Management of Financial Services

PART A (Descriptive Type) = 24

PART B (Case Study) = 3
PART C = 120
Instant Downloadable Solution from AiDLo.com
PART A
Descriptive Type Question

Question 1 Your company has just recently decided to go for an expansion worth
Rs.200 crore and you (Finance Director) are in charge to look into and analyse all the
alternatives (you can hire a Merchant Banker to assist you). List and rank all the
alternatives their merits & demerits and governmental regulations governing them.
Justify your ranking.

Question 2 What is a IPO? What is the procedure for an IPO?

Question 3 "Factoring provides resources to finance receivables and facilitates their
collection." Explain.

Question 4 A new FMCG company in India is launching a debt issue explain the role of
credit rating agencies in this launch. Use at least 2 leading credit rating agencies of
India to show their rating procedures and norms.

Question 5 The norms governing NBFCs in India are highly dynamic they have been
changing drastically over the past 10 - 15 years. Cite the relevant committees and
changes brought about by each. Clearly explaining the norms in existence today and
their limitations.
Question 6 Clearly differentiate between factoring, forfaiting and Bill-Discounting using
numeric examples?

Question 7 Corporate FD's are an important way of tapping the debt market. Critically
analyze any five recently launched FD's explaining their differences, benefits and
limitations.

Question 8 A company which has been outsourcing a particular component decides to
go for manufacturing it. Post a cost-benefit analysis the company decides it can not buy
the machines outright for manufacturing the product. What could be the possible ways
of funding the said machine? Critically examine the options (leasing, LBO, Hire-
purchase etc.) giving financial analysis, taxation, factors, legal and other frameworks.

Question 9 A large Indian company wants to tap the international markets for loans.
Explain the guidelines and procedures for ECB's; also review how this company will
decide on the price of its Euro- bonds?

Question 10 "NRI's today are seen as a big market, not only for Indian products but are
also seen as huge investors today". What role does the foreign investment policy of the
government play in this change?

Question 11 What are the various aspects of project appraisal? Describe the process
and different types of project appraisals.

Question 12 What is loan syndication? Who are the various participants? Describe
briefly various aspects of accessing debt and capital markets?

Question 13 What are the various types of leases? What is the difference in hire
purchase and consumer credit?
Question 14 Write short notes on following:
Leasing Vs. Buying
Securitization

Question 15 What is Venture Capital? What are the various stages of financing offered
and factors to be taken into account in order to attract Venture Capital?

Question 16 What is a mutual fund? Describe various types of mutual funds. Also
describe about organization, management and regulation of mutual funds.

Question 17 Write short notes on following :
Credit Rating Agencies
GDR and ADR

Question 18 "Investment in Mutual fund is indirect in nature". Examine it in the light of
features of mutual funds.

Question 19 What do you mean by Merchant banking? Explain various services that
comes under the ambit of merchant banking.

Question 20 Elaborate the present Indian financial services sector with their role in
economic development.

Question 21 Differentiate between factoring and forfeiting services & comment over
emerging trends of other financial services.

Question 22 "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.

Question 23 Discuss the Credit rating methodology used by rating companies in India.
Name different types of securities which need credit rating.

Question 24 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.

PART B
Case Study 1
1. EVALUATION OF LEASE OR BUY OPTION
XYZ Ltd. is considering to acquire an additional computer to supplement its time-share
computer services to its clients. It has two options:
i. To purchase the computer for Rs.22,00,000/-
ii. To lease the computer for 3 years from a leasing company for Rs.5,00,000 as annual
lease rent plus 10% of gross time-share service revenue. The agreement also requires
an additional payment of Rs.6,00,000 at the end of the third year. Lease rents are
payable at the year end and the computer reverts to the lessor after the contract period:
Worth Rs. 10,00,000 at the end of the third year. Forecast revenues are:

Year Rs.
1 22,50,000
2 25,00,000
3 27,50,000

Annual operating costs (excluding depreciation/ lease rent of computer) are estimated
at Rs.9,00,000 with an additional Rs.1,00,000 for start-up and training costs at the
beginning of the first year. These costs are to be borne by the lessee. XYZ Ltd. will
borrow at 16% interest to finance the acquisition of the computer; repayments are to be
made according to the following schedule:

