pay premiums at regular intervals for entire life and afterretirement he will get returns in form of income from the insurer.

Fire Insurance

A contract of fire insurance is a contract whereby the insurer, on payment of premium by the

insured, undertakes to compensate the insured for the loss or damage suffered by reason of certain

defined subject matter being damaged or destroyed by fire.

It is a contract of indemnity, that is, the insured cannot claim anything more than the value of

property lost or damaged by fire or the amount of policy, whichever is lower

The claim for loss by fire is payable subject to two conditions, viz;

i. There must have been actual fire; andii. Fire must have been accidental, not intentional; the cause of fire being immaterial.

The basic principle applied with regard to claim is the principle of indemnity.

The insured is entitled to be compensated for the amount of actual loss suffered subject to a

maximum amount for which he had taken the policy. He cannot make a profit through insurance.

For example, if a person takes a fire insurance policy of Rs. 20,000/- on certain goods. Out of these,

goods worth Rs. 15,000/- are destroyed by fire. The insured can only claim an amount to the extent

of loss i.e., Rs. 15,000/- (and not Rs. 20, 000/-) for the damage from the insurance company.

Types of Fire Insurance Policy

There are a great deal of fire insurance policies designated to cater the needs of the insured. These

policies are:

1. Valued Policy: This is a type of fire insurance policy where the value of the subject-matter ofinsurance is agreed upon at the time of making the contract. The insurer is liable to pay the

amount specified or valued irrespective of the amount of loss caused due to fire. In this

policy the principles of indemnity has no application. The insurer pays a fixed sum and doesnot indemnify for the losses. Valued policy is taken for those goods whose value becomes


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difficult to calculate in case of loss by fire. This type of policies are suitable for insuring works

of art, jewellery and paintings where the value of the damaged articles becomes difficult to

measure.

2. Valuable Policy: Valuable policy is a type of policy where the amount of loss is not valued atthe time of undertaking contract of insurance. It is determined at the time and place of loss

on the basis of market value of the property. It is generally based on the basis of principle of

indemnity.

3. Specific Policy: A specific policy is a type of policy in which the property is insured for aspecific sum irrespective of its value. The value of the whole subject matter is immaterial

and as such it becomes a under insurance policy. For example, if a property is insured for Rs.

10000 though its actual value is Rs. 20000. In the event of loss to property, not more than

Rs. 10000 can be recovered.

4. Floating Policy: Floating policy is taken out for those goods which are frequently changing ina warehouse. This policy can be taken on those goods which are lying on different localities

or godowns. Since quantity of goods lying in the warehouse or at different places fluctuate

from time to time, it becomes difficult for the owner to take a specific policy. Floating

policies are suitable to those traders or products whose raw-materials or merchandise are

lying at different localities or godowns.

5. Average Policy: It is a type of policy where the average clause is inserted. Under this policythe indemnity is determined on the basis of the value of the property insured. In average

policy under insurance contracts are penalized. If a policy is taken for Rs. 10000 against a

real value of the property Rs. 50000. The loss is 800. The claim for the loss will be restricted

to the proportionate of sum assured to the actual value of the property.

6. Comprehensive Policy: It is a type of fire policy where all types of risks like fire, burglary, riot,explosion and strikes are covered. This policy is otherwise called as all in one policy or all

Insurance policy. Since this type of policy covers a wide range of perils, these are very

popular in England.

7. Blanket Policy: It is a type of fire insurance policy which covers fixed and current assets ofthe assured in one policy.

8. Loss of profit policy:This is a type of policy where the insured is indemnified for the loss ofprofit due to outbreak of fire.

9. Re-instatement policy: This is a type of fire insurance policy where the insurer undertakes toreplace the property or goods lost by fire. In this policy instead of paying compensation for

the goods lost by fire, the property is replaced in totality.

