Management of Financial Institutions-1

Assignment – A

Question 1. Identify the role of commercial banks in finance sector. Describe peculiar characteristics of commercial banks in India.

Question 2. Do you think that RBI has been successful in regulation and supervision of banking industry? What is the role of RBI in regulating specifically in the case of cooperative banks?

Question 3. Explain the role of LIC in providing Life Insurance services in India. How, now with increase in competition is changing the role of LIC in this sector?

Question 4. Compare and contrast Call money market with Treasury Bills market. Outline recent developments of these markets.

Question 5. Trace the role of SEBI in regulating Capital Market in India. How financial derivatives market is difficult to control/regulate?

Assignment – B

Case Study

M/s RCTC Ltd. has sought a long term loan of Rs 5 Crores from IDBI but is not very sure of getting the loan approved. The matter is under consideration and different type of information sought by IDBI has already been provided. Besides this the Finance Director Mr. Rahul has personally visited the office of IDBI and explained various points as desired by IDBI.

In fact M/s RCTC Ltd. is in urgent requirement of money because if adequate amount of funds are not provided the planned diversification project is likely to fail and the company might have to suffer huge losses due to delay in the project and consequential serious implication. Mr. Rahul has been negotiating with IDBI on a number of issues regarding sanction and release of long term loan of Rs. 5 Crores.

In addition to the alternative of raising finance through IDBI there exist some other choices. The next possible choice is to raise bridge loan from existing bankers and simultaneously come out with public issue. While evaluating the proposal to issue shares to public Mr. Rahul is personally convinced that present market situation is such that it is difficult to sell a public issue of Rs. Crores. However given the product range and reputation of the company their bankers are of the opinion that the public issue will be completely subscribed. The Finance Director is also open to the suggestion because the need for finance is on long term basis but he has some thing else in his mind. He is also evaluating other alternatives but is still undecided.

Based on the above situation answer the following:-

Questions
(a) Enumerate what additional choices may be available before the Finance Director, to raise the funds?
(b) Evaluate pros and cons of raising funds from IDBI and raising funds from IDBI.
(c) Enumerate steps to be followed for a public issue. Is there any restriction of raising some minimum amount from public?
(d) Describe the procedure adopted by IDBI for appraisal of term loan.

Assignment – C

1. Bridge Finance is meant for
(a) Short term financing
(b) Financing until public issue is subscribed
(c) Those companies which expect subscription of their public issue
(d) All of the above

2. SLR stands for
(a) Sub-Local Railway
(b) Statutory Liquidity Ratio
(c) State Liquidity Resources
(d) Statutory Liquidity Reserve

3. CRR stands for
(a) Cash Reserve Ratio
(b) Company’s Reserve Ratio
(c) Cash Resource Ratio
(d) Committed Reserve Ratio

4. Open Market Operations have an objective of
(a) ensuring availability of products of every one
(b) management of monetary policy
(c) ensuring separation of different markets
(d) stressing fair play for all concerned

5. The difference between commercial banks can be stated as
(a) Commercial banks deal in the retail sale of Government securities whereas investment bankers sell the government securities in whole sale.
(b) Basic objective of commercial banks is to generate profit whereas investment bankers have only social objectives.
(c) Commercial banks accept short term deposits and give only short term loans whereas investment bankers arrange for long term loans.
(d) There is no difference between commercial banks and investment banks.

6. Options and Futures trading in India was started in the Year
(a) 1999
(b) 2000
(c) 2001
(d) 2002

7. Foreign exchange market in India has
(a) Fixed rate system
(b) Floating rate system
(c) Flexible rate system
(d) None of the above

8. Basic determinant of Foreign Capital inflow are
(a) Imbalances in savings and investments leading to current account gaps
(b) Legal and Institutional Structure
(c) Expected rate of return
(d) All of the above

9. Interest rates in India during the year 2001 have
(a) gone up
(b) gone down
(c) have not changed
(d) been higher than that of U.S.A.

