SSC Economics Sample Paper NCERT Sample Paper-5

  • question_answer
    What is the difference between Debentures and Equity?

    A)  Debentures are sealed bonds acknowledging that money has been borrowed; equity is a shareholder's share voting rights in proportion to his shareholding.

    B)  An equity shareholder cannot withdraw his amount whereas debentures can be withdrawn by taking back the amount.

    C)  Equity shareholding is more risky compared to debentures which is bound to return good interest on the principal

    D)  Both debenture and equity holders have voting right irrespective of the proportion of holdings but debentures are of lower value than equity.

    Correct Answer: A

    Solution :

    [a] A Debenture is a unit of loan amount. When a company intends to raise the loan amount from the public it issues debentures. A person holding debenture or debentures is called a debenture holder. A debenture is a document issued under the seal of the company. It is an acknowledgment of the loan received by the company equal to the nominal value of the debenture. It bears the date of redemption and rate and mode of payment of interest. A debenture holder is the creditor of the company. Equity shares give their holders the power to share the earnings/profits in the company as well as a vote in the AGMs of the company. Such a shareholder has to share the profits and also bear the losses incurred by the company. When a currency appreciates or strengthens in relation to other currencies, imports get cheaper. This means your currency will buy more of another foreign currency so that you can purchase foreign goods.

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