Question No.

Discuss the role of a custodian of shares. Answer: A custodian is a financial institution that takes the legal responsibility for a customers securities which implies management as well as safekeeping. The financial institution can be a trust company or a bank. A mutual fund's custodian should act as the mutual funds transfer agent, maintaining records of shareholder transactions and balances. As a mutual fund is basically a large pool of funds from several different investors, it requires an intermediary custodian to hold and safeguard the securities that are jointly owned by all the fund's investors. This structure diminishes the risk of dishonest activity by separating the fund managers from the physical securities and investor records.

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Question No.2
What are the provisions for prevention of fraudulent and unfair trade practices by SEBI regulations? Answer: The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 authorises SEBI to investigate into cases of market fraudulent and unfair trade practices. The regulations prohibit market manipulation, misleading statements to increase sale or purchase of securities, unfair trade practices relating to securities. The SEBI can conduct investigation by an investigating officer regarding conduct and affairs of any person dealing, buying, and selling securities. The investigating officer prepares a report based on this information. The SEBI can take action for cancellation or suspension of registration of an intermediary based on this report. Fraud is any act, expression or concealment committed by a person or his agent while dealing with securities in order to prompt the deal in securities. The regulations prohibit the dealing in securities in fraudulent method, it prohibits market manipulation, misleading statements that promote sale of securities and unfair trade practice related to securities. Any dealing in securities shall be considered to be fraudulent or an unfair trade practice if it involves fraud. The following are considered as fraudulent or an unfair trade practice if it: trading in securities market. es or agrees to advance any money to any person to induce other person to buy any security in any issue with an intention of securing the minimum subscription to such issue. money for inducing such person for dealing in any security with the object of depression or causing fluctuation in the price of such security. with stolen security whether in physical or dematerialised form. which can influence the decision of the investors. securities. For restricting unethical trading practices, SEBI propagated the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulation, 1995.

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Question No.3
Explain the different life insurance products. Answer: Life insurance is a policy that people purchase from a life insurance company. This can be a way of protecting the family and its financial stability after one's death. The following are the different types of the conventional life insurance products: Term insurance: - A term insurance is a temporary insurance. Term insurance provides life insurance protection for a specific period only. If the policy holder dies during the selected period, the benefits are payable to the estate or named beneficiary as mentioned in the policy. In case the policy holder survives till the end of the selected term, the policy expires without providing any benefits to the policy holder. Whole life insurance: - The whole life insurance policies are intended to provide life insurance protection over one's lifetime. The benefits are only payable to the policy holder after his death. The different whole life policies are as follows: Endowment insurance: - Endowment policy gives assurance that the benefits under the policy will be given to the beneficiaries on the death of the policy holder within the selected term or on its maturity date. The Endowment insurance is paid out whether or not the policy holder lives after a certain period. Annuities: - An annuity is a series of periodic payments. This is an insurance policy, under which the insurer agrees to pay the policy holder a series of regular periodical payments for a fixed period of time or during someone's life time. Annuities can be classified on the basis of the following aspects:

ning of the payment of annuity.

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Question No.4
Describe the deposit products and loan products. Answer: Deposit products: Deposits are a major component of banking demand and time liabilities and it enables the banks to expand its loan functions. Bank deposits are structured to serve the different needs of its various customers. Some customers deposit money in the bank when they have extra income. The purpose is to keep the money safe for future needs. Some customers deposit money to accumulate savings with interest to meet their future needs. Businessmen deposit their sale proceeds of business in the bank and meet their required expense by withdrawing money through cheques. Banks offer different types of deposit accounts to suit their customer requirements. Deposit accounts are classified into two types, demand deposits and term deposits: 1. Demand deposit Demand deposits are repayable to the depositors on demand. There are two types of demand deposits: Current deposits In current deposits withdrawal are permitted by cheques in favour of self and other parties. The payee can endorse the cheques in favour of third parties. The current deposits do not bear interest thus banks are not permitted to pay interest or brokerage to depositors. The banks can charge incidental expenses from the depositors, if the accounts do not maintain sufficient balances. Third party cheques and bills collection and purchase facilities can be granted to the accountholders as per mutually agreed arrangements and charges. The accountholders are provided with periodical statements of accounts for records and reconciliation by the banks. The current deposit is not intended at savings of the depositors. It is for the convenience of the depositors who handle cash/payments regularly. The current deposit suits the requirements of those customers whose banking transactions are numerous on every banking day. These deposits are maintained by businessmen who deposit their sale incomes and issue cheques to those whom they have a liability to pay for their day to day business operations. Saving deposits Saving deposit encourage saving habits among the depositors. The saving bank deposits can be done with a cheque book facility to withdraw cash and make payments and with noncheque book facility where the account holders have withdrawal facility only at the drawee bank branch through a withdrawal form. Withdrawals are permitted on demand on presentation of cheque or withdrawal form. To encourage savings, banks impose restrictions such as withdrawal within a given period, the minimum balance to be maintained, and number of withdrawals and so on. In case of violations of these restrictions, the bank can levy fee/service charge. The interest on saving deposit is regulated by the RBI and the interest is computed on the daily balance in the saving deposit. 2. Term deposit Term deposit, also known as fixed deposit, is a deposit held at a financial institution for a specified term. The term deposit can be withdrawn only after the end of the term or by providing prior notice. This is a safe investment and is preferred by low-risk investors.

