GUWAHATI UNIVERSITY (Board Question paper of indian financial system for B.COM 5th semester of 2022)
Board Question paper of indian financial system for B.COM 5th semester of 2022, SOLVED
Solving B.com 5th semester question paper of Indian
financial system (IFS) As per CBCS Syllabus with
Solutions Answers in below .2022 Pdf of
IFS Download to understand the pattern of questions ask in the board exam. Know
About the weightage and lectures of chapter
as given in below –
MARKS – 80
UNIT-1: Introduction.
Marks
– 16 , lecture- 10
Financial System - Meaning. Components of Financial System,
Functions of Financial System, Financial System and Economic Development,
Overview of Indian Financial System.
UNIT-2: Financial Markets.
Marks – 16, Lectures 15
Financial Market-Classifications of Financial Markets: Money
Market-Its Constituents, Functions and Significance, Capital Market - Primary
and Secondary Market, Functions of Capital Market and Its Significance.
UNIT-3: Financial Institutions. Marks – 16, Lectures 15
Banking Financial Institutions - Types of Banks, Functions
of Banks, Structure of Indian Banking System: Non-Banking Financial
Institutions, Types and Structure: Mutual Funds, Insurance Companies and
Pension Funds.
UNIT-4: Financial Services. Marks – 16, Lectures 10
Meaning, Features and Importance, Types of Financial
Services - Factoring, Leasing, Venture Capital, Consumer Finance and Housing
Finance.
UNIT-5: Regulatory Institutions. Mark – 16, Lectures 15
Reserve Bank of India Organization, Objectives, Roles and
Functions; Securities and Exchange Board of India Organization and Objectives; Insurance Regulatory
and Development Authority of India. Pension Fond
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ANSWER
1. Answer any ten questions from the following as per
direction : 1×10-10
(i) Money
market in India is regulated by RBI. (Write True or False)
Answer -
TRUE
(ii)
“Financial system is basically involved with the transfer of fund from the
surplus sector to deficit sector of the economy."(Whether the statement
is true or false)
Answer -
TRUE
(iii)
National Stock Exchange (NSE) was established in the year
(a) 1995
(b) 1992
(c) 1997
(d) 1990
(Choose the correct option)
Answer -
1992
(iv) When the bank accepts deposits of money from the
public it occupies the position of
(a) creditor
(b) debtor
(c) Both (a) and (b) above
(d) None of the above
(Choose the correct option)
Answer –
creditor and debtor
(v) Indian
banking sector is divided into two parts; one is organised sector and the other
is known as --------------- (Fill in the blank)
Answer –
Unorganised sector
(vi) New issue market is also known as primary
market. (Write Yes or No)
Answer -
YES
vii) IRDAI regulates
(a) insurance sector
(b) banking sector
(c) both banking and insurance sectors
(d) None of the above
(Choose the correct option)
Answer –
Insurance sector
(viii) Fourteen commercial banks were nationalised in
the year
(a) 1949
(b) 1969
(c) 1980
(b) 1976
(Choose the correct option )
Answer –
1969
(ix) NBFI is not regulated by RBI.. (Write Yes or
No)
Answer -NO
(x) Capital market is dealing with the long
term/short term fund. (Choose the right answer )
Answer –
Long term fund
(xi) Write the full form of CRISIL .
Answer –
Credit rating information service of India limited
(xii) Name the oldest stock exchange of our country.
Answer –
Bombay stock exchange (BSE)
(xiii) In hire purchase, ownership remains with the
-----------until the last
instalment is paid. (Fill in the blank)
Answer –
Seller
(xiv) The proportion of share capital of central
government in RRB is
(a) 50%
(b) 35%
(c) 15%
(d) None of the above
( Choose the correct option )
Answer –
50%
(xv) Which of the following is not a nationalised
commercial bank?
(a) PNB
(b) UBI
(c) Bank of Baroda
(d) Federal Bank
(Choose the right option)
Answer –
Federal bank
(xvi) Credit rating is
(a) fee based service
(b) fund based service
(c) Both (a) and (b) above
(d) None of the above
( Choose the right answer)
Answer –
Fund based service
(xvii) Name the first development bank of India.
Answer –
Industrial development bank of India(IDBI)
(xviii) Commercial banks have been playing an
important role in smooth functioning of money market. (Write Yes or No)
Answer -
YES
2. Answer any five questions from the
following : (Answer should be in about 50 words) 2×5=10
(a) What is financial system?
