Questions and Answers
What is the main difference between capital market intermediaries and money market intermediaries?
Which of the following activities is categorized as a fund-based activity?
What do non-fund based activities primarily focus on?
Which of the following is NOT a component of the money market intermediaries?
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What is an example of a traditional fund-based activity?
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Why have financial services companies expanded their offerings beyond just providing finance?
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Which of the following instruments is associated with money market activities?
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How are fund-based activities different from non-fund based activities?
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What is one of the primary functions of a bank?
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How does a bank ensure the safety of depositors' funds?
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What does a bank mean by ‘custody of money’?
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What aspect reflects the profit-oriented nature of a bank?
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How do banks act as a connecting link in the financial system?
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Which characteristic indicates the evolutionary nature of banking?
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What type of institution can be classified as a bank?
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Which of the following is considered an agency service provided by banks?
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What is the primary focus of development banks?
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What was the original purpose of co-operative banks in India?
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What is the role of the National Bank for Agricultural and Rural Development (NABARD)?
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Which of the following banks specifically aids exporters and importers?
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What initiative was introduced in 1992 to enhance the access of rural poor to financial services?
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What is the primary function of factoring in financial services?
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Which of the following best describes forfaiting?
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What does securitization achieve in financial markets?
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What is the main benefit of leasing for the lessee?
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How does a hire purchase agreement differ from a lease?
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What role do credit-rating agencies play in the capital market?
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Which statement accurately reflects the responsibilities of a factor?
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What is a key advantage for exporters using forfaiting?
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What is one role of financial intermediaries when assisting clients with project costs?
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Which of the following is considered a non-traditional service provided by financial intermediaries?
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Financial intermediaries help clients minimize the cost of debt by advising on what?
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What type of risk management service might a financial intermediary provide?
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What is a key activity involved in capital restructuring guided by financial intermediaries?
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In the context of sick companies, what service do financial intermediaries typically perform?
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Which task is part of the financial intermediaries' role in structured financial collaborations?
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What specific financial service is provided to companies looking to go public?
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Study Notes
Transforming Risk
- Risk transformation involves reducing and redistributing risk among those who can best bear it.
Classification of Financial Services
- Financial intermediaries in India are categorized into two groups:
- Capital market intermediaries: Focus on long-term funding through term lending and investment.
- Money market intermediaries: Deal with short-term funding, including commercial and cooperative banks.
Scope of Financial Services
- Financial services encompass a wide array of activities, classified into traditional and non-traditional services.
Traditional Activities
- Financial intermediaries traditionally offer:
- Fund-based activities:
- Underwriting and investment in new shares and bonds.
- Trading in secondary market instruments.
- Participation in money market instruments (commercial papers, treasury bills).
- Equipment leasing and venture capital funding.
- Foreign exchange market dealings.
- Non-fund based activities:
- Management of capital issues and compliance with SEBI guidelines.
- Facilitating placements of capital and debt instruments.
- Arranging funding from financial institutions.
- Securing necessary government clearances.
- Fund-based activities:
Non-Traditional Activities
- Recent services provided by intermediaries include:
- Project advisory from inception to funding acquisition.
- Mergers and acquisitions (M&A) support.
- Guidance on capital restructuring for corporate clients.
- Acting as trustees for debenture holders.
- Recommendations on management practices for improved results.
- Structuring joint ventures and financial collaborations.
- Restructuring sick companies and implementing recovery schemes.
- Risk management through hedges against exchange rates and economic fluctuations.
- Managing portfolios for Public Sector Corporations.
- Risk management services like insurance and buy-back options.
- Advising clients on optimal financing sources and debt-equity mix.
- Promoting credit rating agencies for companies issuing debt.
Fund-Based Activities
- Factoring: Financial service assumes credit risk in debt collection for clients.
- Forfaiting: Financier discounts export bills, providing exporters with immediate cash while reducing collection risks.
- Leasing: Tenants rent property, ensuring regular payments and guaranteeing asset use.
- Hire Purchase: Facilitates buying expensive goods via installment payments post an initial down payment.
- Securitization: Converts illiquid assets into marketable securities for raising funds.
Banking Overview
- A bank is a financial institution handling deposits, advances, and related services.
- It functions to safeguard customer deposits while offering loans.
Characteristics of Banks
- Transactions primarily involve management of depositors' funds.
- Banks may operate as individuals, firms, or companies.
- They accept deposits repayable on demand or after a fixed term.
- Provide loans to individuals and businesses.
- Facilitate easy payment and withdrawal options.
- Offer various agency and utility services.
- Aim for service orientation while seeking profits.
- Functions of banks are expanding continuously.
- Act as intermediaries between savers and borrowers of money.
Development and Cooperative Banks
- Development banks provide all types of medium and long-term financial assistance for business growth.
- Cooperative banks were established to offer affordable credit primarily to farmers but also operate in urban areas.
Specialised Banks
- EXIM Bank supports exporters and importers with long-term financial help.
- NABARD, established in 1982, facilitates rural credit and coordinates financial institutions in rural development.
- NABARD’s micro-finance initiatives increase access to formal credit for the rural poor, including the Self-Help Group-Bank linkage program introduced in 1992.
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Description
This quiz covers the classification of financial intermediaries in India, focusing on capital market and money market intermediaries. Understand how these institutions operate in providing financial services and managing risk through aggregation. Test your knowledge on key concepts related to financial services classification.