 Recurring Deposit A recurring deposit is a deposit in which a specific amount is invested in the bank on monthly basis for a fixed rate of return. The deposit has a fixed term. At the end of the term the principal sum and the interest obtained during that period is returned to the investors. Certificate of Deposits The certificate of deposit (CD) is a short or medium term debt instrument offered by banks. The investor deposits funds for a specified period that ranges from one month to five years. It is low risk and low return investment. The CDs are secure form of investment as it is insured by government agencies. Loan products: - A loan is granted for a specified time period. The borrower is given the amount in lump sum or in installments. Loans are granted against or in exchange of the ownership of different types of tangible items. The securities against which banks lend are commodities, debts, financial instruments, real estate, automobiles, consumer durable goods, and documents of title. There are various types of loan products available for corporate or non corporate clients in India. The loan products are designed according to the need of the client and the products available with the lending bank. Retail loans The retail loan is designed for small entrepreneurs and individuals who are involved in profitable commercial activity and have the capability to repay the loan. Loans are granted keeping in mind the repaying capacity of the borrower. The repaying capacity is judged through the cash income available with the borrower for the repayment of the loan. The credit facilities provided by banks to customers are mainly of two types. They are fund based and nonfund based. Fund-based credit facilities Fund-based credit facilities provide funds to borrowers for working capital and for capital expenditure or project finance which includes deferred payment guarantee. The working capital finance facility is granted for a short period usually for one year and is renewed over from year to year depending on assessment of the requirements of the borrowers. The working capital finance facilities are provided in different ways through cash credit, overdraft, demand loan and bills purchased/discounted. Cash credit Cash credit facility is a unique credit facility provided by banks in India. It is a running account for drawing of funds with features such as credit limit, actual drawls and drawing power. The borrower can draw funds within the specified credit limit sanctioned by the banks against the security of the inventory (stock) and receivables (book debts) which are guaranteed by the borrower. The borrower submits monthly statements of the charged assets and the bank allows him to draw cash within the drawing power. The drawing power is the value of the pledged assets minus the stipulated margin that the cash credit account can sustain. Overdraft Overdraft is the process of drawing funds from a current account in excess of credit balance. The drawings can be made till a sanctioned limit and interest is charged on the daily debit balance in the account. The overdrafts are payable on demand and the limits can be renewed annually. The important overdrafts are: Clean Clean overdraft is given to parties which are financially sound and reputed for integrity against personal security. These advances are not supported by tangible security so the banks impose limitations on such advances. Parties having secured advance facilities are preferred while screening the requests for clean advances. The facility is granted for a short

period. The bank takes guarantees from people who are credit worthy before granting this facility. Secured Secured overdraft is a standby credit facility that is secured by assets such as term deposits, savings deposits, bonds and property. The interest is charged on daily overdrawn amount. Demand loan A demand loan is a one-time facility which is subjected to periodic principal repayment along with the monthly or quarterly interest payment. The loan is a fixed amount advanced to the borrower for a specific purpose and usually for one year. A demand loan for consumption is a contract where the lender provides consumable goods to a borrower. The borrower is required to return the goods of equivalent type, quality and quantity within a specified period. Loans for consumption are sanctioned against the following: Against own deposits Banks grants loans up to 90 percent of the deposit amount which includes interest component accumulated on the deposit. There is exception in certain cases where loan is granted up to 85 percent of the deposit amount. Against third party deposits Apart from the providing loans to the depositors, banks grant loans to third parties. The rate of interest charged on such loans is two per cent over the deposit rate. Against gold and jewellery Banks provides loans against gold jewellery. Any individual owning gold jewellery singly or jointly is eligible of the loan. The person must be introduced to the bank suitably. The loan is granted to meet expenses on consumption needs such as educational, medical, marriage and so on. The loans for consumption needs are repayable in 12 months. Term loans Term loans are granted by banks for capital expenditure such as acquisition of fixed assets for setting up a new unit, expansion or modernisation of an existing one. The term loan for acquiring assets are: For consumer durables Banks provide term loans for financing consumer durables. A permanent salaried individual is eligible to avail for this facility. For home loans Home loans are offered to customers by banks to construct a house, buy a flat or house, or renovate the house. The eligibility criteria, maximum loan amount, security and insurance are specified by the banks.