Answer -
A financial system is refers to as a set of institution such as bank ,
insurance companies, market and service
which promotes saving and channelize them to their most efficient use.
Financial system exits on firm , regional and global level and allows the
exchange of funds between savers , borrowers and investors.
(b)Give the meaning of pension fund with
examples.
Answer - Pension fund is a saving
scheme where a individual invest small
portion of his/her income into a designated saving plan.
EXAMPLE- LIC pension fund limited.
(c)Mention
two distinguishing features of capital market.
Answer- The
two distinguishing features of capital market are as follow-
( (a) It provides finance capital for long term investment .
(b)
It acts as a middleman between the investor and entrepreneur.
(d)
What is primary market?
Answer – It is a market in which newly securities are traded such as shares
and bonds for the first time is called primary market.
Example – equity shares , preference share and debentures .
(e) Name two important laws/legislations
directly related with the banking sector in India.
Answer – The two important laws/legislations directly related with
the banking sector in India are as follow –
(i) Reserve Bank of India act 1934
(ii) Banking regulation act 1949.
(f)Give the meaning of financial service.
Answer – The term “Financial service” may be defined as the
activities concerned with delivery of financial products and services offered
by institutions like banks of various kinds for the facilitation of various
financial transactions and other related activities in the world of finance
like loans, insurance, credit cards, money management as well as providing
information on stock markets.
(g) What is leasing?
Answer- Leasing is a contract where one party (owner/lessor/leasing
company) purchases the assets and permits to use by another party (lessee) over
a specified period of time. Thus, leasing is alternative to the purchase of an
assets out of owned or borrowed fund.
(h) Define hire purchase.
Answer – Hire purchase means a transaction
where goods are purchased and sold on the terms that payment will be made in
instalments and the possession of the goods is given to the buyer immediately.
(i) What is insider trading?
Answer- The term “Insider trading" means buying and selling of securities by those people (directors, promoter). Who have some secret information about the company and wise to advantage of such secrete information.
(j) State
two objectives of IRDAI.
Answer- The two objectives of IRDAI are
as follow –
(i) To promote completion to
enhance customer satisfaction.
(ii)To protect the interest and fair treatment of the policy holder.
3. Answer any four of the following
questions in about 200 words each: 5x4 = 20
(a) Give
an account of new developments in Indian financial system.
Answer - Major developments that have taken place in the Indian financial
system are briefly discussed below.
·
Entry of Private Sector.
Since 90’s, Government control over
financial institutions has diluted in a phased manner. Public/Development
Financial Institutions have been converted into companies, allowing them to
issue equity/bonds to the public. Government has allowed private sector to
enter into banking and insurance sector. IFCI has been converted into a public
company.
·
Changing Role of Development Finance
Institutions (DFIs)
DFIs performed the role of term-lending
institutions extending loans for project finance, underwriting, direct
subscription, lease financing etc. They received funds from the Government and
the RBI.
But now, there is remarkable shift in the
activities of DFIS:
(a (a) DFIs are engaged in non-fund
based financial activities such as merchant banking, project counselling,
portfolio management services, mergers and acquisitions, new issue management
etc.
(b)DFIs raise funds through issue
of bonds carrying floating rate of interest or bonds without government
guarantee.
·
Emergence of Non-Banking Financial
Companies (NBFCs)
In the unorganized non-banking sector,
number of non-banking financial companies have emerged providing financial
services partly fee-based and partly asset/fund based. Their activities include
equipment leasing, hire-purchase finance, bills discounting, loans/investments,
venture capital, housing finance etc.
·
Growth of Mutual Funds Industry
Mutual funds are gaining popularity among the small
investors due to:
(i) tax exemption on income from mutual funds;
(ii) units of mutual funds if held for 12 months are to be
treated as long-term asset, for the purposes of capital gains tax.
·
Securities and Exchange Board of
India (SEBI)
The Securities and Exchange Board of India was established
under the SEBI Act, 1992 with the following purposes:
(i)
to protect the interest of
investors in securities.
(ii)
to promote the development of the
securities market.
·
Developments in Secondary
Market/Stock Market
Capital market has undergone tremendous change over the
years. Number of developments have taken place. It includes:
(1)Issuance
of regulations by SEBI in respect of brokers/sub brokers/dealers in trading/
settlement.
(2)
More transparency in trading and settlement practices.
