PROGRAM MBA -
SEMESTER IV
SUBJECT CODE &
NAME - MA0043 CORPORATE BANKING
1. Who are the parties involved in Letters of Credit ? Explain the
Letters of Credit
mechanism covering the
liabilities and rights
of both the applicant and the beneficiary.
Parties involved in
Letters of Credit (L/C)
Applicant/opener: It is generally the buyer of the
goods who gets the letter of credit issued by his banker in favour of the
seller. The person on whose behalf and under whose instructions the letter of
credit is issued is known as applicant/ opener of the credit.
Opening bank/issuing
bank:It is the bank
issuing the letter of credit.
Beneficiary:The seller of goods in whose favour
the letter of credit is issued.
Advising bank:Notification
regarding issuing of letter of credit may be directly sent to the beneficiary
by the opening bank. It is, however, customary to advise the letter of credit
through some other bank operating at the location of the seller. The bank which
advises the letter of
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2. Compare and contrast financial
and operating lease.
Financial Lease
One of the fundamental features of a
financial bank lease is a condition in accordance with which the lesser agrees
to transfer the title for the asset at the completion of the lease period at a
nominal cost. This kind of lease also gives an option to the lessee to purchase
the utilized asset when the lease period is over. On the lesser’s part, about 90
per cent of the fair price of asset is recovered by the lease rentals and the
lease tenure is about 75 per cent of the economic life of the asset. It is to
be noted that in a financial bank lease, only the title deeds remain with the
lesser. Almost all the risks incidental to the ownership of the asset and all
the
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3. Project financing involves
some basic decisions viz. period of analysis, choice of financing mix, cut-off
decision and choice of evaluation techniques. Illustrate those.
Project Finance
Before any project financing is carried out, some
basic decisions must be in place. These include the period of analysis, a
tentative choice of financing mix, cut-off decision and choice of evaluation
techniques.
1. Period of Analysis
Usually, the period of forecast is a
matter of the company’s policy based on the consideration of factors like
product life cycle, business cycle, rate of change in technology, rate of
change in taste, managerial ability to foresee in the future and database
available to support forecast. Information technology projects typically can be
planned for about three years due to the technological development rate, short
product life cycle and uncertainty caused by low entry
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4. Forfaiting is a form of
international supply chain financing. Explain in detail. How does it differ
with factoring ?
Forfaiting
Forfaiting is a form of international
supply chain financing. It involves the discounts of future payment obligations
on a without-recourse basis. Forfaiting represents the buying of obligations,
due at a date in future and arises from the goods’ or services’ delivery in
export transactions, without recourse to the preceding holder of the
obligation. Under forfaiting, the forfaitor deducts interest in advance for the
whole period of credit and disburses the net proceeds to the exporter. The sole
responsibility of the exporter is to manufacture and deliver the goods to the importer,
which creates a valid payment obligation of the importer. Forfaiting
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5. Explain the
loan pricing mechanism followed by the commercial banks. Give examples.
Loan Pricing
Mechanism
The loan price depends on cost of funds to an
individual bank, operating cost, risk premium for the type of loan and advance,
expected profit margin of the bank etc. The cost of funds to a bank include the
components such as interest paid on deposits, interest paid on borrowings
availed from other organizations, dividend payment on equity and any other cost
incurred in raising the resource.
The total interest paid on deposits
depends on the deposit mix of a particular bank i.e., the proportion of
different deposits in total deposits (current deposits, savings deposits and
term deposits). Higher the proportion of low/no interest deposits, lower will
be the cost of fund to the bank. Similarly, cost of borrowing also depends on
the source of borrowings. The
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6. Explain some of the important
exchange rate quotes in foreign exchange transactions.
Important exchange
rate quotes
Some of the popular exchange rate quotes are as
follows:
(i) Spot and forward rates:The
current exchange rate of a spot transaction is known as the ‘spot rate’. In a
spot transaction, the settlement is usually done within two business days and
such rates are called ‘forward rates’. The forward transactions therefore involve
a delivery date in the future, which may extend even up to a year. As the
settlement is done at a predetermined exchange rate, this is a popular
mechanism to reduce the exchange rate risk of the traders. The Spot Exchange
rate is the rate at which a currency can be bought or sold for immediate
delivery
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PROGRAM – MBA - SEMESTER IV
SUBJECT CODE & NAME - MA0044 - INSTITUTIONAL
BANKING
1. “The institutional banking has it’s own challenges”. Could you explain
their challenges ?
