Amity Campus Uttar Pradesh India 201303 ASSIGNMENTS PROGRAM: MFC SEMESTER-II : : : :

Subject Name Study COUNTRY Roll Number (Reg.No.) Student Name

INSTRUCTIONS a) Students are required to submit all three assignment sets. ASSIGNMENT Assignment A Assignment B Assignment C b) c) d) e) DETAILS Five Subjective Questions Three Subjective Questions + Case Study Objective or one line Questions MARKS 10 10 10

Total weightage given to these assignments is 30%. OR 30 Marks All assignments are to be completed as typed in word/pdf. All questions are required to be attempted. All the three assignments are to be completed by due dates and need to be submitted for evaluation by Amity University. f) The students have to attached a scan signature in the form.

Signature : Date :

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( ) Tick mark in front of the assignments submitted Assignmen Assignment Assignment t A B C

Financial Services ASSIGNMENT- A Attempt these five analytical questions Q1. What do you do you understand by the term Credit Rating Agency?Explain there major function? ANSWER A credit rating agency (CRA) is a company or agency that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. In some cases, the servicers of the underlying debt are also given ratings. In most cases, the issuers of securities are companies, special purpose entities state and local governments, non-profit organizations, or national governments issuing debt-like securities (i.e., bonds) that can be traded on a secondary market. A credit rating for an issuer takes into consideration the issuer's credit worthiness (i.e., its ability to pay back a loan), and affects the interest rate applied to the particular security being issued. An example of Credit Rating Agency is CRISIL which means Credit Rating and information services of india. A high rating indicates low risk and may therefore encourage investors to buy a security. Q2. What do you mean by Book Building? Explain the types of Book-Building? ANSWER: Book Building refers to the collection of bids from investors, based on a floor price, which is indicated before the opening of the bidding process. The issue price is fixed after the bid closing date. Book Building is a technique used for marketing a public offer of equity shares of a company. The two main types of book building are 75% book building and 100% book building 75% book building under this process 25 per cent of the issue is to be sold at a fixed price, where usually 25% of the public issue can be offered to the public through prospectus and shall be reserved for allocation to individual investors who had not participated in the bidding process and the balance of 75 per cent through the Book Building process, where 75% of the public issue can be offered to institutional investors who had participated in the bidding process. 100% Book building allocation to retail individual investors who applies or bids for securities of or for a value of not more than Rs 50,000.Allocation to noninstitutional investors who participated in the bidding process, and not less than 25% of the net offer to the public shall be available for allocation. Allocation to qualified institutional buyers who participated in the bidding process.

Q3.

What do you mean by hire purchase? According to hire purchase act of 1972.An agreement under which goods are let on hire under which the hirer has an option to purchase them in accordance with the terms of agreement and include an agreement under which Possession of goods is

delivered by the owner thereof to a person on the condition that such person pays the amount in periodic payments The property of the goods is to pass to such a person on the payment of the last installment. Such a person has a right to terminate the agreement any time before the property so passes. The hirer is required to make a down payment of 20-25% of the cost and pay the balance amount along with interest in advance or arrears over a time period of 36-48months Alternatively, instead of the down payment, the hirer as to deposit an equal amount as a fixed deposit with the finance co which provides entire finance on hire purchase terms, repayable with interest in emi over 36-48 months. Deposits and the accumulated interest is returned to the hirer upon the payment of last installment. Advantages of Hire Purchase is that it doesnt involve immediate cash and possession is easy, however this may lead to bankruptcy, buyer may incur loss.

Q4.

What do you mean by Consumer Credit ? Explain the types of Consumer Credit? Credit is an arrangement to receive cash, goods or services now, and pay for them in the future Consumer credit is the use of credit for personal needs, except a home mortgage, by individuals and families Types of credit can be classified into two ie. Close end credit and open end credit. Closed end credit involves One-time loans for a specific purpose that you pay back in a specified period of time, and in payments of equal amounts. Eg. Mortgage, automobile, and installment loans for furniture, appliances and electronics Open end credit ,use as needed until reaching line of credit max Credit cards, departments store cards, bank credit cards, incidental credit You pay interest and finance charges if you do not pay the bill in full when due

Q5. What do you understand by Venture Capital? Explain the scope of Venture Capital? ANSWER Venture capital is the capital provided by firms of professionals who invest alongside management in young, rapidly growing or changing companies that have the potential for high growth. Venture capital is a form of equity financing especially designed for funding high risk and high reward projects. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc. Usually there is a common perception that venture capital is a means of financing high technology projects. However, venture capital is investment of long term finance made in: 1. Ventures promoted by technically or professionally qualified but unproven entrepreneurs, or 2. Ventures seeking to harness commercially unproven technology, or 3. High risk ventures. Venture capitalists provide funds for long-term in through equity, conditional loan and convertible loan. Once the started venture reaches the full potential and starts earning profit, the venture capitalist will withdraw his investments.