Year-End Principal Interest Total
Rs. Rs. Rs.
1 5,00,000 3,52,000 8,52,000
2 8,50,000 2,72,000 11,22,000
3 8,50,000 1,36,000 9,86,000
The company uses the straight line method to depreciate its assets and pays 50% tax
on its income.
The management of XYZ Ltd. approaches you, as a company secretary, for advice.
Which alternative would you recommend and why?
Note: Present value factor at 8% and 16% rate of discount:

Year 8% 16%
1 0.926 0.862
2 0.857 0.743
3 0.794 0.641


Case Study 2
ABC Industries - Lease Vs. Buy
ABC Company can purchase a $50,000 piece of equipment by putting 25 percent down
payment and paying off the balance at 10 percent interest with four annual installments
of $11,830. The equipment will be used in your business for eight years, after which it
can be sold for scrap for $2,500. The alternative is that it can lease the same equipment
for eight years at an annual rent of $8,500, the first payment of which is due on delivery.
ABC will be responsible for the equipment's maintenance costs during the lease.
ABC expects that its combined federal and state income tax rate will be 40 percent for
the entire period at issue. Its cost of capital is 6 percent (the 10 percent financing rate
adjusted by your tax rate).
Question:
Please calculate the net cash flows for both lease vs. buying options and suggest which
one should ABC go for and why. Assume that depreciation is computed on the basis of
the 20 percent declining balance method.

Case Study 3
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'.

PART C
Objective Type Set 1
1. Unregistered NBFC's are still operating in the Indian economy Y/N
2. A NBFC should not lend more than:
(a) 10%
(b) 15%
(c) 20%
(d) 25%
3. Which NBFC recommendations were given in 1996:
(a) Vaghu Committee
(b) Narsimhan Committee
(c) Khanna Group
(d) Shah Committee
4. Factoring(without recourse) means if the debtor fails to pay the dues the losses are
absorbed by the client.
Y/N
5. Factoring and Bill-Discounting are just the same service with different names. Y/N
6. Forfaiting and Factoring affect the financial statements. T/F
7. Venture capital is a debt related investment. T/F
8. Venture capital is just technology financing. T/F
9. Venture capital has ____________ methods of financial analysis.
(a) One
(b) Two
(c) Three
(d) Four
10. SEBI was constituted in ____________ by the Government of India.
(a) 1978
(b) 1982
(c) 1988
(d) 1991
11. After the closure of an issue the complaince report must be sent to SEBI within:
(a) 15 days
(b) 30 days
(c) 45 days
(d) 60 days
12. If a Rights issue is over subscribed the retention of over subscription is not possible
under any circumstances. Y/N
13. As per BSE a "taaravaniwala" is a:
(a) Financier
(b) Oddlot leader
(c) Jobber or specialist
(d) Floor broker
14. In BSE the specified group consists of:
(a) 94 companies
(b) 96 companies
(c) 100 companies
(d) 122 companies
15. In OCTEI T-day is:
(a) Wednesday
(b) Thursday
(c) Friday
(d) Saturday
16. The first credit rating agency of India was:
(a) ICRA
(b) CRISIL
(c) CARE
(d) DCR
17. Credit rating along with debt securities is also done for Real estate developers/
builders, Banks, Economic, Risks, Political risks etc. Y/N
18. NHB works under:
(a) SEBI
(b) Ministry of Finance
(c) RBI
(d) IDBI
19. Lease payments are usually made at the start of each period. Thus the first payment
is usually made as soon as the lease contract is signed. T/F
20. Financial leases provide off-balance-sheet financing T/F
21. A financial lease should not be undertaken unless it provides more financing than
the equivalent loans. T/F
22. It makes sense for firms that pay no taxes to lease from firms that do. T/F
23. Other things being equal the net tax advantage to leasing increases as nominal
rates increase. T/F
State for each of the following pairs of issues which would you expect to involve the
lower proportionate underwriting and administrative costs, other things being equal.
24. A large issue/a small issue
25. A bond issue/a common stock issue
26. A large negotiaited bond issue/a large competitive bond issue.
27. A small private palcement of bonds/a small general cash offer of bonds.
Besides each of the following issue methods two issues are listed, choose the one more
likely to employ that method:
28. Rights issue (issue of seasoned stock/issue of unseasoned stock)
29. Competitive general cash offer (bond issue by industrial company/bond issue by
utility holding company)
30. Private placement (issue of seasoned stock/bond issue by industrial company)
31. Investors in Mutual Funds obtain returns in the form of dividends, capital gains and
appreciation in the value of NAV. T/F
32.Close ended Mutual funds have a secondary market available and their prices are
determined by demand and supply not NAV. T/F
33. Open ended mutual funds have a fixed capitalisation. T/F
34. Open ended mutual funds prices are determined by their NAV. T/F
35. Custodial services are fund and fee based activities. T/F
36. Custodial services are capital intensive and technology driven business. T/F
37. Custodial services fall under RBI. T/F
38. Euro money = (Euro Currency) + (Euro Deposit) T/F
39. Euro money is the money which is regulate in Europe only. T/F
40. Euro loan and Euro bonds are one and the same thing. T/F


