Business Studies Grade 12 Revision 2

QUESTION 1 : BUSINESS VENTURES

1.1 Name any FOUR examples of long-term insurance.

Examples of long-term insurance include:

Endowment Policy:

An endowment policy is a life insurance policy that pays out a lump sum after a specific term or upon the death of the insured.

Life Cover Policy (Life Insurance):

Life insurance provides financial protection for the policyholder’s beneficiaries in the event of their death. It pays out a predetermined sum assured.

Retirement Annuity/Pension Fund/Provident Fund:

These are long-term savings and investment plans designed to provide financial security during retirement. They may pay out a pension or lump sum upon retirement.

Disability Policy:

Disability insurance offers coverage if the policyholder becomes disabled and is unable to work. It provides financial support during the disability period.

Trauma Insurance:

Trauma insurance, also known as critical illness insurance, pays a lump sum upon the diagnosis of specific critical illnesses or medical conditions.

Funeral Insurance:

Funeral insurance, also known as burial or final expense insurance, covers the costs associated with a funeral and burial.

Health Insurance/Medical Aid:

Health insurance provides coverage for medical expenses, including doctor visits, hospitalization, and medications, ensuring access to healthcare services.

1.2 Elaborate on the meaning of excess as an insurance concept.

In the context of insurance, excess refers to the amount that the insured agrees to pay upfront as part of the insurance policy. It represents a portion of the insurance claim that the insured is responsible for, typically towards the cost of repairing or replacing the insured goods or property in case of a covered event. This upfront payment is a fundamental aspect of insurance policies and serves several purposes.

Firstly, excess payments serve to protect the insurer against fraudulent claims. When an insured party is required to pay an excess amount upfront, it acts as a deterrent against submitting false or exaggerated claims, as the insured has a financial stake in the claim.

Secondly, the excess is the amount paid to the insurer when a claim for damages is lodged. It represents the insured’s financial commitment to the claim, ensuring their active participation in the settlement process.

Higher excess amounts in insurance policies can have a twofold effect. On one hand, they can help keep the insurance premium lower, as a higher excess shifts some of the financial burden to the insured. On the other hand, they discourage the insured from making claims for minor or trivial damages, as the cost may not significantly exceed the excess amount.

For example, if John has comprehensive auto insurance coverage, and his policy includes a standard excess amount of R 2000. One day, he is involved in a minor accident where he collides with another vehicle, resulting in damage to his car and the estimated cost to repair his vehicle is R 5,500. In this scenario, since his policy has  R 2000 excess, he is responsible for covering this amount when he files a claim with his insurance company. The remaining R 3,500 (the cost of repairs minus the excess) is covered by his insurance company.

By requiring John to pay the excess upfront, the insurance company discourages him from exaggerating the damage or submitting a false claim, to ensure he too has a financial stake in the claim’s accuracy and honesty.

1.3 Identify the type of visual aid that was used by Dumisani while presenting in EACH statement below.

1.3.1 Dumisani used slides that were projected on a screen.

Dumisani used a PowerPoint presentation with a data projector to enhance his presentation.

1.3.2 He provided the audience with hard copies of his presentation at the beginning of the session.

Dumisani used hand-outs, consisting of flyers, and brochures to provide the audience with hard copies of his presentation at the beginning of the session.

1.4 Explain the difference between limited liability and unlimited liability.

1.5 Describe the functions of the Johannesburg Securities Exchange (JSE).

The Johannesburg Securities Exchange (JSE) serves a variety of functions in the South African financial landscape. These functions collectively contribute to the JSE’s role as a critical financial institution in South Africa, supporting both the economy and individual investors as outlined below

Opportunities for Surplus Funds:

The JSE provides opportunities for financial institutions, such as insurance companies, to invest their surplus funds in shares.

Economic Barometer:

It serves as a key indicator of economic conditions in South Africa, reflecting the performance and health of the national economy.

