Business StudiesFinancial Management

When the prices are rising continuously in the market then what will…

When the prices are rising continuously in the market then what will be the Working Capital requirement for a Trading company?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → High working Capital

Option (1) High Fixed Capital — Incorrect. The question asks about working capital, the money for day-to-day work. Fixed capital is money put into long-term assets like buildings and machines.
Option (2) High working Capital — Correct. Inflation (rising prices) is a factor of working capital. A trading company buys goods and sells them. When prices keep rising, the same quantity of goods costs more money. So more money is needed just to keep the same volume of sales. The working capital need becomes higher with a higher rate of inflation.
Option (3) Low working Capital — Incorrect. This is the opposite. Rising prices increase the need for working capital, not lower it.
Option (4) No change in working capital requirement — Incorrect. Prices are rising, so the cost of stock and expenses goes up. The need for working capital changes.

NCERT (2026-27 Edition): “Inflation: With rising prices, larger amounts are required even to maintain a constant volume of production and sales. The working capital requirement of a business thus, become higher with higher rate of inflation. …”

When the prices are rising continuously in the market then what will be the Working Capital requirement for a Trading company?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → High working Capital

Option (1) High Fixed Capital — Incorrect. The question asks about working capital, the money for day-to-day work. Fixed capital is money put into long-term assets like buildings and machines.
Option (2) High working Capital — Correct. Inflation (rising prices) is a factor of working capital. A trading company buys goods and sells them. When prices keep rising, the same quantity of goods costs more money. So more money is needed just to keep the same volume of sales. The working capital need becomes higher with a higher rate of inflation.
Option (3) Low working Capital — Incorrect. This is the opposite. Rising prices increase the need for working capital, not lower it.
Option (4) No change in working capital requirement — Incorrect. Prices are rising, so the cost of stock and expenses goes up. The need for working capital changes.