10.Excess policy: When the value of stock in trade fluctuates, a insured may take out a policy foran amount below which stock should not full. This type of policy is termed as "First Loss

policy". In case of excess policy, the additional amount the stock will rise is considered. If the

stock of a trader ranges between 70000 and 50000. He may take first loss policy for Rs.

40000 and an excess policy for Rs. 50000.

Marine Insurance

A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the

assured, in the manner and to the extent agreed, against losses incidental to marine adventure.


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There is a marine adventure when any insurable property is exposed to maritime perils i.e. perils

consequent to navigation of the sea.

The term 'perils of the sea' refers only to accidents or causalities of the sea, and does not include the

ordinary action of the winds and waves. Besides, maritime perils include, fire, war perils, pirates,seizures and jettison, etc.

Types of Marine Insurance Policies

1. Time policy: A time policy is taken for definite period of time, usually not exceeding 12months say from January 1, 1981 to December 31, 1981. This policy is most suitable for hull

insurance.

2. Voyage policy: Where the subject matter is insured for a specific voyage, say from Karachi toPort Saeed it is named as voyage policy.

3. Mixed policy: This policy is the combination of time and voyage policy. It, therefore, coversthe risks for both particular voyage and for a stated period of time.

4. Floating policy: Floating policy is taken for a relatively large sum by the regular suppliers ofgoods. It covers several shipments which are declared afterwards along with other

particulars. This policy is most situated to exporter in order to avoid trouble of taking out a

separate policy for every shipment.

5. Valued policy: Under its terms the agreed value of the subject matter of insurance ismentioned in the policy itself. In case of cargo this value means the cost of goods plus freight

and shipping charges plus 10% to 15% margin for anticipated profit. The said value may be

more than the actual value of goods.

6. Unvalued policy (Open Policy): Where the value of the subject matter of insurance is notdeclared but left to be ascertained and proved later it is called unvalued policy.

7. Builder's risk policy: This policy is issued for more than one year. This covers the risk ofdamage to vessels from the time its construction commences until its trail is completed.

8. Blanket policy: Under the condition of the blanket policy the maximum limit of the requiredamount of protection is estimated which is purchased in lump sum. The amount of premium

is usually paid in advance. This policy describes the nature of goods insured, specific route,

ports and places of the voyages and covers all the risk accordingly.

9. Port risk policy: This policy covers all the risk of a vessel while it is standing at a port forparticular period of time.

10.Wager policy: Where the assured has no insurable interest in the subject matter ofinsurance that is know as wager policy. As this policy has no legal effect so it cannot be taken

to a court of law. If underwrite refuses to accept the claim the policy holder cannot take any

legal action against him. It is, therefore, also called as gambling policy.

11.Special hazards policy: This policy covers special risks incident to piracy and war. It providesprotection to insured under agreement against seizure, capture, detention and other war

risks.

12.Composite policy: This type of policy is purchased from more than one under writers. Ifthere is no any motive of fraud then insured will be indemnified by each under writer

separately in case of loss.


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13.Block policy: This policy is particularly purchased to gold diggers. It covers all the risks ofdamage to gold from the time of its recovery to its distinction. This types of policy has been

introduced in Africa and is very popular in the mine fields of gold.

Surrender of Policy and Paid up Policy

The early termination of an insurance product by the policyholder is called as Surrender of Policy

An insurance policy that requires no further premium payments be made is called Paid -up Policy.

This type of policy requires the consumer to pay a premium until a specific date and after that date

the policy is considered paid up and still active. The policy cannot be cancelled by the insurance

company unless the consumer chooses to cancel it.

Privatization of Insurance

Insurance has always been a politically sensitive subject in India. Within less than 10 years ofindependence, the Indian government nationalized private insurance companies in 1956 to bring

this vital sector under government control to raise much needed development funds.

Since then, state-owned insurance companies have grown into monoliths, lumbering and often

inefficient but the only alternative. They have been criticized for their huge bureaucracies, but still

have millions of policy holders as there is no alternative.