(b)Write the significance of factoring.
Answer- A firm that enters into factoring agreement is benefited in a
number of ways, some of the important benefits are outlined below:
(i) It provides flexibility to the company
to decide about extending better terms to their customers.
(ii) The company itself is in a better
position to meet its commitments more promptly due to improved cash flows.
(iii) Enables the company to meet seasonal
demands for cash whenever required.
(iv) Better purchase planning is possible.
Availability of cash helps the company to avail cash discounts on its
purchases.
(v) As it is an off balance sheet finance,
thus it does not affect the financial structure. This would help in boosting
the efficiency ratios such as return on asset etc.
(c) Explain the classification of
capital market.
Answer- Capital Market may be defined as a market dealing in medium and
long-term funds. It is an institutional arrangement for borrowing medium and
long-term funds and provides facilities for marketing and trading of
securities.
Capital market is divided into two segments
namely primary and secondary market. The primary market deals with new or fresh
issue of securities and is, therefore, also known as new issue market; whereas
the secondary market provides a place for purchase and sale of existing
securities and is often termed as stock market or stock exchange.
·
Primary Market The Primary Market consists of arrangements, which facilitate the
procurement of long-term funds by companies by making fresh issue of shares and
debentures.
·
Secondary Market The
secondary market known as stock market or stock exchange plays an equally
important role in mobilizing long-term funds by providing the necessary
liquidity to holdings in shares and debentures.
(d) Discuss
the role of financial services in development of financial system.
Answer-
The role of financial services in development of
financial system are as follows –
1 1. Provides a payment mechanism
for the exchange of goods and services.
2. 2 provides a mechanism for the transfer of resources across geographic boundaries
3. provides a mechanism for managing and controlling the risk involved in mobilizing savings and allocating credit.
( 4 It promotes the process of capital formation by bringing together the supply of savings and the demand for investible funds.
(c 5. It helps in lowering the cost of transactions and increase returns. Reduced cost motivates people to save more.
tr (e) What are the sub-markets of Indian money market? Explain.
Answer-
1. CALL MONEY MARKET
Call money market refers to the market for very short
period. Bill brokers and dealers in stock exchange usually borrow money at call
from the commercial banks. These loans are given for a very short period not
exceeding seven days under any circumstances, but more often from day-to-day or
for overnight only i.e. 24 hours.
2. Collateral Loan Market
It is another specialised sector of the money market. The market
for loans secured by stocks and market is geographically most diversified and
most loosely organised. The loans are generally advanced by the commercial
banks to private parties in the market.
3. Acceptance Market
Banker's
acceptances are very old form of commercial credit. Acceptance market refers to
the market for banker's acceptances involved in trade transactions.
4. Bill Market
It is a market in which short term papers or bills are
bought and sold. The important types of short term papers are:
1. Bills
of exchange (b) Treasury bills.
(a) Bills of exchange are
commercial papers. A bill of exchange is a written unconditional order which is
signed by the drawer requiring the drawee to pay on demand or at a fixed future
time, a definite sum of money.
(b)Treasury bills.
The treasury bills are government papers securities for a short period usually
of 91 days’ duration. The treasury bills are the promissory notes of the
government to pay a specified sum after a specified period. These are sold by
the central bank on behalf of the government.
5. Commercial Paper (CP) is an
unsecured money market instrument issued in the form of a promissory note.
(a) Certificate
of Deposit is the fixed income financial tool that is
governed by the Certificate of Deposit RBI and issued in dematerialized form.
Here the withdrawal amount is guaranteed from the very beginning.
(f)Explain the regulatory role of PFRDA.
Answer- The
regulatory role of PFRDA are as follows –
1. To regulate NPS and other pension schemes to which PFRDA
Act applies.
2. To approve schemes, terms and conditions and to lay down
norms for management of
3. To register and
regulate the intermediaries in the pension funds schemes.
4. To establish
grievance redressed mechanism for the subscribers to the pension funds.
5. To settle disputes among intermediaries and also between
intermediaries and subscribers to the funds.
(g) State
the benefits of venture capital.
Answer -
The benefits of venture capital are as follows –
1. Venture
capital plays an important role in financing hi-tech projects, besides helping
research and development projects to turn into commercial production.
2. Venture
capital financing is emerging as a new institutional mechanism to inject long
term Capital into the small and medium sectors.
