1. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

END SEMESTER EXAMINATION – MARCH/APRIL 2015

B.COM. – IV SEMESTER

C1 11 404: FINANCIAL MARKETS AND SERVICES

Duration: 3 HRS                                                                                         Max. Marks : 100

SECTION – A

 

1. Answer ALL the questions. (10 x 2 = 20)

 

1. What is a financial lease?
2. List out the two major functions of the Financial System.
3. Explain the risk associated with Mutual Funds.
4. Write a short note on CARE.
5. What is the  risk associated with uncertainties in trade laws, administered prices and policy changes?
6. Elaborate on the process of issuing indirect equity in the international market by Indian companies?
7. Draw a brief note on agreement where in the borrower parts with securities to the lender to repurchase them at a specific rate and time.
8. What is insider trading?
9. Discuss the correctness or otherwise of the following statement-

LIC and UTI can act as lenders and borrowers in the call money market.

1. Elaborate on the role of SEBI as a capital market regulator.

 

SECTION – B

1. Answer any FOUR                        (4 x 5 = 20)

 

1. What is leasing?  When is it resorted to?  Discuss the disadvantages inherent in entering into a lease?
2. List out the differences between New Issue Market and Stock Market.
3. Bring out the role of merchant bankers in issue management.
4. Explain any four methods of Factoring.
5.  Write a short note on :

1. Jobbers
2. Demand and usance bills.

1. Identify the financial service from the below given picture and explain its merits to individuals.

 

 

SECTION – C

• Answer any THREE Each carries 15 marks.                (3 x 15 = 45)

 

1. Explain the functions of the merchant bankers.
2. Write short notes on the following:

1. Buy back of shares.
2. Foreign Institutional Investors.
3. Venture Capital.
4. Commercial Papers.
5. OTCEI

 

1. “The  money market is an integral part of a country’s economy and a developed money market  is highly indispensable for rapid economic development” –in this context explain the characteristic features of a developed money market and its importance.

 

1. Critically evaluate depository system and also list out the depositories in India.
2. Explain the various types of Mutual Funds.

 

SECTION – D

1. Case study                                                                     (1 x 15 = 15)

Five Star is a premier chocolate manufacturing concern, incorporated in India. It has registered stellar performances in  sales and growing market size, over a decade of its existence. Its major revenues are from the Foreign markets, with Indian markets contributing towards  a little less than half of its revenues. Its raw materials were sourced from around the world. The capital structure was ideal, but during the last few years

 

 

 

 

Five star has been wanting to expand its operations.  It is in need of financial resources both for making capital investments and for working capital purposes.  The company has been deliberating on several sources of raising capital for this expansion.  The directors of the Five Star are in favour of Initial Public Offerings (IPOs)

 

Questions:

1. Explain IPOs in the context of raising capital for a company.
2. Mention a few other ways of raising capital from the capital markets by firms.
3. In the light of the above case if the shares of Five Star are to be listed in a recognised stock exchange, what would be the procedure for listing.

 

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in order to expand, there was capital expansion taking place. Its shares were listed on the Bombay Stock Exchange and was traded at around Rs.500-Rs.550.

Then suddenly the Foreign markets started shrinking and there was heavy pressure on the bottom line. This had a great impact on the share prices. Though such phenomenon is temporary with the companies, and they will have their ability to turn over quickly, and the market prices felt to around Rs.150-Rs.200.

 

1. Explain the disadvantages of listing. (5 marks)
2. List out the procedure for listing. (10 marks)

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ANSWER SCHEME

FINANCIAL MARKETS AND SERVICES

 

SECTION – A

1. Answer ALL the questions. (10 x 2 = 20)

1. What is a financial lease?

Financial lease is a lease to finance equipments which have high value and cost is on the higher side.

1. List out the two major functions of the Financial System.

The functions of Financial system are Mobilisation of savings and making it available for capital formation.

1. Explain Funds of Funds Mutual Funds.

Funds of Funds Mutual Funds are those which invest their corpus in funds of other mutual funds.

1. Uncertainties in trade laws, administered prices and policy changes are ______________ risks.

Ans. Political risks.