Multiple Choice Question Set 1
1. Which of the following must be satisfied to support a classification as a finance
lease?
1. Ownership is transferred by the end of the lease term.
2. The lease contains a bargain purchase option.
3. The lease term is for the major part of an asset's useful life.
4. The present value of the minimum lease payments are substantially more or equal to
the asset's fair value.
(a) 1 and 2
(b) 1, 2 and 3
(c) Any of the four criteria
(d) All of the four criteria
2. Efforts Ltd negotiated a lease on the following terms: the term of the lease was 5
years; the estimated useful life of the leased equipment was 10 years; the purchase
price was $ 60,000; and the annual lease payment was $ 5,000. This lease should be
classified as:
(a) An Operating Lease
(b) A Finance Lease
(c) Sale and Lease Back
(d) Leveraged Lease
3. The lease analysis should compare the cost of leasing to the
(a). Cost of owning using debt.
(b). Cost of owning using equity.
(c). After-tax cost of debt to measure the effect of leasing on the cost of equity.
(d). Average cost of all fixed charges.
(e). Cost of owning using the weighted average cost of capital for the firm.
4. Operating leases usually have terms that include
(a). Maintenance of the equipment.
(b). Only partial amortization.
(c). Cancellation clauses.
(d). All of the above.
(e). Only answers 'a'. and 'c.' above.
5. Which of the following statements about listing on a stock exchange is most correct?
(a). Listing is a decision of more significance to a firm than going public.
(b). Any firm can be listed on the NYSE as long as it pays the listing fee.
(c). Listing provides a company with some "free" advertising, and status as a listed
company may enhance the firm's prestige.
(d). Listing reduces the reporting requirements for firms, because listed firms file reports
with the exchange rather than with the SEC.
(e). Statements' b' and 'c' are both correct.
6. Which of the following refers to mezzanine financing
(a) Debt
(b) Equity
(c) Hybrid of Debt and Equity
(d) Use of internal funds
7. The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to:
(a) A series of corporate scandals involving Enron, WorldCom, Global Crossing, Tyco
and numerous others.
(b) Dramatic rise in the US trade deficit.
(c) Charges of excessive compensation to top corporate executives.
(d) Rising complaints by investors and security analysts over the financial accounting for
stock options.
8. A company's. .... is (are) potentially the most effective instrument of good corporate
governance.
(a) Common stock shareholders
(b) Board of directors
(c) Top executive officers
9. The focal point of financial management in a firm is:
(a) The number and types of products or services provided by the firm.
(b) The minimization of the amount of taxes paid by the firm.
(c) The creation of value for shareholders.
(d) The dollars profits earned by the firm.
10. The long-run objective of financial management is to:
(a) Maximize earnings per share.
(b) Maximize the value of the firm's common stock.
(c) Maximize return on investment.
(d) Maximize market share.
11. ____________ of an investment bank.
(a). Citigroup is an example
(b). Merrill Lynch is an example
(c). Goldman is an example
(d). B and C are each examples
(e). Each of the above is an example
12. ____________ are financial assets.
(a). Bonds
(b). Machines
(c). Stocks
(d). A and C
(e). A, B and C
13. Firms that specialize in helping companies raise capital by selling securities are
called :
(a). Commercial banks
(b). Investment Banks
(c). Savings Banks
(d). Credit Unions
(e). All of the above.
14. The sale of a mortgage portfolio by setting up mortgage pass-through securities is
an example of ________.
(a). Credit enhancement
(b). Securitization
(c). Unbundling
(d). Derivatives
(e). None of the above
15. Corporate shareholders are best protected from incompetent management
decisions by
(a). The ability to engage in proxy fights.
(b). Management's control of pecuniary rewards.
(c). The ability to call shareholder meetings.
(d). The threat of takeover by other firms.
(e). One-share/one-vote election rules.
16. Financial assets ____________
(a). Directly contribute to the country's productive capacity
(b). Indirectly contribute to the country's productive capacity
