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What is a key function of the financial system in a country?
Which phase in the Indian financial system represents the time before economic reforms?
What is a key characteristic of the financial service industry?
What aspect makes financial services labor intensive?
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What is an important characteristic of a robust financial system?
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What type of commodities are primarily traded in the Indian commodities market?
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Which of the following is NOT a type of financial service focused on managing investible funds?
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Which financial service is used for providing funds to start new businesses?
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Which of the following is NOT a component of the Indian financial system?
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What can be identified as an advantage of trading in derivatives?
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Which of the following services is included in risk financing?
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Which financial service focuses on the preparation and assessment of projects?
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Which factor is driving the growth of the derivatives market?
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What distinguishes forwards from futures in the derivatives market?
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What does factoring involve in the context of financial services?
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Which of the following is classified under market operations?
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What is the primary characteristic of forfaiting in financial transactions?
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What role does a merchant banker play in financial services?
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How does a mutual fund generate income for its shareholders?
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What does credit rating evaluate regarding a debt issuer?
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What is the main benefit of forfaiting for exporters?
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According to the SEBI definition, what is a merchant banker primarily engaged in?
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Which of the following statements is true about the operations of mutual funds?
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What is the key distinction between fund-based and non-fund based financial services?
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Which of the following is NOT a component of the Indian financial system?
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What type of market is associated with short-term financial instruments in India?
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What is the role of the insurer in an insurance contract?
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What was a key characteristic of the banking sector in India during the pre-reforms phase?
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What is the term for the payment made by the insured for insurance coverage?
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According to Mc Gill, how is insurance defined?
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Which financial instrument is commonly associated with long-term financing?
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What role did government-owned banks play in the Indian banking sector post-nationalization?
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What is the document that contains the terms and conditions of insurance called?
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In factoring, who purchases the account receivables?
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Which of these services is primarily categorized as fee-based in the Indian financial system?
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What is meant by the term 'sum assured' in an insurance policy?
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In the context of Indian financial reforms, what was one of the major shortcomings of the banking sector before 1990?
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What is factorage in the context of factoring?
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Which of the following statements accurately reflects the role of technology in the pre-reforms phase of the Indian financial system?
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What does the factor assume responsibility for in a factoring arrangement?
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Study Notes
Commodity Market
- Commodities market consists of buying and selling of raw materials or primary products.
- Types of commodities include agricultural (e.g., grains, livestock) and non-agricultural (e.g., metals, energy).
- The structure of the commodities market in India involves various exchanges, including the Multi Commodity Exchange (MCX) and National Commodity & Derivatives Exchange (NCDEX).
- Key participants in the commodities market include brokers, traders, speculators, and hedgers.
- Trading occurs in cash markets (spot transactions) and derivatives markets (futures and options).
- Reasons for investing in commodities include portfolio diversification, inflation hedging, and potential high returns.
Derivatives Market
- Derivatives market involves contracts that derive value from underlying assets such as stocks, commodities, or currencies.
- Major derivative types include futures, options, forwards, and swaps.
- Growth in the derivatives market is driven by factors like increased market volatility and the need for risk management tools.
- Participants include institutional investors, corporations, and individual traders.
- Key advantages of trading in derivatives include flexibility, leverage, and hedging opportunities, while disadvantages can include high risk and complexity.
- The current volume of derivative trade in India reflects a significant increase, showcasing rising popularity.
- Fundamental distinction: Forwards are customizable contracts settled at a future date, whereas futures are standardized contracts traded on exchanges.
Introduction to Indian Financial System
- India's economic growth relies on a robust financial system that transforms savings into investments.
- Financial system components encompass financial institutions, markets, instruments, and services, enabling capital formation.
- Financial services in India must be tailored to diverse customer needs, highlighting their variability.
- Significant reliance on skilled personnel marks the financial services sector, emphasizing the human element in delivery.
- The sector is heavily information-based, critical for the production and functioning of financial services.
Types of Financial Services
- Provision of funds includes venture capital, banking services, asset financing, credit cards, and factoring.
- Managing investible funds encompasses portfolio management, merchant banking, and mutual and pension funds.
- Risk financing options consist of insurance and export credit guarantees.
- Consultancy services involve project preparation, appraisal, advisory, and valuations.
- Market operations include stock and money market operations, asset management, and derivatives trading.
Insurance Concepts
- Insurance involves a contract between the insured and the insurer, where the insurer compensates the insured for specified risks.
- "Sum assured" refers to the amount covered under an insurance policy, while the "insurance premium" is the fee paid regularly by the insured.
Factoring and Forfaiting
- Factoring involves purchasing account receivables to provide immediate cash flow to suppliers, with the factor handling collection.
- Forfaiting allows exporters to sell receivables to a financing agency for cash up front, minimizing credit risk and collection burdens.
Mutual Funds
- Mutual funds mobilize savings and invest them in a diversified portfolio of securities, managed to optimize returns for shareholders.
Non-Fund Based Financial Services
- Merchant banking focuses on arranging funds and offering advisory services rather than directly providing loans.
- Credit ratings assess an issuer's ability to meet financial obligations, informing investors about risks related to debt instruments.
Phases in Indian Financial System
- Pre-reforms phase (pre-1990s) was characterized by limited competition, inefficiencies, low productivity, and weak asset quality, primarily due to government ownership and inadequate technological advancement.
- Following reforms have transformed the landscape, enhancing competition and service quality across financial institutions.
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Description
This quiz explores the fundamentals of the commodities and derivatives markets, including their meanings, history, and types. Learn about the structure of the commodities market in India, trading methods, and key participants. Additionally, get insights into reasons for investing and the role of commodity exchanges.