Any attempt to even suggest letting private players into this vital sector has met with resistance and

agitation from the powerful insurance employees unions

Need and Importance of Insurance Privatization

a) Assigns a greater role to private sector to participate in field of insuranceb) Leads to globalization of insurance sectorc) Gives rise to introduction of innovative products and services with joint participation of

foreign companies.

d) Free flow of foreign capitale) Professionals from abroad can share their expertise for growth of insurance marketf) Widens the network of under exploited insurance market.g) Creates more job opportunities.h) Creates self employmenti) Funds generated from insurance can be used for infrastructure development.

j) Develops a sense of thrift and savings among the publick) Helps serve public more effectivelyl) Helps bring professionalism to the insurance sector.

Transportation

Transport refers to the activity that facilitates physical movement of goods as well as individuals

from one place to another. In business, it is considered as an auxiliary to trade, that means, it

supports trade and industry in carrying raw materials to the place of production and distributingfinished products for consumption. Individuals or business firms that engage themselves in such


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activities are called transporters. Generally, transporters carry raw material, finished products,

passengers, etc. from one place to another. So it removes the distance barrier.

Need and Importance

Followings are the points of importance of transport.

a) Makes available raw materials to manufacturers or producers: Transport makes it possible tocarry raw materials from places where they are available, to places where they can be

processed and assembled into finished goods.

b) Makes available goods to customers: Transport makes possible movement of goods fromone place to another with great ease and speed. Thus, consumers spread in different parts

of the country have the benefit of consuming goods produced at distant places.

c) Enhances standard of living: Easy means of transport facilitates large-scale production at lowcosts. It gives consumers the choice to make use of different quantities of goods at different

prices. So it raises the standard of living of the people.

d) Helps during emergencies and natural calamities: In times of national crisis, due to war orinternal disturbance, transport helps in quick movement of troops and the supplies needed

in the operation.

e) Helps in creation of employment: Transport provides employment opportunity to individualsas drivers, conductors, pilots, cabin crew, captain of the ship, etc. who are directly engaged

in transport business. It also provides employment to people indirectly in the industries

producing various means of transport and other transport equipments. People can also

provide repairing and maintenance services by opening service centres at convenient

locations.

f) Helps in labour mobility: Transport helps a lot in providing mobility to workers. You may beaware that people from our country go to foreign countries to work in different industries

and factories. Foreigners also come India to work. In India, people also move from one part

to another in search of work. Similarly, it is not always possible to have workers near the

factory. Most industries have their own transport system to bring the workers from where

they reside to the place of work.

g) Helps in bringing nations together: Transport facilitates movement of people from onecountry to another. It helps in exchange of cultures, views and practices between the peopleof different countries. This brings about greater understanding among people and

awareness about different countries. Thus, it helps to promote a feeling of international

brotherhood.

Modes of Transport

a) Roads are the means that connect one place to another on the surface of the land. You musthave seen roads in your village, in towns and cities. Not all of them look alike. Some of them

are made of sand and some may be of chips and cement or coal tar. You find different

vehicles plying on roads like bullock carts, cycles, motorcycles, cars, truck, buses, etc. All of


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these constitute different means of road transport. The means of road transport may be

divided into three types: -

i. Man driven;ii. Animal driven; and

iii. Motor driven.There are numerous advantages of road transport in comparison to other modes of

transport.

1. Less capital quality:- Road transport required much less capital investmentas compared to other modes of transport such as railways and air transport.

2. Door to door services: - The outstanding advantage of road transport is thatit provides door to door or warehouse to warehouse services.

3. Services in rural areas:- Road transport is most suited for carrying goods andpeople to and from rural areas which are not served by rail, water or airtransport.

4. Flexible services:- Road transport has a great advantage over other modes oftransport for its flexible services. Its routes and timings can be adjusted and

changed to individual requirements without much inconvenience.

5. Suitable for short distance:- Delays in transit of gods on account ofintermediate loading and handling are avoided. Goods can be loaded direct

into a road vehicle and transported straight to their place of destination.