3. Venture
capital represents financial investment in a highly risky project With the
objective of earning a high rate of return.
4. Venture
capital financing is long term investment. It generally takes a long period to
encash the investment in securities made by venture capitalist.
(a) Mention
the objectives of SEBI.
Answer – The objectives of SEBI are:
1. Protection
of investors: The primary objective of SEBI is to protect the rights and
interests of the people in the stock market by guiding them to a healthy
environment and protecting the Money involved in the market.
2. Prevention
of malpractices: The main objective for the formation of SEBI was to prevent
fraud and malpractices related to trading and to regulate the activities of the
stock exchange.
3. Promoting
fair and proper functioning: SEBI was established to maintain the functioning
of the Capital market and to promote functioning of the stock exchange. They
are ordered to keep eyes on the activities of the financial intermediaries and
regulate the securities industry efficiently.
4. Establishing
Balance: SEBI has to maintain a balance between the statutory regulation and Self-regulation
of the securities industry.
5. Establishing
a code of conduct: SEBI is required to develop and regulate a code of conduct
to avoid frauds and malpractices caused by intermediaries such as brokers,
underwriters and other people.
4. Answer any four questions from the following : 10×4=40
(a) "A well-developed financial
system contributes significantly in the economic development of a
country." Explain.
Answer- A well-developed financial system can contribute significantly in
speeding up the economic development and growth in the following ways:-
1.
Increasing the Rate of
Capital Formation. The
economic development depends to a great extent on the rate of capital
formation. Capital formation depends on whether finance is made available in time,
in adequate quantity and at reasonable rate of interest-all this can be
achieved by a good financial system.
2.
Mobilisation of Savings. Growth and economic development require
higher savings and investment which is facilitated by a well-knit financial system.
Financial system provides means and mechanism of transferring resources from
those who have an excess of income over expenditure to those who can make
productive use of the same.
3. Infrastructural
Facilities. Economic development of a country depends upon
the availability of infrastructural facilities. There is a need for roads,
water, sewerage, communication facilities electricity etc.
4. Leads
to Balanced Economic Growth Financial institutions like IDBI,
IFCI and ICICI give priority in giving assistance to units set up in backward
areas and even charge lower interest rates on lending. Thus a financial system
helps in balanced economic growth of a country by developing the backward
areas.
5. Employment
Generation. Financial system helps in creating employment
by financing new and existing industrial units through financial institutions.
They help in creating employment opportunities in backward areas by encouraging
the setting up of units in those areas.
6. Accelerating Industrialization. Economic development of any
country depends upon the level of industrialization. The setting up of more
industrial units will generate direct and indirect employment, make available
goods and services in the country and help in increasing the standard of
living.
(a) What are the primary objectives of financial system? Discuss the structure of Indian financial system. 3+7=10
Answer -
The Primary objectives of financial system are as follows –
1. Lowering
the transaction cost is one of the main objectives of the financial system.
2. Reducing
financial risk is another objective of the financial system.
3. Providing
liquidity is perhaps one of the most important objectives of the financial
system.
STRRUCTURE
AND COMPONENTS OF FINANCIAL SYSTEM
The following are the four major
components that comprise the Indian Financial System:
1. Financial
Institutions
2. Financial
Markets
3. Financial
Instruments/Assets/Securities
4. Financial
Services.
1.
FINANCIAL
INSTITUTIONS
Financial institutions are the
intermediaries who facilitate smooth functioning of the financial system by
making investors and borrowers meet. They mobilise savings of the surplus units
and allocate them in productive activities promising a better rate of return.
Financial institutions also provide services to entities (individual, business,
government) seeking advice on various issues ranging from restructuring to
diversification plans.
2.
FINANCIAL
MARKETS
Financial markets refer to the institutional arrangements
for dealing in financial assets and credit instruments of different types such
as currency, cheques, bank deposits, bills, bonds, etc.
Financial markets may be broadly
classified as negotiated loan markets and open markets. The negotiated loan
market is a market in which the lender and the borrower personally negotiate
the terms of the loan agreement, e.g. a businessman borrowing from a bank or
from a small loan company.
3.
FINANCIAL
INSTRUMENTS/ASSETS/SECURITIES
Another important constituent of
financial system is financial assets/instruments. They represent a claim
against the future income and wealth of others. In other words, a financial
instrument is a claim, against a person or an institution, for the payment of a
sum of money and/or a periodic payment in the form of interest or dividend, at
a specified future date.