Challenges
The institutional
banking also has
its own challenges.
Let us now
discuss some of them.
• Capital requirements
With the rapid growth in the
corporate sector, there has been an increase in the
requirement of capital. Financial
institutions should continuously monitor their capital and should be well capitalised
to meet the needs of the industry.
• Awareness of products and
services – need versus demand
Institutional
banks also need to take into account various behavioural and motivational
attributes of potential
consumers for a
successful financial partnering
to succeed. This
means, financial institutions
should not limit
themselves to lending alone but should go
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2. Give an overview of Small-scale sector including Small and medium enterprises
(MSME). SMEs play a key role in the industrialization of a developing country
like India. Explain your agreement or disagreement.
Small-scale sector including
Micro, Small and
Medium Enterprises (MSME)
According to
the statistics, (Fourth
Census of Micro,
Small and Medium
Enterprises (MSME) sector), the small-scale sector is providing
employment to 59.7
million people spread
over 26.1 million
establishments. It is
estimated that the
MSME sector produces
about 45% of
the output and
around only 40% of the agricultural products are being exported, placing
the MSME sector second
only to the agricultural sector. This sector has
been accorded high
priority for achieving
a sustainable, balanced
and more equitable growth in the country.
Small and Medium Enterprises (SMEs)
are facing many problems, like non-
or late-availability of financial support from banks, limited capital and technical know-how, low capacity of production, hopeless strategies
in the areas
of
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3. Explain some
of the major
challenges faced in
financing infrastructure development
in India and options to resolve
them.
Challenges
Below are some of
the major challenges
faced in financing infrastructure development in India:
The obvious constraints
in India’s infrastructure are congested airports, poor roads,
insufficient power supply
and delays in
harbours. All these
as we know
are impediments to
the growth of
our nation. Based
on studies it is
found that on an average 30 days
are spent in getting electrical connection,
15 days are
required for clearing
shipments at ports
and a loss
of 7% of
sales is incurred
annually due to
power shortages. The
demand for infrastructural growth
will be on
the increase due
to the growth
in the economy and urbanisation.
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4. Enumerate the challenges faced
by the Microfinance Institutions (MFIs) in India.
Challenges faced by Microfinance institutions in India
Regional imbalances: - The
first challenge is the skewed distribution of SHGs across states in India. The
concentration in the southern states
is more and about 60% of the total SHGs are located here. But
in states which have a
larger poor population, the coverage
is comparatively low.
This imbalance in the distribution
is attributed to the following:
·
The state
government’s overzealous support to the programme.
·
Skewed distribution
of NGOs.
·
Cultures and
practices of the
society to which
the particular SHG belongs to.
NABARD has since
identified 13 states where the
volume of SHGs linked are low and
has already initiated steps to correct the imbalance.
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5. Enumerate the role of Development Financial Institutions in the
growth of international trade in India.
Role of DFIs in the Growth of International Trade
1. EXIM Bank
The EXIM
Bank is an
apex financial institution
formed exclusively for
the development of
foreign trade in
India.. It was
set up in
1982, under the
Export-Import Bank of India Act, 1981. The following are the different
kinds of export finance provided by the
Bank:
Direct financial assistance
This assistance is provided through term loans or
working capital finance.
The term loans are
offered to export companies for sale of high-value capital goods
and exports of
large-scale projects. The
Bank provides working
capital finance to exporters for
raw material purchase, finance for running
the business, payment of salaries/wages and inventory management.
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6. Operating in the demanding environment has exposed the banking sector
to face a variety of challenges.
Illustrate some of these challenges.
Challenges
Operating in the
demanding environment has exposed the banking sector to face a variety of challenges.
