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Question
Explain the pros and cons of public deposits as a source of business finance.
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Solution
The pros of public deposits are as follows:
- Obtaining deposits is simple and free of the restrictive requirements typically found in lending agreements.
- The cost of public deposits is generally lower than the cost of borrowing from banks and financial institutions.
- Public deposits normally do not generate a levy on the company's assets. The assets can serve as collateral for obtaining loans from other sources.
- Depositors do not have voting rights; hence, the company's control is not diluted.
The cons of public deposits are as follows:
- New enterprises usually struggle to raise cash through public deposits.
- The public may not respond to a company's financial requirements, making it an unreliable source of funding.
- Collecting public deposits can be problematic, especially for big amounts.
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Multiple Choice Question:
Public deposits are deposits that are raised directly from
State the merits and demerits of public deposits and retained earnings as methods of business finance.
Public deposits are deposits made by the public in nationalised banks.
A public deposit is a deposit made by public in the nationalised banks.
Discuss the importance of public deposits as sources of medium and short-term finance.
Public deposits are a source of long-term finance.
Describe the disadvantages of public deposits.
