Management of Financial Services-1

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Assignment A

  1. “Factoring provides resources to finance receivables and facilitates their collection.” Explain.
  2. “Investment in Mutual fund is indirect in nature”. Examine it in the light of features of mutual funds.
  3. What do you mean by Merchant banking? Explain various services that comes under the ambit of merchant banking.
  4. Elaborate the present Indian financial services sector with their role in economic development.
  5. Differentiate between factoring and forfeiting services & comment over emerging trends of other financial services.

Assignment B

  1. “Venture Capital funds provide finance to venture capital undertakings through modes/instruments.” Describe these instruments in detail. What are the alternatives available to a venture capitalist to exit from an invested company? Discuss.
  2. Discuss the Credit rating methodology used by rating companies in India. Name different types of securities which need credit rating.
  3. What are the advantages that accrue from branding of financial services? Illustrate with the help of examples, some of the pitfalls associated with umbrella branding.

CASE STUDY

The banking industry is transformed, global forces for change include technological innovation; the deregulation of financial services at the national level and opening-up to international competition and changes in corporate behavior, such as growing disintermediation and increased emphasis on shareholder value. Indian banking system and financial system has as a whole had to be strengthened so as to be able to compete. India has had more than decade of financial sector reforms during which there has been substantial transformation and liberalization of the whole financial system. It is an appropriate time to take stock and assess the efficacy of our approach. It is useful to evaluate how the financial system has performed in an objective quantitative manner.

 

There has been importance because India’s path of reforms has been different from most other emerging market economies: it has been a measured, gradual, cautious, and steady process, devoid of many flourishes that could be observed in other countries. The Indian debt market ranks third in Asia, after Japan and South Korea, in terms of issued amount. Outstanding size of the debt floatation as a proportion of GDP, however, is not very high in India. Moreover, although in terms of the primary issues Indian debt market is quite large, the Government continues to be the large borrower, unlike in South Korea where the private sector is the main borrower. The corporate debt market in the country is still at nascent stage. Factors such as lack of good quality issuers, institutional investors, supporting infrastructure and high cost of issuance, market fragmentation, etc. have been identified as the reason for lack of depth of the corporate debt market in India.

Competition is sought to be fostered by permitting new private sector banks and liberal entry of branches of foreign bank. Competition is sought to be fostered in rural and semi-urban areas also by encouraging Local Area Banks. Some diversification of ownership in select public sector banks has helped the process of autonomy and thus some response to competitive pressures and competition induced by the new private sector banks has clearly re-energized the Indian banking sector as a whole: new technology is now the norm, new products are being introduced continuously, and new business practices have become common place.

The principles underlying these guidelines would also be applicable as appropriate to public sector. More important, this suggests that the competitive nature of the Indian banking system is not significantly different from banking system in other countries, particularly in view of the fact that nearly 75 percent of banking system assets is with state owned banks. The validation of monopolistic competition during the second sub-period suggests that the recent trends toward consolidation led to more rather than less competition in the banking sector.

The using Indian banking industry as one case study, there will propose and test hypotheses regarding the possibility of relationship between three elements of bank related reforms like, fiscal reforms, financial reforms and private investment liberalization and bank efficiency. Bank efficiency is measured using data envelopment analysis or DEA and the relationship between the measured efficiency and India bank specific characteristics and environmental factors associated with reform is examined using estimations. Negative relationship between the presence of foreign banks and bank efficiency is found, which we attribute to a short-run increase in costs due to the introduction of new banking technology by foreign banks.

Questions:

  1. List the various factors behind Indian Banking Sector reforms and its impact.
  2. As per the above case, what is negative relationship?
  3. Comment over ‘presence of Foreign Banks in Indian market’.

 

Assignment C

 

1. All of the following are financial intermediaries except

a. Insurance companies

b. Pension funds

c. Mutual funds

d. None of the above

 

2. Lease which includes a third party (a lender) is known as:

a. Sale and leaseback

b. Direct lease

c. Inverse Lease

d. Leveraged Lease

 

3. Financial instruments issued by government agencies or corporations that promise to pay certain amounts of money to the holder on specific future dates are called:

a. Venture Capital.

b. preferred stock.

c. Equity Shares.

d. bonds.

 

4. The purpose of financial markets is to:

a. increase the price of common stocks.

b. lower the yield on bonds.

c. allocate savings efficiently.

d. control inflation.

 

5. Financial intermediaries:

a. channel funds from savers to borrowers

b. greatly enhance economic efficiency

c. have been an source of many financial innovations

d. have done all of the above

 

6. ____________are the economies Central nervous system.

a. Financial Instruments

b. Financial Markets

c. Financial Institutions

d. Financial Companies

 

7. Financial markets and institutions

a. involve the movement of huge quantities of money.

b. affect the profits of businesses.

c. affect the types of goods and services produced in an economy.

d. do all of the above.

 

8. All merchant bankers have to be registered with…..

a. RBI.

b. SEBI

c. AMFI

d. All of the above

 

9. A mutual fund can operate as a venture capital fund.

a. True

b. False

c. Cannot say

d. None of the above

 

10. How are funds allocated efficiently in a market economy?

a. The most powerful economic unit receives the funds.

b. The economic unit that is willing to pay the highest expected return receives the funds.

c. the economic unit that considers itself most in need of funds receives them.

d. Receipt of the funds is rotated so that each economic unit can receive them in turn.