4. ANFINCIAL SERVICES.
The term
financial services can be defined as "activities, benefits and
satisfactions, connected with the sale of money, that offer to users and
customers, financial related value
(c) Discuss the constituents of money market and their role in economic development of a country.
Answer
- The
constituents of money market and their role in economic development of a
country are as follows –
(a) Call Money:
Call money is mainly used by the banks to meet their temporary requirement Of
cash. They borrow and lend money from each other normally on a daily basis. It
is repayable on demand and its maturity period varies between one day to a
fortnight.
(b)Treasury bill: A treasury bill is a promissory note issued by the RBI to meet the
short- term requirement of funds. Treasury bills are highly liquid instruments.
These bills are normally issued at a price less than their face value;
(c) Commercial Paper: Commercial paper (CP) is a popular instrument for financing
working capital requirements of companies. The CP is an unsecured instrument
issued in the form of promissory note.
(d) Certificate of Deposit: Certificate of Deposit (CDs) is short-term instruments issued by
Commercial Banks and Special Financial Institutions (SFIs), which are freely
transferable from one party to another.
(e)
Trade Bill: Normally the traders buy goods from
the wholesalers or manufactures on credit. The sellers get payment after the
end of the credit period. But if any seller does not want to wait or in
immediate need of money he/she can draw a bill of exchange in favour of the
buyer.
Role of Money Market in economic development
of a country
1.
Financing Trade -The money market provides financing to local and
international traders who are in urgent need of short-term funds. It provides a
facility to discount bills of exchange, and this provides immediate financing
to pay for goods and services.
2. Central
Bank Policies - the central bank is responsible for guiding the
monetary policy of a country and taking measures to ensure a healthy financial
system. Through the money market, the central bank can perform its
policy-making function efficiently.
3. Commercial
Banks Self-Sufficiency - The money market provides commercial banks
with a ready market where they can invest their excess reserves and earn
interest while maintaining liquidity.
4.
Growth of Industries - the money market provides an easy avenue where
businesses can obtain short-term loans to finance their working capital needs
(d) What
are the imperfections of Indian money market? Explain.
Answer
– The
imperfections of Indian money market are as follows -
1.
Existence
of Unorganised Money Market. - The most important defect of the Indian money
market in the existence of unorganised segment. In this segment of the market
the purpose as well period are not clearly demarcated. In fact, this segment
thrives on this characteristic
2.
Undermines
the Role of RBI - This segment undermines the role of the RBI in the money Efforts of
RBI to bring indigenous bankers within statutory frame work have not yielded
much result.
3.
Lack
of Integration - Another important deficiency is
lack of of different segments or functionaries. However, with the enactment of
the Banking Companies Regulation Act 1949, the position has changed considerably.
4.
Disparity
in interest rates - There have been too many interest rates
prevailing in the market at the same time like borrowing rates of Government,
the lending rates of commercial banks, the rates of co-operative banks and rates
of financial institutions.
5.
Seasonal Diversity of
Money Market - A notable characteristic is the
seasonal diversity. There are very wide fluctuations in the rates of interest
in the money market from one period to another in the year.
6.
Lack
of Proper Bill Market - Indian Bill
market is an underdeveloped one. A well organised bill market or a discount
market for short term bills is essential for establishing an effective link
between credit agencies and Reserve Bank of India.
(e)
Discuss the primary and secondary functions of commercial bank.
Answer - The primary function of
commercial bank are as follows –
(1) Accepting
Deposits:
The primary function of commercial banks is
accepting deposits from the public. People consider it more rational to deposit
their savings in a bank because by doing so (ii) they, on the one hand, earn
interest and on the other, avoid the danger of theft.(Saving Bank Account
(i) Savings
bank account is useful for the person who deposits money by small savings
the customer is at liberty to deposit money in this account at a number of
times on the same day.
(ii) Current
Account a current account is running account which is continuously in
operation. In this account money or funds can be deposited many times on the
same day.
(iii) Recurring
Deposit Account - Recurring deposits is one form of saving
deposit, in this type of deposit, at the end of every week or month, a fixed
amount deposited regularly, the amount can be withdrawn only after specified
period.
(iv) Fixed
or Time Deposit Account - Fixed or time deposit account, the money is
deposited for a fixed period and cannot be withdrawn before the expiry of that
specified period.