In the previous decade, major
changes have taken
place in the
financial sector by
the opening up
of new banks
and financial institutions, introduction of new
type of instruments, new avenues and
new opportunities –
and, along with
this came the
new challenges.
Although new
vistas have been
opened up by
the deregulations in
India, facilitating augmentation of revenues,
greater competition and greater
risks were associated with
it. Diversification of
their products has
been necessitated for
banks by the
demand for new
products, especially derivatives.
Banks also have
to bring into
effect rapid changes
in their
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SUBJECT CODE & NAME - MA0041/MA0046 & -
Merchant Banking And Financial Services
1. Identify the different types of
security issues managed by merchant bankers
and interpret the concept of issue
management
Types of Security Issues
The issues of capital are
managed by category I of merchant bankers and comprise the most important
aspect of the services that they provide. Corporate securities, involving
public issues, engage marketing of capital issues of companies that are new and
existing. The public issues are handled by the involvement of different
agencies such as auditors, legal advisors, registrar etc. Merchant banker is
that agency at the top most level that plans, coordinates aswell as controls
the entire issue activity. Ideally, a procedure of managing a public issue is
divided into two phases, which are, pre-issue management and post-issue
management.
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2. Illustrate the concept Loan
syndication.
Loan Syndication
Syndicated loans emerged in
the US market with the buyout deals and in the European market, with the launch
of the euro. Syndicated loans or consortium banking/loans should not be
confused with multiple banking. In case of syndicated or consortium banking,
all the bankers and finance institutions provide loans to a single borrower
after following a common appraisal system or arrangement which is carried on
very systematically. But in the case of multiple banking, all the bankers have
their own criteria for lending money to a single borrower.
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3. Describe the functions of
Registrar and Transfer Agents. What are the key responsibilities fulfilled by
an AMC ?
Registrar and transfer agents (R&T)
The functions performed by
the R&T agents are described here.
Key Responsibilities Fulfilled by Asset Management Company (AMC)
The following are the key
responsibilities fulfilled by an AMC:
1. To ensure that the
investment of any mutual fund scheme is as per the regulation of the regulatory
body.
2. To take proper diligence
and care while making any investment decision.
3. To obtain prior
in-principle approval from the stock exchange where the mutual fund is going to
be listed.
4. To take the
responsibility for the acts of commission and omission by its employees or any
other person who has provided services to AMC.
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4. What are the different types of
Leasing ? Analyse the benefits and limitations of Leasing.
Types of Leasing
Leasing contracts can be of
the following types:
1. Financial and operating lease: -
In case of a financial lease, the lessor transfers all types
of rewards and risks associated with the underlying asset of the lease contract
to the lessee. But the ownership still lies with the lessor. Operating lease is
one which is not a financial lease. Here the lessor does not transfer all
rewards and risks to the lessee.
2. Sales
and lease back and direct lease: - In this type of lease, the first
lessee sells (for cash) one particular asset to the lessor and takes that asset
back from the lessor on payment of fixed rentals for a specific period of time.
This type of lease can be either a financial or operating
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5. What are the role and functions
of a factor ? Explain the various types of factoring contracts.
The Role and Functions of a Factor
The role and functions of a
factor are mentioned below:
1. Administration of sales ledger: - The first function of the
factor is to maintain the sales ledger of every seller.
2. Receivable collection is another
task of the factor. The factor relieves the client from the task of collection
of receivables so that the client can concentrate on other, more important
aspects of the business. Factors have adequate resources like good
infrastructure, technology and
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6. Enumerate the guidelines for
Venture Capital Fund in India.
Guidelines for Venture Capital Funds
A brief description of the
SEBI guidelines is given below:
(i) Registration of venture capital fund
This includes application
for grant of a certificate. Any company or trust or corporate body proposing to
carry on any activity as a venture capital fund should apply to the Board
(SEBI) for grant of a certificate. If the company or trust or corporate body is
carrying out an activity as a venture capital fund without a certificate, they
need to make an application to the Board for grant of a certificate within
three months from the date of commencement of work. In some special cases the
Board may also extend the above stated period up to a maximum of six months
from the date of commencement of work.