 

11. Funds do not have a fixed date of redemption.

a. Open ended funds

b. Closed ended funds

c. Diversified funds

d. Botha&b

 

12. In lease system, interest rate is calculated on:

a. Cash down payment

b. Cash price Outstanding

c. Hire purchase price

d. None of the above

 

13. A short term lease which is of tern cancellable is known as:

a. Finance lease

b. Net lease

c. Operating lease

d. Leveraging lease

 

14. Which of the following is not a usual type of lease arrangement?

a. Sale & leaseback

b. Goods on Approval

c. Leverage Lease

d. Direct lease

 

15. Under income-tax provisions, depreciation on lease asset is allowed to:

a. Lessor

b. Lessee

c. Any of the two

d. None of the two

 

16. A lease which is generally not cancellable and coers full economic life of the asset is known as:

a. Sale & leaseback

b. Operating lease

c. Finance lease

d. Economic lease

 

17. One difference between Operating & Finance lease is:

a. There is often an option to buy in operating lease

b. There is often a call option in financial lease

c. An operating lease is generally cancellable by lessee.

d. A financial lease in generally cancellable by lessee.

 

18. C.R.A. is banking parlance stands for

a. Credit Rating Association

b. Credit Rating Agency

c. Credit Risk Assessment

d. None of these

 

19. From the point of view of the lessee, a lease is a:

a. Working capital decion

b. Financial decision

c. Buy or make decision

d. Investment decision

 

20. Which of the following is not true for a “Lease or Buy” decision for the lessee?

a. Helps in project selection

b. Helps in project financing

c. Helps in project location

d. All of the above

 

21. Bad debt cost is not borne by factor in case of

a. Pure factoring

b. Without recourse

c. With recourse

d. None of the above

 

22. If a company sells its receivable to another party to raise funds, it is known as

a. Securitization

b. Factoring

c. Pledging

d. None of the above

 

23. For a lessor, a lease is a

a. Investment decision

b. Financing Decision

c. Dividend Decision

d. None of the above

 

24. Which of the following is true for mutual funds in India?

a. Exit load is not allowed

b. Entry load is allowed

c. Entry load is not allowed

d. Exit load allowed is some cases

 

25. Debt/Income funds invest in

a. Tax saving schemes

b. Money Market Instruments

c. High Rate fixed income bearing instruments

d. Both debt and equity

 

26. Which one of the following is not a feature or characteristics of hire purchase?

a. A small initial outlay (deposit) is required

b. The user of the asset never becomes the owner

c. The hirer can use the asset immediately (or within a few days) of agreement

d. Regular interest and capital payments (e.g. monthly) are made by the user to the hire purchase company

 

27. Which of the following is not a service provided by factoring companies?

a. The provision of finance

b. Bond issuance facilities

c. Sales ledger administration

d. Credit insurance

 

28. Which of the following is not regulated by SEBI

a. Foreign institutional investors

b. Foreign direct investment

c. Mutual funds

d. Depositories

 

29. Which one of the following most accurately describes an operating lease?

a. A short term leasing contract in which the lessee conveys the right to the lessor to receive interest payments from an asset leased out to another firm.

b. A short-term leasing contract or a contract which can be terminated at short notice. The lessor conveys the right to use equipment in return for regular rental payments.

c. A lease agreement in which a firm sells equipment firm sells equipment to a finance house, which then permits the firm to continue to use it in return for regular rental payments

d. A lease agreement in which the finance provider expects to recover the full cost (or almost the full cost) of the equipment, plus interest, over the period of the lease

 

30. Mutual Funds provide the benefits of

a. Portfolio management

b. Diversification

c. Investment Avenues

d. All of the above.

 

31. Mutual Funds investor can not earn following return

a. Dividend

b. Capital Gain

c. Increase in NAV

d. Fixed interest earning

 

32. The major difference between hire purchase (HP) and leasing is:

a. With HP, the user of the equipment generally owns it eventually after a set number of payments, whereas with leasing the user never owns the equipment.

b. HP is easy to arrange at point of sale, whereas leasing involves a prolonged legal process.

c. The effective rate is much higher on HP than on leasing.

d. In HP the payments are made annually, whereas with leasing monthly payments are more common.

 

33. Mutual funds are valued with help of their

a. NAV’s

b. NFO

c. IPO

d. None of the above

 

34. One of the following, what is not true in respect of factoring?

a. Continuous Arrangement between factor and seller

b. Sale of receivables to the factor

c. Factor provides cost free finance to seller

d. None of the above

 

35. An asset management company is formed

a. To manage bank’s assets

b. To manage mutual funds investments

c. To construct infrastructure projects

d. To run a stock exchange

 

36. Which of the following is not an advantage of Hire Purchase?

a. Hire purchase is often available when other sources of finance are not

b. Hire purchase agreements can be cancelled at short notice with no penalty

c. Hire purchase is easy to arrange

d. Hire purchase usually represents a fixed rate form of finance

 

37. Balanced funds provide:

a. Steady return

b. High return

c. Increase volatility

d. None of the above

 

38. Prime duty of merchant banker is:

a. Maintaining records of clients

b. Giving loans to clients

c. Working as a capital market intermediary

d. None of the above

 

39. Basic objective of a money market mutual fund is:

a. Guaranteed rate of return

b. Investment in short – term securities

c. Both a & b

d. None of a & b

 

40. Mutual funds that charge a sales commission when shares are purchases are called

a. No-load funds

b. Loaded funds

c. Sinking funds

d. Sinking-charge funds