Assignment B Q1. What do you mean by Financial Services? Mention in brief following types of financial services? Financial services can also be called financial intermediation. Financial intermediation is a process by which funds are mobilized from a large number of savers and make them available to all those who are in need of it and particularly to corporate customers, mobilizing and allocating savings. Thus it includes all activities involved in the transformation of savings into investment. Financial services can be classified into traditional activities (which mainly involves fund base activities such as investment in shares, debentures, bonds etc and nonfund based activities such as managing the capital issue) and also Modern activities which is usually non fund based in nature. Such as acting as trustees to debenture holders. Some of the types of financial services are Isurance, in which one party agrees to pay for another partys financial loss resulting from a specified event. Mutual Fund which is a corporation, trust or partnership that combines the assets of all its shareholders or partners into one common investment account for the purpose of providing diversification and professional management.

Q2.

What do you mean by Initial Public Offer? Explain the different type of entry norm to make an IPO? ANSWER Initial Public Offering, IPO, is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. IPOs generally involve one or more investment banks known as "underwriters". The company offering its shares, called the "issuer", enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. SEBI has laid down eligibility norms for entities accessing the primary market through public issues. The main entry norms for companies making a public issue (IPO or FPO) are summarized as under: There are three types of entry norms Entry Norm I (EN I): The company shall meet the following requirements: (a) Net Tangible Assets of at least Rs. 3 crores for 3 full years. (b) Distributable profits in atleast three years (c) Net worth of at least Rs. 1 crore in three years (d) If change in name, atleast 50% revenue for preceding 1 year should be from the new activity.

(e) The issue size does not exceed 5 times the pre- issue net worth To provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, SEBI has provided two other alternative routes to company not satisfying any of the above conditions, for accessing the primary Market, as under: Entry Norm II (EN II): (a) Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs). (b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory marketmaking for at least 2 years Entry Norm III (EN III): (a) The project is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s). (b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory marketmaking for at least 2 years. In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the criteria of having at least 1000 prospective allotees in its issue

Q3.

What do you mean by Leasing? Explain the different type of leasing? ANSWERS: Leasing refers to a contract under which the owner of an asset allows another person or party to use the asset in return for some rent. The persons involved are lessor and lessee. Lessor is the owner of the asset and the lessee is the person getting the benefit of asset taken on lease. Leasing is a contractual arrangement , where the owner (Lessor) of the Asset(Equipment) Transfers the possession / right to use the Asset (Equipment) to another/user Lessee) For an agreed period of time in return for rental. At the end of the period the asset reverts to the Lessor, or provision for the renewal of the Lease Contract, or option to transfer the ownership to the Lessee. The different types of leasing here are Financial lease, also known as capital lease or long term lease, here the lessee makes series of payment which exceeds the total cost of the equipment. This where both parties agree legally that the lesee will pay for the entire cost of the equipment and also include interest over a specified period of time. The Lessor transfers to the Lessee, substantially all the risks and rewards incidental to ownership of the asset, whether or not the title is eventually transferred. Operating lease, which is a rental agreement is where the lessee is not obliged to pay for more than the original cost of the equipment during contractual period. Lessor will bear the maintenance expenses and taxes of the lessor. The Lessee has the the right to terminate the Lease at short notice without any significant penalty. Example is chartering of aircrafts and ships, along with crew,fuel and support service.

Sales and Lease back is where The owner(Lessee) of the equipment sells it to a Leasing company (Lessor).The Lessor, leases the equipment back to the Lessee. The asset is generally sold at its market value. The firm makes periodical rental payment to the lessor. The ownership of asset rests with lessor. Leveraged lease; This involves three parties, lessor(equity investor), lessee and lender The Leasing company (Equity investor), buys the equipment, through substantial borrowing, and with full recourse to the Lessee and without recourse to it. The Lender obtains an assignment of the Lease and a first mortgage of the quipment.A Trustee will act as an intermediary on reciept of rentals,remits debt part to Lender and balance to Lessor Cross border lease: This is also known as international leasing or transnational leasing. This is referred to a lease transaction between the persons of two countries. The lessor and the lessee belong to two different countries.