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PROGRAM MBA -
SEMESTER IV
SUBJECT CODE & NAME - MA0042/MA0047 TREASURY MANAGEMENT
1. It is
said that treasury
exposure allows treasury
management to various
risks in the organisation.Do you agree ? Justify your
agreement/disagreement.
Yes, I agree with the statement that treasurey
exposure allows treasury management to various risks in the organzation. Such
risks are as below: -
Any company that has a commitment to receive foreign
currency payments in the future or pay any foreign currency in the future is
subject to foreign exchange risk due to adverse movements in foreign exchange
rates. Being at risk to such movements in foreign currency is called currency
exposure. Foreign exchange exposure is a measure of the change in a firm’s profitability,
net cash flow and the market value as a result of a change in exchange rates.
When foreign exchange rates change, the impact on a firm can be measured in
several ways. Currency risk consists of transaction, translation and economic
exposure.
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2. Explain Asset Liability Management (ALM) Information
System in banks. Analyse the Interest sensitivity and ALM.
Liquidity Management
Liquidity is a bank’s capacity to fund increase in
assets and meet both expected and unexpected cash and collateral obligations at
reasonable cost. The banks need to avoid unacceptable losses and enhance
profit. An effective management of liquidity can increase cash efficiency of a
bank by squeezing out the maximum value from its cash resources and optimizing working capital
performance. Much will depend on the visibility a bank has on its business
transactions.
Similarly, it is important for a bank
to get its forecasting right. Overestimating surplus cash may force a bank from
either pulling out of a project or arranging for investments on a short notice.
This is where a bank runs into liquidity risk, which can be defined as the
inability of a bank to
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3. “Highly rated corporate
borrowers in India are permitted to issue unsecured debt-notes to meet the need
of their working capital”. In the light of this statement cite two such popular
instruments and explain their essential features.
1. Commercial
papers:
Commercial papers are promissory notes issued by large
firms with high credit rating to raise short-term funds from the money market.
These are negotiable, short-term unsecured debt
instruments. Individuals, banking companies, corporate bodies registered or
incorporated in India, unincorporated bodies, non-resident Indians and Foreign
Institutional Investors (FIIs) can invest in the issue of CP.
Securities and Exchange Board of India (SEBI) sets
limits for investments by FIIs in India and accordingly FIIs can invest only
within those limits. The advantages of CPs are:
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4. Compare and contrast the features of ADRs and
GDRs. Distinguish between Depository
Receipts and Participatory Notes. What is a Foreign Exchange Derivative ?
American depository
receipts and global depository receipts (ADRs/GDRs)
The following are
the features of GDRs and ADRs:
•These are in the nature of a certificate or receipt
issued by an international depository bank outside the country.
•These are issued to non-resident investors.
•These are issued against the issue of foreign
currency convertible bonds or against the issue of shares by the issuer
company.
•These are negotiable in nature.
•The issue of ADRs is quite expensive due to stringent
provisions set by the Securities and Exchange Commission in the United States.
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5. Critically analyse the tools
available for managing risks in a financial institution.
Financial
Institutions
Risk analysis and management tools serve multiple
purposes and come in many shapes and sizes. Some risk analysis and management
tools include those used for:
Strategic and Capability Risk Analysis——Focuses on
identifying, analyzing, and prioritizing risks to achieve strategic goals,
objectives, and capabilities.
Threat Analysis——Focuses on identifying, analyzing, and prioritizing threats to
minimize their impact on national security.
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6. What are the assumptions in
preparation of gap report in terms of assets, liabilities as well as off
balance sheet items ?
The gap report should be generated by grouping rate
sensitive liabilities, assets and off-balance sheet positions into time buckets
according to residual maturity or next repricing period, whichever is earlier.
The difficult task in gap analysis is determining rate sensitivity. All
investments, advances, deposits, borrowings, purchased funds etc. that
mature/reprice within a specified timeframe are interest rate sensitive.
Similarly, any principal repayment of
loan is also rate sensitive if the bank expects to receive it within the time
horizon. This includes final principal payment and interim installments.
Certain assets and liabilities receive/pay rates that vary with a reference
rate. These assets and
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