(c). Contribute to the country's productive capacity both directly and indirectly
(d). Do not contribute to the country's productive capacity either directly or indirectly
(e). Are of no value to anyone
17. Investment bankers perform the following role(s ____________
(a). Market new stock and bond issues for firms
(b). Provide advice to the firms as to market conditions, price, etc
(c). Design securities with desirable properties
(d). All of the above
(e). None of the above
18. Theoretically, takeovers should result in ___________.
(a). Improved management
(b). Increased stock price
(c). Increased benefits to existing management of taken over firm
(d). A and B
(e). A, B, and C
19. Important trends changing the contemporary investment environment are :
(a). Globalization.
(b). Securitization.
(c). Information and computer networks.
(d). Financial engineering.
(e). all of the above
20. Higher operating leverage is related to the use of additional __________.
(a). Fixed costs
(b). Variable costs
(c). Debt financing
(d). Common equity financing
21. __________ lease is a long-term lease that is not cancelable and its life often
matches the useful life of the asset.
(a). A financial
(b). An operating
(c). A net
(d). None of the above answers are correct.
22. __________ lease refers to a short-term lease that is often cancelable. For
example, a lease for office space represents this type of lease where the lease life is
less than the useful life of the asset.
(a). A financial
(b). An operating
(c). A net
(d). None of the above answers are correct.
23. Which of the following is not a type of financial lease arrangement?
(a). Sale and leaseback
(b). Indirect leasing
(c). Leveraged leasing
(d). All of the above answers are types of financial lease arrangements.
24. Which of the following statements is most correct as it relates to the recording of a
capital lease?
(a). The current fair market value of the asset being leased
(b). The current fair market value of the asset being leased less the expected residual
value
(c). The present value of the minimum lease payments over the lease period
(d). The present value of the maximum lease payments over the lease period
25. A __________ is generally considered debt that is originally scheduled to be repaid
between 1 to 10 years under a formal loan agreement and is usually amortized
(principal and interest are paid) in equal periodic installments.
(a). Term loan
(b). Revolving credit agreement
(c). Medium-term note
(d). Commitment fee
26. A __________ is charged by the lender to hold credit open for the borrower. For
example, if the firm only uses $100,000 of a $200,000 limit, then the firm might pay the
lender $500 for the unused limit in addition to the interest on the amount borrowed.
(a). Term loan
(b). Revolving credit agreement
(c). Medium-term note
(d). Commitment fee
27. __________ lease is a lease where the lessee maintains and insures the leased
asset rather than the lessor in a full-service lease.
(e). A financial
(a). An operating
(b). A net
(c). None of the above answers are correct.
28. Your firm currently has a current ratio of 1.90 on $9.5 million of current assets. You
are changing the financing mix of your firm and plan on converting financing of
$1,000,000 in a 6-month loan into a 5-year term loan. The purpose of this move is to
finance a more permanent portion of inventories with a longer maturity alternative. If the
firm issues the term loan, new restrictive covenants will require that the current ratio
remain at or above 2.00. Should the firm make this change or is there some obvious
problem caused by this proposed change?
(a). Yes
(b). No, don't make the change; otherwise, the firm will be immediately violating the new
restrictive covenant.
(c). No, don't make the change; this type of restrictive covenant is not common on a
term-loan, and you should first try to have this covenant removed.
(d). None of the above answers are correct.
29. A __________ represents any restriction imposed on a borrower by a lender and
would be part of the loan agreement.
(a). Negative pledge clause
(b). Covenant
(c). Loan agreement
(d). General routine provision
30. A __________ is a continuously offered debt instrument that is designed to fill the