CASE STUDY Case study: HSBC's Restructuring in India Period: 1999-2004 Organization: HSBC India Pub Date: Countries: India Industry: Banking Abstract: The case discusses the operations of HSBC Group in India and the measures taken by HSBC India in recent times to achieve a faster growth. It discusses in detail the reorganization program launched by Booker, the CEO of HSBC India to transform the conservative institution into an aggressive, performance-oriented one. The case discusses in detail various internal reorganization measures including the introduction of new work principles, downsizing, organizational reshuffling and greater focus on potential growth areas. Background The Hong Kong and Shanghai Banking Corporation Limited (HSBC) entered India as early as 1959. Despite being one of the oldest and well-established foreign banks, HSBC had been lagging behind local private sector banks and other foreign banks in India in terms of business network and growth. HSBC's competitors and industry experts regarded it as a conservative bank that lacked competitive spirit. Commenting on HSBC, the head of direct sales of one of its rival banks said, "HSBC isn't seen as being as aggressive as its rivals in the market. It has extremely good relationships with its branch customers and serves them very well, but it is just not seen as being aggressive in the rest of the market." HSBC's complacency was reflected in the bank's financial performance. Local private sector banks like ICICI and HDFC were far ahead of HSBC in all business segments. When benchmarked against foreign banks, HSBC fared badly. HSBC's net profits fell by over 25 per cent for two consecutive years in the fiscal 2000-01 and 200102, while rival banks like Citibank3 posted a rise of 37 per cent in profits for the same period. On November 2002, Niall S K Booker (Booker) was appointed Group Manager and Chief Executive Officer (CEO) of the HSBC Group in India. Booker soon realized that HSBC India followed a conventional approach to doing business and retained its old bureaucratic structure and culture. He believed that the much criticized laidback work culture was the reason for the lacklustre financial performance of the bank. Booker decided to transform the bank's work culture so that HSBC could shed its bureaucratic and conservative image and gear up to face new challenges. He wanted HSBC India to be proactive and aggressive like its competitors. To achieve this, Booker concentrated on giving the bank a new direction by launching a major restructuring program.

HSBC is a leading global player in the banking and financial services industry. It is the third largest bank in the world in terms of market capitalization it provided a comprehensive range of financial services, namely, personal financial services, commercial banking, corporate investment banking, private banking and other related businesses. HSBC was established in 1865 to finance the growing trade between Europe, India and China. Scotland-born Thomas Sutherland (Sutherland), who worked for the Peninsular and Oriental Steam Navigation Company, established the bank. He found that there was considerable demand for local banking facilities in Hong Kong and on the Chinese coast. Sutherland established a bank in Hong Kong in March 1865, and another in Shanghai after a month. The banks' headquarters were at Hong Kong. Soon, the bank opened branches around the world. The emphasis continued to be on strengthening the presence in China and the rest of the Asia-Pacific region. By the end of the century, HSBC emerged as the foremost financial institution in Asia. World War I (1914-1919), however, brought disruption and dislocation for many businesses. The 1920s saw a revival with HSBC opening more branches. During World War II (1941-1945), the bank was forced to close many branches and its head office was temporarily shifted to London. After the war, the headquarters was shifted back to Hong Kong. The post-war political and economic changes in the world compelled the bank to analyze and reorient its strategy for continued business growth. The acquisition of the Mercantile Bankand the British Bank of the Middle East (BBME) in 1959 laid the foundation for the present day HSBC Group HSBC in India HSBC's origins in India could be traced back to October 1853, when the Mercantile Bank of India, London and China was established in Mumbai. Starting with an authorized capital of Rs 5 mn, the Mercantile Bank soon opened offices in London, Chennai (India), Colombo, Kandy, Kolkata (India), Singapore, Hong Kong, Canton and Shanghai. In the next 10 decades, the Mercantile Bank steadily expanded its geographical network and service offerings, keeping pace with the evolving banking and financial needs of customers. The Mercantile Bank was acquired by the HSBC Group in 1959. The head office of Mercantile Bank at the Flora Fountain building in Mumbai continued to be the head office of the HSBC Group in India. In the 1970s, HSBC decided to expand by acquisition and formation of its own subsidiaries. HSBC introduced India's first automated teller machine (ATM) in 1987. In 2001, HSBC opened the first bank branch in Pune (Western India) that remained open all 365 days a year. The Restructuring On his appointment, Booker's approach was to focus on fine-tuning and executing existing strategies, rather than experimenting with new plans. He intended to take it slow and steady without radical changes.