6. Lesser risk of damage in transmit: - Road transport is most suited fortransporting delicate goods like chinaware and glassware, which are likely to

be damaged in the process of loading and unloading.

7. Rapid speed:- If the goods are to be sent immediately are quickly, motortransport is more suited than the railways or water transport. Water

transport is very slow.

8. Saving in packing cost: - As compared to other modes of transport, theprocess of packing in motor transport is less complicated. Goods

transported by motor transport require less packing or no packing in several

cases.

9. Private owned vehicles: - Another advantage of road transport is that bigbusinessmen can afford to have their own motor vehicles and initiate their

own road services to market their products without causing any delay.

10.Feeder to other modes of transport: - The movement of goods beings andultimately ends by making use of roads. Road and motor transport act as a

feeder to the other modes of transport such as railway, ships and airways.

In spite of various merits road/motor has some serious limitations:

1. Seasonal nature: - Motor transport is not as reliable as rail transport. Duringrainy or flood season, roads become unfit and unsafe for use.

2. Accidents and breakdown: - There are more chances of accidents andbreakdown in case of motor transport. Thus, motor transport is not as safe

as rail transport.


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2. Another disadvantages of railway transport is its inflexibility. It routes andtimings cannot be adjusted to individual requirements.

3. Rail transport cannot provide door to door service as it is tied to a particulartrack. Intermediate loading or unloading involves greater cost, more wear

and tear and wastage of time. The time cost of terminal operations are a

great disadvantage of rail transport.

4. As railways require huge capital outlay, they may give rise to monopoliesand work against public interest at large. Even if controlled and managed by

the government, lack of competition may breed in inefficiency and high

costs.

5. Railway transport is unsuitable and uneconomical for short distances andsmall traffic of goods.

6. It involves much time and labour in booking and taking delivery of goodsthrough railways ascompared to motor transport.

7. Because of huge capital requirements and traffic, railways cannot beoperated economically in rural areas. Thus, large rural areas have no railway

even today. This causes much inconvenience to the people living in rural

areas.

c) Air transport: This is the fastest mode of transport. It carries goods and passengers throughairways by using different aircrafts like passenger aircraft, cargo aircraft, helicopters, etc.

Besides passengers it generally carries goods that are less bulky or of high value. In hilly and

mountainous areas where other mode of transport is not accessible, air transport is an

important as well as convenient mode. It is mostly used for transporting goods and

passengers during natural calamities like earthquake and floods, etc. During war, air

transport plays an important role in carrying soldiers as well as supplies to the required

areas.

Advantages

1.High Speed: Air transport is the fastest mode of transport and thereforesuitable carriage of goods over a long distance requiring less time. There is no

substitute for air transport when the transport of goods is required urgently.

2.Quick Service: Air transport provides comfortable, efficient and quicktransport service. It is regarded as best mode of transport for transporting

perishable goods.


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d) Water Transport: Water transport refers to movement of goods and passengers onwaterways by using various means like boats, steamers, launches, ships, etc. With the help

of these means goods and passengers are carried to different places, both within as well as

outside the country. Within the country, rivers and canals facilitate the movement of boats,

launches, etc. Since the goods and passengers move inside the country, this type of

transport is called inland water transport.

Advantages

1. Suitable For Heavy Cargo: Water transport is the only suitable means to transportheavy and big sized goods and materials.

2. Foreign Trade: Water transport is the cheapest and suitable means for transportinggoods, conducting trade among different countries, importing and exporting goods.

3. Natural Gift: Rivers, lakes, seas, etc. are free gifts provided by nature. So, noadditional expense is needed to construct waterways like roads and railway

construction.

4. Cheap: Water transport is the cheapest means. Its operational expense remainsunchanged and relatively cheap. As it can carry and transport huge amount of goods

at a time, per unit cost becomes low.