(2) Advancing
of loans:
Another important function of a bank is
advancing of loans to the public. After keeping certain cash reserves, the bank
lend their deposits to the needy borrowers.
(i) Loans: In this facility, certain amount in the form of an advice is
given for a certain period. This sanctioned amount of advanced is deposited the
bank in the current account of the person concerned. The interest is charged on
the whole amount of the loan.
(ii) Cash Credit: The
Businessman generally needs regular loans, and therefore it may be inconvenient
for them to make fresh agreement every time. Thus, they make an agreement in
this regard for an anticipated certain amount required in the year.
(iii) Discounting of Bills: Bank grants advance to their customers by
discounting bills of exchange or promote (Promissory Note). When the bank gives
advance on the bills before the date of maturity, then the interest till the
date of maturity from the date of sanctioning the advance is deducted. This
deduction is called discounting.
(iv) Bank overdraft is a type of financial instrument that is provided to some customers
by the bank in the form of an
extended credit facility, which comes into effect once the main balance of the
account reaches zero
(3)
Credit Creation: A major function of the bank is to
create credit. infect, credit creation is the natural outcome of the process of
advancing loans as adopted by the banks. When a bank advances loan to the
customer, it does not lend cash but opens an account in the borrower's name and
credits the amount of loan to this account.
The secondary function of commercial bank
is as follows –
(1) Agency
Functions:
Banks also perform certain agency functions
for and on behalf of their customers such as-
(a)
Remittance of Funds: Banks help their customers in transferring
funds from one place to another through cheques, drafts, etc.
(b)
Collection and Payment of Credit Instruments: Banks collect and pay various
credit instruments like cheques, bills of exchange, promissory notes, etc.
(2)
General Utility Function:
(a)
Locker Facility: Banks provide locker facility to
their customers. The customers can keep their valuables and important documents
in these lockers for safe custody.
(b) Traveller's Cheques: Banks issue traveler's cheques to help their customers to travel without the fear of theft or loss of money.
(f)Define bank. Also point out the difference between banking and nonbanking financial institutions. 2+8=10
Answer - A bank is an institution which deals
with money and credit. It accepts deposits from the public, makes the funds
available to those who need them, and helps in the remittance of money from one
place to another.
The difference between banking and nonbanking financial
institutions.
|
BANK |
NON BANKING FINANCIAL INSITUTION |
|
1.
Banks form a homogenous group
of institutions doing banking business. 2. The deposits accepted by the banks are
mostly repayable on demand. 3. There is cheque system, ATM facilities
in case of banks. 4. The main source of bank's funds are
deposits through different deposit 5. The return on bank deposits is
generally lower as compared to NBFIs. In other words the cost of
comparatively low.
|
1. NBFIS form a heterogeneous group of
institution doing diverse business 2. NBFIS accepts deposits repayable on
the expiry of fixed period of time 3.There is neither cheque system nor ATM
facilities in case of NBFIs 4. NBFIs generally raise funds by selling
securities and they do not provide deposit 5. The NBFIS promises higher return to
their investors to attract more funds and hence their cost of raising funds
is high
|
(g) Write the features of financial services. Explain the different fund based financial services. 4+6-10
Answer – the features of financial services. Explain the different fund
based financial services are as follows -
(a)
Financial services involve at least two people of firms; the service provider
and user.
(b) Financial institutions intermediate the
flow of funds between different economic decision making units.
(c) The financial services are intangible.
It smoothens the functioning of the corporate sector by providing funds within
the stipulated period of time.
(d) Financial services must be customer
friendly and they should provide the services according to the requirements of
the customers.
Fund based services provided by banking and
non-banking financial institutions are discussed below briefly.
1.
Equipment Leasing/Lease Financing
Leasing has emerged as another important
source of intermediate and long-term financing of corporate enterprises during
the recent few decades. In India, leasing is a recent development and equipment
leasing was introduced by First Leasing Company of India Limited in 1973 only.
Since then, a number of medium to large-scale companies have entered the field
of leasing. Leasing is an arrangement that provides a firm with the use and
control over assets without buying and owning the same. It is a form of renting
assets.
2. Hire-Purchase
and Consumer Credit
Hire-purchase is an alternative to leasing
as a source for equipment financing. Hire purchase means a transaction where
goods are purchased and sold on the terms that payment will be made in
instalments, (ii) the possession of the goods is given to the buyer
immediately, (iii) the property (ownership) in the goods remains with the
vendor till the last instalment is paid, (iv) the seller can repossess the
goods in case of default in payment of any instalment, and (v) each instalment
is treated as hire charges till the last instalment is paid.