He said that "the people issue" was very important to him. Therefore, the key components of the restructuring programmers included introducing new work principles, downsizing, organizational reshuffling and focus on new growth areas. New Work Principles HSBC's work culture was considered most bureaucratic among all foreign banks in India. Reportedly, the top management had a laid-back attitude towards work. An insider said, There is a bunch of people at the top who aren't very competent and who all play golf together. It is basically an old boys'club.

The Benefits The impact of the restructuring programme was reflected by the improved financial performance of HSBC (Refer Exhibit IV and V for the financial highlights of HSBC). For the financial year 2003-04, the assets per employee and net profit increased by 30 per cent; operating profit by 31 per cent and cost-to-income ratio came down from 47 to 43 per cent compared to the fiscal 2002-03. Personal financial services accounted for 36 per cent of total advances, against 31 per cent in the previous fiscal. HSBC's retail assets doubled during this period from around a fourth to a third of its total assets. HSBC expected that the retail business would grow by 40 per cent in the fiscal 2004-05. Home loans business grew by 100 per cent; and the branches' contribution comprised 30 per cent Looking Ahead Notwithstanding the benefits reaped from the restructuring, HSBC was still a small player in several financial services businesses including asset management, home loans, stock broking, credit cards and retail banking in India. For instance, HSBC Asset Management (India) Private Ltd. launched in December 2002, had total assets under management amounting to Rs 540 bn by June 2004. Still, it was only the 10th largest asset management company (AMC) in India. The slow growth of advances was another problem for HSBC. In the financial year 2003-04, HSBC's loan disbursals grew by just 4.67 per cent over the financial year 2003 while for the same period, its competitors like Standard Chartered and Citibank loan disbursals grew by 44 per cent and 11 per cent respectively. Moreover, in spite of improved financial performance, the changes introduced by Booker did not go well among top managers.

Question to review:Q.1 The need for old and well-established organizations to change their outlook and the way they operate along with the changing times so as to compete with smaller, nimblefooted competitors successfully

Q.2Examine the restructuring program implemented by HSBC India to revive its financial performance Q.3Critically analyze the strategies adopted by Niall SK Booker to make HSBC India an aggressive, performance-oriented organization Q.4Chart a growth strategy for HSBC India in the near future

ASSIGNMENT C Q1. Approval from which body is required to start Factoring in India ? a)Central Government b)State Government c)State Bank of India d)Reserve Bank of India How can Factoring help a Business ? a) Cash Inflow b)Low Costing c)Bad Debts Recovery d)Increase Sales Who is a Factor ? a)Buyer b)Seller c)Agent of Buyer d)Agent of Seller What kind of agreement do Factoring deals with ? a)Cash Sales of Goods b)Cash Sales of Fixed Asset c)Credit Sales of Goods d)Credit Sales of Fixed Asset Q5. An Invoice is valued at Rs.10,000 & the seller received Rs.9000. a)9 % b)10 % c)90 % d)100 % Q6. Book Building is a (a) method of placing an issue (b)method of entry in foreign market (c) price discovery mechanism in case of an IPO (d)none of the above Q7. Sell Reliance Petro Shares at Rs 60 This order is a (a) Best rate order (b)Limit order (c) Discretionary order (d)Stop Loss Order Q8. Stock exchange helps in (a) fixation of stock prices (b)ensures safe and fair dealing (c) induces good performance by the company (d)all of the above

Q2.

Q3.

Q4.

So what is the Advanced Rate in consideration with Factoring ?

Q9.

Issue Management is a system under which concept of Management?

a)Human Resource Management b)Financial Management c)Project Management d)System Management

Q10. ___________ refers to the process of generating, capturing and recording investor demand for shares during an IPO (or other securities during their issuance process) in order to support efficient price discovery.

a)Book building b)Book keeping c)Booking d)Recording Q11. What are the two types of obligations of merchant banker in issue management? a)Ex issue and pre issue b)Pre issue and next issue c)Pre issue and post issue d)Post issue and next issue Q12. The company shall ensure that: a) The letter of offer, the public announcement of the offer or any other advertisement, circular, brochure, publicity material shall contain true, factual and material information and shall not contain any misleading information and must state that the directors of the company accepts the responsibility for the information contained in such documents.