5. Congestion: Delays caused due to congestion like in case of road transport is notpossible in case of using water transportation.

6. Risk of Damage: The risks of goods getting damaged are less. Ships do not shake orjerk around while moving thus minimizing the chances of damages incurring while

transport.

Disadvantages

1. Slow Speed and Time Consuming: Water transport is very slow means of transport.It takes long time to travel or transport goods. Moreover, waterways are winding.

2. Uncertain: Sailing boat, motorboat, steamer, ship etc become impractical inwaterways, because the water in rivers, lakes, canals dries off. They are affected by

seasonal changes. They become shallow which is risky in sailing the means of water

transport.

3. Risky: Water transport is risky. Sea storm may cause ship, boat accident. A great oflives and property may happen. The means of water transport like ship, boat and

steamer may get ruined.


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4. Unsuitable for Perishable Goods: Water transport is not suitable for transportingperishable goods, because it takes long time to reach the destination.

Vessels used in Water Transport

1. Tanker: A tanker (or tank ship or tankship) is a ship designed to transport liquids in bulk.Tankers can range in size of capacity from several hundred tons, which includes vessels for

servicing small harbours and coastal settlements, to several hundred thousand tons, for

long-range haulage. Besides ocean- or seagoing tankers there are also specialized inland-

waterway tankers which operate on rivers and canals with an average cargo capacity up to

some thousand tons.

2. Liners: liner is a passenger or cargo vessel, which belongs to a regular shipping company.These ships ply over a fixed route according to a prescribed schedule or timetable.

3. Tramps - A tramp is a cargo ship, which does not make regular trips but plies whenevercargo is offered to it. It does not follow a fixed route or a prescribed timetable like that of

liners.

Warehousing

Warehousing refers to the activities involving storage of goods on a large-scale in a systematic and

orderly manner and making them available conveniently when needed. In other words, warehousing

means holding or preserving goods in huge quantities from the time of their purchase or production

till their actual use or sale. Warehousing is one of the important auxiliaries to trade. It creates time

utility by bridging the time gap between production and consumption of goods.

Need and Importance

a) Seasonal Production- You know that agricultural commodities are harvested duringbcertainseasons, but their consumption or use takes place throughout the year. Therefore, there is a

need for proper storage or warehousing for these commodities, from where they can be

supplied as and when required.

b) Seasonal Demand- There are certain goods, which are demanded seasonally, like woollengarments in winters or umbrellas in the rainy season. The production of these goods takes

place throughout the year to meet the seasonal demand. So there is a need to store these

goods in a warehouse to make them available at the time of need.

c) Large-scale Production - In case of manufactured goods, now-a-days production takes placeto meet the existing as well as future demand of the products. Manufacturers also produce

goods in huge quantity to enjoy the benefits of large-scale production, which is more

economical. So the finished products, which are produced on a large scale, need to be stored

properly till they are cleared by sales.

d) Quick Supply - Both industrial as well as agricultural goods are produced at some specificplaces but consumed throughout the country. Therefore, it is essential to stock these goods

near the place of consumption, so that without making any delay these goods are made

available to the consumers at the time of their need.


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e) Continuous Production- Continuous production of goods in factories requires adequatesupply of raw materials. So there is a need to keep sufficient quantity of stock of raw

material in the warehouse to ensure continuous production.

f) Price Stabilization- To maintain a reasonable level of the price of the goods in the marketthere is a need to keep sufficient stock in the warehouses. Scarcity in supply of goods may

increase their price in the market. Again, excess production and supply may also lead to fall

in prices of the product. By maintaining a balance of supply of goods, warehousing leads to

price stabilisation

Types of Warehouses

a) Private Warehouses: The warehouses which are owned and managed by the manufacturersor traders to store, exclusively, their own stock of goods are known as private warehouses.

