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Questions and Answers
What is the primary focus of development banks?
What is the primary focus of development banks?
- Offering credit cards to individuals
- Providing retail banking services
- Providing financial assistance to business units (correct)
- Managing savings accounts for the public
Co-operative banks were initially established to provide credit to urban sectors.
Co-operative banks were initially established to provide credit to urban sectors.
False (B)
What is the role of NABARD in India?
What is the role of NABARD in India?
To provide rural credit to farmers and coordinate various financial institutions.
The specialized bank that provides long-term financial assistance to exporters and importers is called _____ Bank.
The specialized bank that provides long-term financial assistance to exporters and importers is called _____ Bank.
Match the following banks with their primary function:
Match the following banks with their primary function:
What is loan syndication primarily used for?
What is loan syndication primarily used for?
Custodial services ensure the safety of customers' securities.
Custodial services ensure the safety of customers' securities.
What is the role of a broker in stock broking?
What is the role of a broker in stock broking?
A letter of credit is issued by a ______ to guarantee a buyer's payment.
A letter of credit is issued by a ______ to guarantee a buyer's payment.
Match the following financial services with their descriptions:
Match the following financial services with their descriptions:
What is another term for loan syndication?
What is another term for loan syndication?
Corporate advisory services are exclusively provided by company boards.
Corporate advisory services are exclusively provided by company boards.
What minimum requirement prompts a fund-based facility in underwriting?
What minimum requirement prompts a fund-based facility in underwriting?
Which of the following is a non-traditional service provided by financial intermediaries?
Which of the following is a non-traditional service provided by financial intermediaries?
Financial intermediaries only provide traditional services such as capital arrangement and fund sourcing.
Financial intermediaries only provide traditional services such as capital arrangement and fund sourcing.
What type of risks can be managed by using swaps and derivative products?
What type of risks can be managed by using swaps and derivative products?
Financial intermediaries assist in __________ to help companies raise funds.
Financial intermediaries assist in __________ to help companies raise funds.
Match the following services with their descriptions:
Match the following services with their descriptions:
Which service involves rehabilitating and restructuring companies in distress?
Which service involves rehabilitating and restructuring companies in distress?
Financial intermediaries do not play a role in minimization of debt costs.
Financial intermediaries do not play a role in minimization of debt costs.
Financial intermediaries help in the structuring of ___________ by identifying suitable partners.
Financial intermediaries help in the structuring of ___________ by identifying suitable partners.
What is factoring primarily concerned with?
What is factoring primarily concerned with?
Forfaiting is designed to protect the importer against non-payment of debts.
Forfaiting is designed to protect the importer against non-payment of debts.
What does leasing guarantee to the lessee?
What does leasing guarantee to the lessee?
In a hire purchase agreement, the ownership of the merchandise is transferred to the buyer after all the payments have been made. This initial payment is known as the ______.
In a hire purchase agreement, the ownership of the merchandise is transferred to the buyer after all the payments have been made. This initial payment is known as the ______.
Match the financial services with their descriptions:
Match the financial services with their descriptions:
Which of the following best describes securitization?
Which of the following best describes securitization?
The factor in factoring only collects debts and does not assume credit risk.
The factor in factoring only collects debts and does not assume credit risk.
What services are related to the capital market?
What services are related to the capital market?
What is the primary purpose of a mutual fund?
What is the primary purpose of a mutual fund?
Venture capital is typically low-risk financing for established companies.
Venture capital is typically low-risk financing for established companies.
What do merchant bankers help facilitate in the financial market?
What do merchant bankers help facilitate in the financial market?
A mutual fund is operated by __________ who manage the investment portfolio.
A mutual fund is operated by __________ who manage the investment portfolio.
Match the following financial terms with their definitions:
Match the following financial terms with their definitions:
What is a common service provided under the Forex category?
What is a common service provided under the Forex category?
Underwriting provides risk cover to issuers of securities only during economic downturns.
Underwriting provides risk cover to issuers of securities only during economic downturns.
What are venture capitalists typically entitled to in exchange for their investment?
What are venture capitalists typically entitled to in exchange for their investment?
Study Notes
Placement and Fund Arrangement
- Capital and debt instruments are arranged for investments through financial institutions.
- Financial advisors facilitate fund arrangement from financial institutions for projects and working capital.
- Assisting clients with government clearances for projects is a critical service provided.
Non-Traditional Activities
- Financial intermediaries now offer numerous non-fund based services termed ‘New financial products and services’.
- Project advisory services include project report preparation and securing funds with government approvals.
- Mergers and acquisitions (M&A) planning and execution assistance are significant offerings.
- Corporates receive guidance on capital restructuring to enhance financial efficiency.
- Financial intermediaries act as trustees for debenture holders.
- Recommendations for improvements in management structure and style to boost performance are provided.
- Structuring financial collaborations involves identifying joint venture partners and preparing agreements.
- Sick companies benefit from rehabilitation and restructuring schemes facilitated by financial intermediaries.
- Risk management services address exchange rate, interest rate, economic, and political risks using derivatives.
- Management of portfolios for large Public Sector Corporations is a key service.
- Advising on optimal debt costs and equity mix is essential for capital efficiency.
- Credit rating agencies are promoted to assist companies in public debt issuance.
Fund-Based Services
- Factoring: Involves managing sales ledger and assuming credit risk for the collection of debts.
- Forfaiting: Allows exporters to receive cash against export bills, mitigating risk of non-payment.
- Leasing: Contracts allow one party to rent property from another, ensuring regular payments over time.
- Hire Purchase: Facilitates the buying of expensive goods via down payment and installments, transferring ownership post-payment.
- Securitization: Converts illiquid assets into securities, enabling banks to raise fresh funds by selling these instruments.
- Mutual Funds: Investment vehicles pooling funds from various investors for diversified securities investment.
- Insurance: Provides compensation coverage for specified risks in return for premium payments.
- Venture Capital: Funding for startups with growth potential, typically involving investor participation in company decisions.
- Forex Services: Includes currency buying/selling, loans, deposits, cards, and remittances.
Fee-Based Services
- Merchant Banking: Transfers capital from investors to seekers through activities like portfolio management and project counseling.
- Underwriting: Insures issuers of securities to ensure minimum subscriptions are met.
- Stock Broking: Involves buying and selling assets for clients with brokers charging a fee.
- Loan Syndication: Arranged by lead banks for large loans, allowing multiple banks to share credit risk.
- Custodial Services: Safeguards client securities to mitigate theft or loss risks.
- Credit Rating: Assesses and provides ratings for securities to aid investment decisions.
- Corporate Advisory Services: Offers financial advisory to corporations for operational finance aspects.
- Investment Management: Professional management of various assets to achieve investors' financial goals.
- Letter of Credit (L/C): A bank guarantee ensuring timely payment from buyer to seller.
Banking Institutions
- Development Banks: Provide medium and long-term financial assistance for industrial and economic development.
- Cooperative Banks: Established to provide credit to farmers at lower rates, also serve urban sectors.
- Specialized Banks: Focus on specific functions; examples include:
- EXIM Bank: Offers long-term financial assistance to exporters and importers.
- NABARD: Coordinates rural credit institutions, aiming to improve access to credit for rural populations through programs like SHG-Bank linkage.
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Description
This quiz covers traditional and non-traditional services provided by financial intermediaries. It includes topics such as capital placement, funding arrangements, and securing governmental clearances. Test your knowledge about the critical roles these intermediaries play in the financial ecosystem.