1. Credit Analysis and Research in Equities is a ______________ firm.

Ans: Credit Rating Firm

1. The process of issuing indirect equity in the international market by Indian companies is called _________________.

Ans: GDR’s

1. The borrower parts with securities to the lender with an agreement to repurchase them at a specific rate and time is _________________

Ans:Repos

1. What is  insider trading?

Insider trading is communication of price sensitive information to any person  outside the company to have a major impact on the price and the volume of shares traded of that company.

1. LIC and UTI can act as lenders and borrowers in the call money market –True/False.

Ans: False.

1. Name the authority preceding to the Companies Act.

Ans: Controller of Capital Issues.

 

SECTION – B

Answer any FOUR questions.                                                                (4 x 5 = 20)

1. Explain the disadvantages of leasing.

The Disadvantages of leasing are

1. Not suitable for project finance.
2. Certain tax benefits and subsidy may not be available.
3. Cost of financing higher than debt financing.
4. Lessee is not entitled for any protection in case the supplier commits breach of warranties.

 

1. List out the differences between New Issue Market and Stock Market.

Ans: New issue market deals with new securities which are issued for the first time  for public subscription, while SE provides a ready market for buying and selling of old securities.

The stock exchanges have physical existence and are located in particular geographical area. New Issue does not have physical presence.

New issue market provides the issuing company with funds for starting, expansion or diversification. SE provides indirect capital as it provides marketability to the shares.

1. Bring out the role of merchant bankers in issue management.

Ans: Descriptive in detail the various aspects of issue management and the role of merchant banker.

 

1. Explain any four methods of Factoring.

Ans: Explain any with recourse, without recourse, selling based, buyer based, Export based, off-shore factoring

1.  Write a short note on :

1. Jobbers: are speculators, an independent broker who deals in securities on his behalf. He purchases and securities in his own name. His main job is to earn a margin of profit due to price variation of securities. He plays inthe market for quick returns.
2. Demand and usance bills: Demand bills on paid on the demand of the drawer. It is called sight bills. It can D/P or D/A.

Usance bills are bills paid after a duration of the time mentioned there in.

 

1. Identify the financial service from the below given picture and explain its merits to individual investors.

Ans: Credit Rating.

Merits: Low cost of information, quick investment Decision, Independent Investment Decisions, Investor Protection,

 

 

SECTION – C

1. Answer any THREE questions.  Each carries 15 marks.           (3 x 15 = 45)
2. Explain the functions of the merchant bankers.

Ans: broad range of merchant bankers functions from corporate counselling, project counselling, issue management, loan syndication, portfolio management, NRI services and other functions to be discussed.

1. Write short notes on the following:

• Buy back of shares: Buy back is a method of cancellation of share capital. It leads to reduction in the share capital of a company as opposed to issue of shares which results in an increase in share capital.

1. Foreign Institutional Investors: Foreign Institutional Investors are mutual funds, retirement pension funds, who have huge corpus for investment in foreign markets. FII’s have been allowed to invest in all securities trade in primary and secondary markets. The holding of a single FII in a company will not exceed the ceiling of 5% of the equity capital of a company.
2. Venture Capital: Venture capital is the investment in new and untried enterprises that are lacking a stable record of growth. Venture capital refers to the commitment of capital as shareholding for the formulation and setting up of small firms specialising in new ideas or new technologies. It injects funds and also input of skill needed to set up the firm, design its marketing strategy and organise and manage it.
3. Commercial Papers: it a money market instrument issued by the highly rated corporate to help them raise their working capital requirements.
4. OTCEI- It is a ringless and computerised exchange. This is a specially created to trade on securities of small and medium companies

1. “The  money market is an integral part of a country’s economy and a developed money market  is highly indispensable for rapid economic development” –in this context explain the characteristic features of a developed money market and its importance.

The characteristic features of developed money market are:

• Highly organised banking system.
• Presence of a Central Bank
• Availability of Proper Credit Instruments.
• Existence of sub-markets
• Ample resources
• Existence of secondary market.
• Contact with other foreign money markets etc.,

1. Critically evaluate depository system and also list out the depositories in India.

 

1. Identify the process from the given diagram. Explain its importance in the economic development.

Ans: It is securitiazation.

Importance of securitization

1. Additional source of Fund
2. Greater Profitability
3. Enhancement of Capital Adequacy Ratios
4. Spreading of Credit risk
5. Low cost of Funding
6. Higher rate of return
7. Prevention of Idle Capital

 

 

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