Generally these warehouses are constructed by the farmers near their fields, by wholesalers

and retailers near their business centres and by manufacturer near their factories. Thedesign and the facilities provided therein are according to the nature of products to be

stored.

b) Public Warehouses: The warehouses which are run to store goods of the general public areknown as public warehouses. Anyone can store his goods in these warehouses on payment

of rent. An individual, a partnership firm or a company may own these warehouses. To start

such warehouses a licence from the government is required. The government also regulates

the functions and operations of these warehouses. Mostly these warehouses are used by

manufacturers, wholesalers, exporters, importers, government agencies, etc.

c) Bonded Warehouses: These warehouses are owned, managed and controlled bygovernment as well as private agencies. Private bonded warehouses have to obtain licence

from the government. Bonded warehouses are used to store imported goods for which

import duty is yet to be paid. In case of imported goods the importers are not allowed to

take away the goods from the ports till such duty is paid. These warehouses are generally

owned by dock authorities and found near the ports.

Previous Year Questions on this Chapter

SECTION A

1. What is meant by service sector? (Jun-06)2. Write any two principles of insurance. (Mar-09)3. List any two types of insurance. (Mar-08)4. List any two types of life insurance policies. (Jun-11)5. What is privatization of insurance? (Jun-06)6. Who is an insured? (Mar-06, Jun-10)7. Who is an insurer? (Jun-09)8. What are liners? (Jun-08, 09)9. What are tramps? (Jun-10)10.What are tankers? (Mar-08)11.What is meant by warehousing? (Mar-07)12.What is the importance of warehousing? (Mar-10, 11)


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13.State any two types of warehouses. (Jun-06, Mar-06, 10, 11)14.What are public / duty paid warehouse? (Mar-08)15.What is bonded warehouse? (Jun-07, 08, Mar-09)16.What is overdraft? (Mar-07)

SECTION B

1. What is the importance and need of banking? (Jun-06, Mar-09)2. List any two types of bank accounts. (Mar-10)3. What is current account? (Mar-09)4. What is core banking? (Jun-08, 09, 10, 11)5. What is electronic fund transfer? (Mar-07, 08)6. What is tele-banking? (Mar-06, Jun-06)7. What is anywhere banking? (Mar-11)8. Define insurance. (Jun-07)9. What is double insurance? (Jun-08, 10, 11)10.What is re-insurance? (Mar-07, Jun-09)11.What is surrender of value policy? (Mar-10)12.What is paid up value policy? (Mar-08)13.State any two needs of privatizing insurance. (Mar-11)14.What is need for transport? (Mar-10)15.State two advantages of air transport. (Mar-09)16.State two disadvantages of air transport. (Jun-11)17.Mention two disadvantages of water transport. (Mar-07)

SECTION C

1. Explain procedure to open bank account. (Jun-06, 07, 09, Mar-06, 08, 10)2. State recent developments in Banking. (Mar-09)3. Write any 5 differences between current account and savings account. (Mar-11, Jun-11)4. Explain types of fire insurance policies. (Mar-06, 10)5. Explain types of marine insurance policies. (Mar-08)6. Explain types of life insurance policies. (Mar-09)7. Explain demerits of road transport. (Jun-11)8. Explain merits of road transport. (Jun-10)9. What is warehousing? Explain types of warehouses. (Jun-10)10.Mention any 5 functions of warehouses. (Mar-07)

SECTION D

1. Define insurance. Explain general principles of insurance. (Jun-07, 11)2. What is fire insurance? Explain the various fire insurance policies. (Mar-07, 09 Jun-08)3. Define marine insurance. Explain the marine insurance policies. (Mar-06, Jun-09, 10)4. What is life insurance? Explain the types of life insurance policies. (Mar-08, Jun-10)5. Explain the merits and demerits of road transport. (Jun-06, 11, Mar-09, 11)


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6. Explain merits and demerits of railway transport (June-08, 09)7. Explain merits and demerits of air transport. (Mar-07, 08, 10, Jun-07)8. Explain need for warehousing. (Jun-09, 11)

Documents

Chapter 6 BS 2 2PUC