1. What is meant by Financial Services?

 The services provided by the finance market
 The products and services offered by financial institutions for the facilitation of various
financial transactions and other related activities

2. Define Primary Market

 The Primary Market, also known as a New Issue Market, is where new securities are
issued – it is part of the capital market

3. What is merchant banking?

 A Merchant Bank is a firm or financial institution that invests equity capital directly in
businesses and often provides those businesses with advisory services

4. What are financial instruments?

 A financial instrument is a monetary contract between parties. 
 Financial instruments are assets that can be traded, or they can also be seen as
packages of capital that may be traded

5. What do you mean by Hire purchase?

 Hire purchase is an arrangement for buying expensive consumer goods, where the
buyer makes an initial down payment and pays the balance plus interest in installments

6. Expand the terms – IPO & IRDA

 IPO - Initial Public Offering
 IRDA - Insurance Regulatory and Development Authority

7. What is the meaning of factoring?

 Factoring is a financial transaction and a type of debtor finance in which a business sells
its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount.

8. What is mutual fund?

 A mutual fund is a type of financial vehicle made up of a pool of money collected from
many investors to invest in securities like stocks, bonds, money market instruments, and
other assets

9. What is venture capital?

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  Venture capital (VC) is a form of Private Equity financing that is provided by Venture
Capital firms or funds to start-up's, early-stage, and emerging companies that have been
deemed to have high growth potential
10.What is underwriting?
 Underwriting is an act of guarantee by an organization for the sale of certain minimum
amount of shares and debentures issued by a Public Limited company.
 Underwriting of shares is a guarantee or insurance given by the underwriter to the
company that the shares offered to the public will be subscribed in full

11.What is Bill Discounting?

 Invoice discounting is a source of working capital finance for the seller of goods on
credit. 
 Bill discounting is an arrangement whereby the seller recovers an amount of
sales bill from the financial intermediaries before it is due. 

12.What is Pension fund?

 A pension fund, also known as a superannuation fund
 It is any plan, fund, or scheme which provides retirement income.
 Pension funds typically have large amounts of money to invest and are the major
investors in listed and private companies.

13.Differences between Primary Market and Secondary Market

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14.Growth of Merchant banking in India
 Formal merchant activity in India was originated in 1969 with the merchant banking
division setup by Grind Lays Bank, the largest foreign bank in the country.
 The main service offered at that time to the corporate enterprises by the merchant
banks included the management of public issues and some aspects of financial
consultancy.
 Following Grind Lays Bank, Citibank setup its merchant banking division in 1970.
 Banking commission in 1972, that Indian bank should offer merchant banking services as
part of the multiple services, state bank of India started the merchant banking division
in 1972.
 Bank of India and syndicate bank in 1977.
 Bank of Baroda started charted bank mercantile bank in 1978 and united bank of India.

15.Differences between Hire purchase and Installment sale

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16.Features of Capital Market

A. Deals in Long Term Investment

 Capital market is a market for trading of long term securities. It provides long term investment
avenues to the investors.
B. Bring Together Borrowers and Lender
 It acts as mediators between the borrowers and lenders of money. It links the person having
surplus funds with the one who is the deficit of money.
C. Regulated By Government
 Capital market works as per the regulation of government. SEBI (Securities Exchange Board of
India) controls and monitors the functioning of capital markets to protect the interest of its
investors.
D. Utilizes Intermediaries
 There are several intermediaries who are connected with the capital market to facilitate its
functioning.
E. Determines Capital Formation Rate
 Capital market reflects the rate of capital growth in the economy. Capital market circulates the
funds among different sectors of the economy.
F. Provides Liquidity
 Capital market is a highly liquid market as the instruments traded in the capital market are easily
convertible into cash. It provides an all-time market for the peoples looking for investments and
one looking for borrowing money. 
G. Variety Of Instruments
 There are varieties of instruments which are traded in the Capital market. There is a lot of
options available for both investors and borrowers hence providing greater flexibility to both.

H. Includes Primary Market and Secondary Market

 Capital market includes two markets within it: Primary market and secondary market. Primary
market is a market concerned with the issue of new securities.

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17.Role of Merchant Banker in Public Issue
1. Furnishing Information:
 Number of issues for which the merchant banker is engaged as banker to issue.
 Number of applications received and details of application money received
 Dates on which applications from investors were forwarded to issuing company.
 Details of amount as refund to investors.
2. Books to be Maintained:
 Books of accounts for a minimum period of 3 years
 Records regarding the company
 Documents such as company applications, names of investors, etc.
3. Agreement with issuing company
 Agreement with the issuing company by the merchant banker should contain
 Number of collection centres
 Application money received
 Daily statement by each branch which is a collecting centre.
4. Action by RBI
 Any action by RBI on merchant banker should be informed to SEBI by the merchant
banker concerned.
5. Code of Conduct
 Having high integration in dealing with clients.
 Disclosure of all details to the authorities concerned. Avoiding making exaggerated
statements.
 Disclosing all the facts to its customers.

18.Categories of Securities Issue

1. Public Issue: When capital funds are raised through the issue of prospectus it is called
public issue of securities.
2. Right Issue: When shares are issued to the existing shareholders of the company on a
privileged basis is called Right issue.
3. Private Placement: When the issuing company sells securities directly to the investors
especially institutional investors is called private placement.