10. “Basis Point” in the context of interest rates is equal to
(a) one thousandth of one percent
(b) one tenth of one percent
(c) one hundredth of one percent
(d) one hundredth of one

11. “Call option” means
(a) a right to buy
(b) a right to buy without obligation
(c) a right to sell
(d) a right to sell without obligation

12. Diversifiable risk is
(a) systematic risk
(b) unsystematic risk
(c) neither systematic risk nor unsystematic risk
(d) both systematic as well as unsystematic risk

13. Term Insurance is
(a) A combination of savings and life insurance
(b) A pure life insurance risk plan
(c) Meant for a person who wants to get good returns from his insurance
(d) Not a suitable insurance plan for persons above 35 years of age

14. Fiscal Policy of the Government is
(a) with respect to revenues and expenditure
(b) relating to interest rates
(c) associated with lending by commercial banks
(d) a part of Monetary Policy

15. P/E Ratio means
(a) market price is to EPS Ratio
(b) Price Equity Ratio
(c) Product Equity Ratio
(d) Price Equation Ratio

16. Assest Securitization is
(a) Conversion of illiquid assets through special purpose vehicle
(b) Provide adequate collateral security to banks prior to raising loans
(c) Not suitable in Indian financial environment
(d) Essential in case of all the loans

17. Factoring is
(a) not a financial service
(b) helpful in business for working capital management
(c) based on Negotiable Instruments Act
(d) same as bills discounting

18. “Tax Haven” means
(a) tax exemption given under the budget
(b) sudden reduction of taxes
(c) a country where taxes are low
(d) not paying taxes although otherwise liable to pay

19. “REPO” transactions means
(a) Ready Purchase
(b) Ready forward Purchase
(c) Purchase as well as sale simultaneously
(d) None of these

20. RBI allowed general public to purchase government securities at
(a) Maximum price
(b) Minimum price
(c) Average price
(d) Market price

21. Credit rating agencies
(a) established by large business houses
(b) evaluate credit worthiness of a company
(c) are there only in India
(d) all of the above

22. “Commercial Papers” are
(a) unsecured promissory notes
(b) secured promissory notes
(c) sold at a premium
(d) issued for a period of one to two years

23. Which of the following is not a money market security?
(a) Treasury bills
(b) National saving certificate
(c) Certificate of deposit
(d) Commercial paper

24. The present interest rate of PPF is
(a) 10%
(b) 9.5%
(c) 9%
(d) 11%

25. NBFC offer higher rate of interest because of
(a) the best management of funds
(b) the competition among the NBFCs
(c) the risk involved
(d) the credit rating

26. Registrar to the issue
(a) helps in the appointment of lead managers
(b) drafts the prospectus
(c) recommends the basis of allotment
(d) directs the various agencies involved in the issues

27. The underwriter has to take up
(a) the fixed portion of the issue capital
(b) the agreed portion of the unsubscribed part
(c) the agreed portion or can refuse it
(d) none of the above

28. SEBI would not vet offer documents seeking listing on
(a) OTCEI
(b) NSE
(c) BSE
(d) ISE

29. Warehousing facility means
(a) storing the stocks with the merchant bankers
(b) storing the stocks with the brokers
(c) issuing separate contract notes for different trade
(d) issuing one contract not for a large quantity traded in parts

30. Identify the controllable risk
(a) labour problem
(b) increase in loan service charge
(c) cut in subsidy
(d) technological obsolescence

31. Share prices
(a) move either in declining or increasing trend
(b) may remain flat for a period of time
(c) the movement of the share prices form a straight line
(d) the increasing of decreasing move be Zigzag

32. Highly liquid security is
(a) mutual fund units
(b) treasury bills
(c) shares
(d) commercial papers

33. Investor invest more in stock during their
(a) early career period
(b) mid career level
(c) retirement stage with huge money
(d) all the above mentioned period

34. To frame the investment policy you should have
(a) knowledge about the company and brokers
(b) investible funds
(c) knowledge about the investment alternatives
(d) knowledge about the markets with funds

35. Zero coupon bonds has its origin in
(a) U.S. security market
(b) Wall street
(c) Japan’s security market
(d) Dalal street

36. Apex regulatory body for insurance sector is
(a) IRA
(b) IRAA
(c) IDRA
(d) IRRA

37. NPA in the context of banking sector stand for
(a) Net Present Amount
(b) Non Performing Assets
(c) Net Protected Amount
(d) Non Protected Amount

38. Financial Institutions are not be regulated by
(a) RBI
(b) SEBI
(c) IDBI
(d) Government

39. Maximum duration of a treasury bill can be
(a) 3 months
(b) 6 months
(c) 364 days
(d) 365 days

40. Capital gains taxes are imposed on
(a) short term profit
(b) long term profit
(c) due to changes in prices
(d) charged by State Government