gap between commercial paper and long-term bonds with maturities currently ranging
from 9 months to 30 years and has gained favor from the existence of shelf registration.
(a). Term loan
(b). Revolving credit agreement
(c). Medium-term note
(d). Commitment fee
31. A __________ forbids the future pledging or mortgaging of any of the borrower's
assets.
(a). Negative pledge clause
(b). Covenant
(c). Loan agreement
(d). General routine provision
32. For a company subject to the alternative minimum tax (AMT), __________ is a "tax
preference item," whereas __________ is not. Such a company may prefer to
__________.
(a). A lease payment; accelerated depreciation; lease
(b). Accelerated depreciation; a lease payment; purchase
(c). A lease payment; accelerated depreciation; lease
(d). Accelerated Depreciation; A Lease Payment; Lease
33. A __________ allows the borrower to have credit up to some maximum amount
over a specific period, but the notes are usually 90 days and allow the company to
renew or borrow additionally.
(a). Term loan
(b). Revolving credit agreement
(c). Medium-term note
(d). Commitment fee
34. Your firm currently has a current ratio of 2.10 on $5 million of current liabilities. You
are financing a $500,000 machine (fixed asset) and $500,000 of additional inventories
with a 5-year term loan. Alternatively, the firm can finance the additions with a 6-month
loan that they will need to get approval to renew every six months. Existing restrictive
covenants require that the current ratio remain at or above 2.00. Which alternative will
keep the current ratio above 2.00?
(a). 5-year term loan.
(b). Six-month loan that is renewed.
(c). Neither of the loans will keep the current ratio above 2.00.
(d). Both of the loans would keep the current ratio above 2.00.
35. With a capital lease, the amount recorded on the asset side of the balance sheet is
__________.
(a). The current fair market value of the asset being leased
(b). The current fair market value of the asset being leased less the expected residual
value
(c). The present value of the minimum lease payments over the lease period
(d). The present value of the maximum lease payments over the lease period
36. Which of the following statements is most correct as it relates to the recording of a
capital lease?
(a). The capital lease is shown on the lessee's balance sheet as an asset and amortized
over the asset's useful life.
(b). The capital lease is listed as an asset on the lessor's balance sheet and amortized
over lease term.
(c). A capital lease is listed as an asset on the lessee's balance sheet and must be
amortized over the lease period.
(d). A capital lease is listed as an asset on the lessee's balance sheet and must be
amortized over the asset's useful life.
37. A __________ specifies all of the terms of a loan and the obligations of the
borrower.
(a). Negative pledge clause
(b). Covenant
(c). Loan agreement
(d). General routine provision
38. A special purpose vehicle (SPV) raises money by selling __________ where
interest and principal payments are provided by cash flows from a discrete pool of
assets.
(a). Equipment trust certificates
(b). Special purpose securities
(c). Pooled certificates
(d). Asset-backed securities
39. __________ is a long-term, unsecured debt instrument with a lower claim on assets
and income than other classes of debt; while a/(an) __________ bond issue is secured
by the issuer's property.
(a). A subordinated debenture; mortgage
(b). A debenture; subordinated debenture
(c). A junk bond; income
(d). An income bond; junk
40. Which of the following statements concerning the rights of common shareholders is
correct, or most accurate?
(a). Common shareholders are entitled to a share of the company's current earnings in
cash.
(b). Common shareholders are entitled to elect the board of directors under a majority-
rule voting system.
(c). Because of their preemptive right, common shareholders are entitled to always
subscribe to new common stock so that they can maintain their pro rata interest in the
company.
(d). Voting by common shareholders can be done either in person at the shareholders'
annual meeting or by proxy


Multiple Choice Question Set 2
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

Objective Type Set 3
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