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19.Defects of the Indian Money Market
A. Existence of Un-organised Money Market: The most important defect of the Indian money
market is the existence of unorganised segment.
B. 2. Lack of Integration: Another important deficiency is the lack of integration of different
segments or functionaries.
C. Disparity in Interest Rates: There have been too many interest rates prevailing in the
market at the same time 
D. Seasonal Diversity of Money Market: A notable characteristic is the seasonal diversity. 
E. Lack of Proper Bill Market: Indian Bill market is an underdeveloped one. A well orgnaised
bill market or a discount market for short term bills is essential for establishing an effective
link between credit agencies and Reserve Bank of India.
F. Lack of a well Organised Banking System: Till 1969, the branch expansion was very slow.
There was tremendous effort in this direction after nationalisation. 

20.Types of financial services

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Leasing
 An arrangement between the lessor (owner of the asset) and the lessee (user of the
asset) whereby the lessor purchases an asset for the lessee and allows him to use it in
exchange for periodical payments called lease rentals or minimum lease payments
(MLP). 
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 A. Lessor: The party who is the owner of the equipment permitting the use of the
same by the other party on payment of a periodical amount.
B. Lessee: The party who acquires the right to use equipment for which he pays
periodically.
1. Hire Purchase
 It is known as installment plan 
 It is an arrangement whereby a customer agrees to a agreement to get an asset by
paying an initial installment
o Down Payment / Initial Payment: A certain sum of money is paid at the time of
taking delivery known as ‘down payment’ or ‘initial payment’

2. Factoring
 A type of debtor finance in which a business sells its accounts receivable (i.e., invoices)
to a third party (called a factor) at a discount.
 The firm (client) gets advances in return for receivables, from a financial institution
(factor).

3. Forfeiting
 Forfeiting is a means of financing that allow exporters to receive immediate cash by
selling their medium and long-term receivables
 The importer's bank guarantees the amount

4. Mutual Funds
 Mutual funds pool money from the investing public and use that money to buy other
securities, usually stocks and bonds.
 Mutual funds give small or individual investors access to diversified, professionally
managed portfolios at a low price.

5. Bill Discounting
 Bill discounting refers to a method of working capital finance for the seller of goods.
 It refers to a fee charged by the bank from the seller of the goods to release funds
before the end of the credit period.

6. Credit Financing
 An agreement between a buyer and a seller in which the buyer receives the good or
service in advance and makes payment later, often over time and usually with interest.

7. Housing Finance
 Housing finance is what allows for the production and consumption of housing
 A type of seller financing in which a firm extends customers a loan, allowing them to
purchase its goods or services

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8. Venture Capital
 A type of financing that is provided by firms or funds to small, early-stage, emerging
firms
 It is capital that is invested in projects that have a high risk of failure

21.Functions of Merchant Banking

A. Raising Finance for Clients: Merchant Banking assists its consumers to raise finance by
the issue of debentures, shares, bank loans, etc. in the domestic and international
market.
B. Managing the Portfolio of Its Clients: Merchant bank gives services not just only to the
companies for issue in the securities but to the investor also. They advise their client,
often institutional investor about the investment decision.
C. Services to Non-Resident Indian: In order to bring outside capital resource for being
invested in India, the government has offered many incentives to non-resident Indian
and person of Indian Origin resident abroad.
D. Stock Exchange Broker: Merchant bankers sell and buy stock in the stock exchange on
behalf of the Customers. They additionally conduct analyses on stock and advise their
clients which stock to be purchased, the time of buying stock, the quantity to be
purchased. 
E. Handling Companies Public Issues: Earlier, The Functions of Merchant Banking had
been limited to the management of public issue of the corporate securities by the
companies.  Existing companies and foreign companies ask for equity as required.
F. Services to public sector undertaking: Merchant banker offers various services to public
sector undertakings and units and their public utilities.

22.Types of Underwriting

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1. Firm Underwriting
 An underwriting agreement in which underwriter takes up a certain number of
securities of firm himself.
 An underwriting firm is giving assurance to buy and sell the shares which are not
subscribed by the public in all or unsubscribed portion.

2. Sub-Underwriting
 It is an underwriting agreement under which an underwriter appoints several other sub-
underwriters to pass the risk linked with underwriting.
 When underwriter feels that it is beyond his capacity to assume the whole risk, he
appoints other underwriters with him. This is done to diffuse the risk associated with
underwriting of securities which is too high for single underwriter to assume.
 The sub-underwriter has no connection with customer and is liable only to underwriter
for the amount of securities they have underwritten

3. Joint Underwriting
 Joint underwriting is one in which there are more than one underwriter appointed by
company for underwriting of its securities.
 This type of underwriting takes place when issue by company is too large and contains
large risk

4. Syndicate Underwriting
 Syndicate underwriting is an underwriting agreement in which several underwriters join
together for underwriting securities.
 Such agreement takes place when issue is too big that a single underwriter cannot
underwrite the whole amount. 

5. Complete Underwriting

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  Complete underwriting is one in which whole issue of securities of company is
underwritten.
 Under such agreement, underwriter underwrites full amount of shares/debentures
issued by companies. 

6. Partial Underwriting
 Partial underwriting is one in which only a certain part of issue of securities of company
is underwritten.
 Under such agreement, underwriter underwrites partial amount of shares/debentures
issued by companies.
 In partial underwriting, securities are underwritten either by single underwriter or by
many underwriters who agrees to assume the risk to specified amount.

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