Read the following passage and answer the following questions.

A finance manager in an outlet raised ₹3.5 crore through a mix of debt and equity in a ratio of 4 : 3 to open a new outlet, but the actual amount required was ₹3 crore. The aim of the finance manager is to maximize the shareholder's wealth. Keeping this in mind, he reinvested the excess amount of ₹50 lakh in a fixed deposit carrying 6% interest p.a. while the cost of capital is 10% p.a.

To open an outlet, funds required was amounting to ₹3 crore, but the actual fund raised from the market was ₹3.5 crore. This situation is _____.

Idle Finance

The correct answer is Option (2) → Idle Finance.

The situation described, where the finance manager raised ₹3.5 crore but only required ₹3 crore, is an example of Idle Finance.

Idle finance refers to the excess funds that have been raised but are not immediately needed for the intended purpose. In this case, the company raised more funds than necessary (₹3.5 crore vs ₹3 crore), leading to the excess ₹50 lakh being parked in a fixed deposit, which is considered idle finance.