Share Price Publication:

The JSE keeps investors informed by publishing daily share prices, helping investors make informed decisions.

Link Between Investors and Companies:

It acts as a crucial link between investors and public companies, facilitating investment and capital flow.

Share Valuation:

Shares listed on the JSE are valued and assessed by experts to determine their market worth.

Inclusive Investment:

It invites small investors to participate in the country’s economy through buying and selling shares.

Venture Capital Market:

The JSE provides a platform for the venture capital market, encouraging investment in the open market.

Investment Regulation:

It enforces strict investment rules, ensuring a disciplined and orderly market for securities trading.

Primary Capital Raising:

The JSE encourages new investments in listed companies, raising primary capital for these businesses.

Fund Mobilization:

The JSE mobilizes funds from insurance companies and other financial institutions to facilitate investment.

Market Regulation:

It regulates the market for trading in shares, maintaining transparency and fair practices.

Investment Advice:

The JSE conducts planning, research, and advisory functions to inform investors of various investment possibilities.

Transparency:

It ensures that the market operates transparently, promoting trust and integrity in financial dealings.

Investor Protection:

The JSE provides protection for investors through the implementation of strict rules and legislation.

Short-Term Investment:

It encourages short-term investment, allowing investors to participate in dynamic market movements.

Economic Development:

The JSE contributes to job creation and increases economic growth and development in the country.

Electronic Trading:

It facilitates electronic trading of shares through systems like STRATE, making the trading process more efficient.

1.6 Read the scenario below and answer the questions that follow.

1.6.1 Calculate the simple interest that Thapelo will receive after two years. Show ALL calculations.

To calculate the simple interest, Lets  use the formula:

Simple Interest (I) = Principal amount (P) × Rate of interest (R) × Time (T)

In this scenario:

• Principal amount (P) = R7,000
• Rate of interest (R) = 10% or 0.10 (as a decimal)
• Time (T) = 2 years

Now, let’s calculate the simple interest:

I = 7,000 × 0.10 × 2

I = 7,000 × 0.20

I = 1,400

Thapelo will receive R1,400 in simple interest after two years.

1.6.2 Discuss the impact of fixed deposits as a form of investment.

Fixed deposits are a popular form of investment with both advantages and disadvantages as presented in the following advantages and disadvantages of fixed deposits as a form of investment.

Positives/Advantages:

Fixed Interest Rates:

One of the key advantages is that interest is earned at a fixed rate. Regardless of changes in the economic climate, investors can rely on a stable return on their investment. This provides financial security and predictability, especially for risk-averse investors.

Versatile Investment Period:

Fixed deposits offer flexibility in terms of the investment period. Investors can choose to deposit their money for a short, medium, or long term, depending on their financial objectives and needs.

Financial Discipline:

Fixed deposits promote financial discipline. Since investors cannot withdraw their funds before the maturity date without incurring penalties, it encourages saving and prevents impulsive spending.

Guaranteed Returns:

The principal amount plus the interest earned is paid out to investors on the maturity date. This guarantee provides peace of mind, ensuring that the investment capital remains intact and grows steadily over time.

Lower Risk:

Fixed deposits are considered a low-risk investment option. Investors are virtually guaranteed the final payment, which makes them an excellent choice for those who prioritize capital preservation over high returns.

Higher Principal and Longer Tenure, Better Returns:

The interest rate offered by financial institutions is often higher for larger principal amounts or longer investment periods. This feature rewards those who commit significant funds or extended durations.

Negatives/Disadvantages:

Lack of Liquidity:

A significant drawback is that investors cannot withdraw their funds before the maturity date without incurring penalties or losing the interest earned. This lack of liquidity can be problematic if the investor faces unexpected financial needs.

Lower Returns:

Fixed deposits tend to offer lower returns compared to riskier investment options like stocks or bonds. Over the long term, the returns from fixed deposits may not keep pace with inflation, potentially eroding the purchasing power of the invested funds.