b)the company shall not issue any shares including by way of bonus till the date of closure of the offer made under these regulations c) the company shall pay the consideration only by way of cash d)All the above Q13. What is IPO? a)INITIAL PUBLIC OFFER b)IN THE PUBLIC OFFER c)INITIAL POSTAL OFFER d)INTERNAL PUBLIC OFFER Q14. Forex market deals with (a) multi currency (b)only domestic currency (c) none of the above 1. Q15. The _____________ of a company is the maximum amount of share capital that the company is authorized by its constitutional documents to issue to shareholders. a)Authorized capital b)Issued capital c)Reserve capital d)Paid up capital Q16. The type of lease that includes a third party, a lender, is called:a.) Sale and leaseback b.) Direct leasing arrangement. c.) Leveraged lease. d.) Operating lease. Q17. Medium-term notes (MTNs) have maturities that range up to ? a) one year. b) two years. c) ten years d) thirty years (or more) Q18. The term of the lease may be ? a) Fixed b) Periodic

c) Infinite Duration. d) ANY OF THE ABOVE

Q19. Mutual funds are valued with help of their (a) NAVs (b)NFO (c) IPO (d)None of the above Q20. The SEBI __________lays down the overall regulatory framework for registration and operations of venture capital Funds in India. a) The SEBI (Venture Capital Funds) Regulation, 1996[Regulations]. b) GUIDELINES. c) NORMS. d) RECOMMENDATIONS. Q21. Right issue is: (a) issue of securities by issue of prospectus to the public (b)Securities are issued through some selected investors. (c) Selling securities in the primary market by issuing rights to the existing shareholders. (d)None of the above Q22. Private placement has following advantage: (a) Flexibility and high cost (b)Accessibility and speed (c) High cost and speed (d)Speed and complexity Q23. Book Building Process is completed with the help of a (a) Book runner (b)Underwriter (c) Registrar (d)Lead manager Q24. What is FVCIs? a) Foreign Value Capital Investors. b) For Venus Capital Investors. c) Foreign Venture Capital Investors d) Foreign Venture Capital Institution. Q25. Venture capital (also known as VC or Venture) is a type of _____ capital? a) private equity . b) Reserve. c) Preference. d) None of the above. Q26. Total amount of called up share capital which is actually paid to the company by the members is called

(a) (b) (c) (d)

Subscribed capital Called up capital Paid up share capital None of the above

Q27. A shares par value is Rs 10 but it is issued at Rs 20 , then extra amount over par value is called (a) Coupon (b) Interest (c) Premium (d) None of the above Q28. Bad (a) (b) (c) (d) news about a company can pull down its stock prices. This is called Market risk Non market risk Interest risk Callable risk

Q29. 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 Q30. Mutual Funds investor can not earn following return (a) Dividend (b) Capital Gain (c) Increase in NAV (d) Fixed interest earning Q31. When approaching a VC firm, consider their portfolio:? a) Business Cycle: Do they invest in budding or established businesses?. b) Industry: What is their industry focus? c) Return: What is their expected return on investment? d) All the above Q32. Most venture capital funds have a fixed life of _____ years? a) 10. b) 20. c) 30. d) 40. Q33. HIRE PURCHASE IS ALSO CALLED.? a) Closed-end leasing. b) PURCHASING. c) CREDIT PURCHASE.

d) LEASING.
Q34. Balanced funds provide: (a) Steady return (b)High return (c) Increase volatility (d)None of the above Q35. Stock exchanges should ensure: (a) Active trading and insider information (b)Active trading and transparency Which of the following is true? (a) Both a and b (b)Only b (c) Only a (d)Neither a nor b Q36. Merchant bankers do not indulge in following activities (a) Drafting of prospectus (b)Appointment of Registrar (c) Selection of Promoter (d)Arrangement of underwriter Q37. Private placement reduces ________________________ of public issue: (a) Cost (b)Subscription (c) Issue size (d)None of the above Q38. Every hire-purchase agreement shall state. a) The hire-purchase price of the goods to which the agreement relates. b) The date on which the agreement shall be deemed to have commenced. c) The goods to which the agreement relates, in a manner sufficient to identify them. d) All the above. Q39. A person must be at least ___ years of age to enter into a valid hire purchase. a) 21. b) 30 c) 18 d) 15. Q40. Preference shares means which fulfill the following two conditions a) It carries preferential rights in respect of dividend at fixed amount and fixed rate b) It does not carry preferential rights in regard to payment of capital on winding up .

WHICH ONE OF THESE IS TRUE: (a) Both a and b (b)Only a (c) Only b (d)Neither a nor b.