Question

Public deposits are the source of

• A. Short term finance
• B. Long term finance
• C. Middle term finance
• D. Social investment

Hint:

Remember that sources of finance are classified by their tenure. Public deposits have a legally limited tenure (typically up to 3 years), which places them firmly outside the 'long-term' category.

Answer 1

The Correct Option is A

Step 1: Understanding the Question:
The question asks to classify public deposits based on the term or duration of finance they provide.
Step 2: Key Concept:
Public deposits are unsecured deposits raised by companies directly from the public. The maturity period of these deposits is regulated by law (e.g., the Companies Act). Generally, companies can accept deposits for a period ranging from 6 months to 36 months (3 years).
Step 3: Detailed Explanation:
Let's analyze the classification of finance terms:

Short-term finance: Typically for a period of up to one year. Used for funding working capital needs.

Medium-term finance: Typically for a period of one to five years.

Long-term finance: Typically for a period of more than five years. Used for funding capital assets.

Since public deposits have a maximum tenure of 3 years, they are primarily used to meet short-term and medium-term financial requirements, especially for working capital. Among the given choices, while they can extend into the medium term, they are most commonly associated with and categorized under short-term finance due to their role in funding the operating cycle. Given the options, "Short term finance" is the most appropriate classification for their primary purpose.
Step 4: Final Answer:
Public deposits serve the short-term and medium-term needs of a business. As per the answer key and common classification, they are considered a source of short-term finance. Therefore, option (A) is correct.