1.7 Advise businesses on the advantages of insurance.

Businesses can benefit significantly from insurance for several reasons:

Risk Transfer:

Insurance allows businesses to transfer the financial risk they face to an insurance company. In case of unforeseen events, the insurer bears the burden of the associated costs, reducing the financial impact on the business.

Protection Against Loss and Damage:

Insurance safeguards businesses against the loss of assets, such as theft or damages resulting from natural disasters like floods or storms. This protection extends to property damage due to events like fires.

Asset Protection:

Business assets, including vehicles, equipment, and buildings, are essential for operations. Insurance helps protect these assets against damage and theft, ensuring business continuity.

Loss of Earnings:

Businesses can experience substantial losses due to unexpected events, like employee strikes. Insurance can provide compensation for such losses, helping businesses stay financially stable during turbulent times.

Employee Dishonesty:

Insurance protects businesses against the financial consequences of dishonest employee behavior, such as theft or fraud.

Life Insurance for Partners:

In partnerships, life insurance can be taken out on the lives of partners. This helps prevent an unexpected loss of capital if a partner passes away, ensuring the business can continue operating smoothly.

Key Person Coverage:

Insurance can be used to cover key personnel in a business. In the event of accidents or death, the proceeds from the insurance policy can be paid out to the business or beneficiaries to mitigate any disruptions.

Machinery and Equipment Costs:

Replacement costs for damaged machinery and equipment can be exceptionally high. Insurance can cover or reduce these costs, allowing businesses to recover more quickly.

Liability Protection:

Insurance safeguards businesses from claims made by members of the public for damages the business is held responsible for. This protection is especially vital for businesses that interact with the public.

Debtor Protection:

Businesses can also protect themselves from financial losses caused by the death of a debtor. If a debtor passes away before repaying their debt, insurance can cover the outstanding amount, preventing revenue loss.

1.8 Suggest ways in which the presenter can handle feedback after a presentation in a non-aggressive and professional manner.

Handling feedback after a presentation in a non-aggressive and professional manner is crucial for maintaining a positive and constructive atmosphere. Here are some ways in which the presenter can effectively manage feedback:

Maintain a Professional Demeanor:

Stand throughout the feedback session to demonstrate attentiveness and professionalism.

Politeness and Confidence:

Respond to questions with politeness and confidence. Maintain a courteous tone even when addressing challenging inquiries.

Clarify Questions:

Ensure that each question or comment is clearly understood. If uncertain, rephrase questions to avoid misunderstandings.

Listen First:

The presenter should actively listen to the questions and comments before responding. This demonstrates respect for the audience’s input.

Timely Responses:

Provide feedback as soon as possible after a question is asked or the session concludes, as this demonstrates a commitment to addressing concerns promptly.

Honesty:

Respond to questions with honesty and sincerity. Acknowledge errors or mistakes if they are pointed out by the audience.

Use Simple Language:

To support the examples used in the presentation, use straightforward and comprehensible language. This ensures that the audience can easily follow the responses.

Concise Responses:

Keep answers concise and directly related to the questions. Avoid going off on tangents or providing excessive information.

Encourage Questions:

Encourage questions from the audience by creating a welcoming and open environment for discussion.

Address the Question:

Always focus on addressing the question itself rather than commenting on the person who posed it. This maintains a respectful and professional tone.

Acknowledge Good Questions:

Motivate the audience to ask more questions by acknowledging good inquiries and expressing appreciation for their engagement.

Avoid Debate:

Avoid getting involved in debates when responding to questions. Maintain a constructive and informative dialogue rather than engaging in argumentation.

Promise Feedback:

If the presenter does not know the answer to a question, promise to provide feedback on it at a later time, displaying a commitment to delivering accurate information.

Address the Full Audience:

When responding to questions, make sure to address the entire audience, not just the person who posed the question. This ensures inclusivity and involvement.

Business Studies Grade 12   Exam Preparation