3. BILL DISCOUNTING : Discounting of bills of exchange is an
attractive fund based financial service provided by the finance companies. Bill
discounting has emerged as a profitable business for finance companies and represent
a diversification in their activities. After the 1992 Scam, RBI imposed certain
restrictions on bill discounting services provided by the banks.
4. Venture
Capital
The term 'venture capital' represents
financial investment in a highly risky project with the objective of earning a
high rate of return. While the concept of venture capital is very old, the
recent liberalisation policy of the government appears to have given a filip to
the venture capital movement in India.
5.
Housing Finance
Till late 1970's the responsibility to
provide finance for house building rested with the Government of India. But it
emerged as a fund based financial service in the country with the setting up of
National Housing Bank (NHB) by the RBI in 1988. NHB is an apex/principal
housing finance institution in the country and is fully owned subsidiary of the
RBI. Till now, a number of specialised financial institutions/companies in the
public, private and joint sectors have entered in the field of housing finance
such as HDFCS, SBIHF, Can fin Home, LIC Housing Finance, Ind Bank Housing, Citi
Home, Gujrat Abuja, ICICI Housing and so on.6. Insurance Services
6.
Insurance service
Insurance is a contract where by the
insurer (i.e. insurance company agrees/ undertakes, in consideration of a sum
of money (premium), to make good the loss suffered by the insured (policy
holder) against a specified risk such as fire or compensate the beneficiaries
(insured) on the happening of a specified event such as accident or death.
(h)
Difference between : 5+5=10
(i)Fund-based
and fee-based financial services
Answer -
|
BASIS |
FUND
BASED FINANCIAL
SERVICE |
FEE
BASED FINANCIAL SERVICE |
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|
1) Meaning:
|
The fund based requires an Investment by
the financial service institutions. They provide funds to corporate sector. |
Fees based funds, requires greater
knowledge or skill to perform different kind of services.
|
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|
2)Income
|
Income mostly comes from Internet. Lease
rentals, income from investments, etc.
|
Income comes from the services like
merchant Banking services, advisory services, custodial services, portfolio
management etc. |
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|
(ii)
Open ended and close ended mutual fund
|
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Answer - The
regulation and supervision of the financial system in India is carried out by
different regulatory authorities. The Reserve Bank regulates and supervises the
major part of the financial system. The supervisory role of the Reserve Bank
covers commercial banks, Urban Cooperative Banks. (UCBS), some FL’s and NBFCs.
Some of the FIs, in turn, regulate and/or supervise other institutions in the
financial sector, viz., RRBs, and central and state cooperative banks are
supervised by National Bank for Agriculture and Rural Development (NABARD); and
housing finance companies by National Housing. Bank (NHB). Department of
Company Affairs (DCA), Government of India regulates deposit taking activities
of companies, other than NBFCs, registered under the companies Act, but not
those which are under separate statutes. The Registrar of Cooperatives (ROC) of
different states in case of single state cooperatives and the Central
Government in the case of multi-state cooperatives is a joint regulator with
the Reserve Bank for UCBS and with the NABARD for rural cooperatives. While
RBI/NABARD is concerned with the banking function of the cooperatives, the
management control rests with the State/Central Governments. This dual control
impacts the supervision and regulation of the cooperative banks. The Insurance
Regulatory and Development Authority (IRDA) regulate the insurance sector and
the capital market, credit rating agencies, etc., are regulated by Securities
and Exchange Board of India (SEBI).
(j) Discuss in detail the
functions of SEBI.
Answer – The
functions of SBI are as follows-
·
Providing awareness/financial
education for investors: SEBI conducts seminars both online and offline to
educate the investors about insights into the financial market and money
management.
·
The development functions are
the steps taken by SEBI to improve the security of the market through
technology. The functions are:
·
By providing training sessions
to the intermediaries of the market.
·
By promoting fair trading and
restrictions on malpractices of any kind.
·
By introducing the DEMAT
format.
·
By promoting self-regulating
organizations.
·
SEBI designed guidelines and
code of conduct for efficient working of financial intermediaries efficiency of
the market and corporate.
·
Established rules for taking
over a company.
Conducts regular inquiries and audits of stock
exchanges.
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