Non-fund credit facility The non-fund credit facility does not involve outlay of funds. They are also known as off-balance (liability) items as they act as a commitment to honour certain promises. The outlay of funds is dependent on the transfer of the commitments (contingent liability). Letters of credit and bank guarantees are included in this facility. Letter of credit (L/C) A letter of credit is an arrangement in which a bank (issuer), at the request of a customer (opener of L/C), undertakes to pay the named beneficiary (seller) by a specified date, against the presentment of the specified documents, the value of goods/services. The L/C involves three parties, namely, the issuing bank, opener (buyer) and the beneficiary (seller). The seller supplies goods to the buyer and tenders the consignment documents to the issuing bank against its undertaking in the L/C. The issuing bank makes the payment of the bills and recovers the payment from the buyer. Guarantees Banks issue guarantees on behalf of obligators as a security for due fulfillment of the contract by them in favour of beneficiaries. The issuing bank charges commission depending on the amount and validity period of the guarantee.

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Question No.5
Discuss about the two important credit rating agencies in India. Answer: Ratings from the important rating agencies are important to some level because investors look to them as expert assessments of credit risk. Independent assessments in the form of credit ratings and a wide range of financial instruments are provided by the credit rating agencies. The CRAs apply a powerful influence upon the financial system. Let us now discuss about the two important credit rating agencies: 1. CRISIL: - Credit Rating Information Services of India Limited (CRISIL) is India's leading rating company and has played a vital role in India's economic growth. The CRISIL rating is the only rating agency in India to function on the basis of sectoral proficiency. The formation of the world's first regional credit rating agency was due to the pioneer work of CRISIL. Let us study about the main functions of CRISIL. Ratings : - It is the only rating agency in India to function on the basis of sectoral proficiency. The agency has urbanised new ratings methodologies for debt instruments and pioneering structures across sectors. The CRISIL ratings provide technical expertise to clients all over the world and have helped set up ratings agencies in different countries. The CRISIL ratings play a principal role in the maturity of the debt markets in India. Research: - CRISIL provides investigation, study, planning and research on the Indian economy. It also focuses on industries and companies to over 500 Indian and international clients in the corporate, consulting, financial, and public sectors. The following are the extended services related to research: CRISIL fund services It provides fund assessment services and risk solutions to the mutual fund industry. The centre for economic research It implements economic principles to live business applications and provide standards and analyses for India's policy and business decision makers. Investment research outsourcing CRISIL acquired a leading global equity research and analytics company. It offers investment research services to the world's leading investment banks and financial institutions and has added equity research as one of its services. Advisory: - CRISIL provides advisory services in the following areas: CRISIL infrastructure advisory It facilitates the governments and leading organisations by providing plan, policy, regulatory and transaction level guidance. Investment and risk management services CRISIL risk solutions suggest integrated risk management solutions with guidance in the areas of credit and market risk to banks and corporate.

2. ICRA: - The Investment Information and Credit Rating Agency of India (ICRA) has been promoted to meet the requirements of the banks, financial institutions and mutual funds in India providing them with credit education, credit research, risk management software and consulting services. It also provide assistance to investors and issuers in making well informed decisions and assist them in raising funds in large amounts and low cost. It provides banks, shareholders, and brokers with a marketing tool which enable them in placing debt with investors. The ICRA provides three types of services rating services, information services and advisory services.
Rating services - The rating services comprise rating of debt instruments and credit assessment which include long-term instruments such as bonds, medium-term instruments such as fixed deposits and short-term instruments such as commercial paper programs. Structured and sector-specific debt obligations such as instruments published by power, telecom and infrastructure companies are also rated by ICRA. Other services offered by the ICRA include the following: o Corporate governance rating. o Insurance companies claims paying ability rating. o Line of credit rating. o Credit assessment of companies. Information services - The information services department of the ICRA focuses on providing genuine data and value-added products used by intermediaries, financial institutions, banks, institutional and individual investors. Value added services comprise of equity grading, corporate reports, equity evaluation and industry specific publications.
Earnings Prospects and Risk Analysis (EPRA) The EPRA range of information services are ordered with a view to providing genuine information on the virtual quality in diverse corporates. The relative quality of equity, growth, stability and composition of its earnings is assessed by analyzing the core fundamentals that would affect its future performance over the medium-term. The EPRA includes the following: Equity grading The equity grading process commences at the request of the prospective issuer, on receipt of the required information from him, and culminates in an opinion from the ICRA, expressed symbolically as an equity grade. A team of analysts takes up the work of collection of data and information from the books, reports and records of the concern and meets with its executives. The support in-house research and the database of the ICRA as well as secondary data are also availed of. The ICRA reserves the right to make public such equity change in equity grade. Equity assessment The equity assessment process commences at the request of an investor and the consent of the company being assessed. ICRA may or may not disclose the investors identity to the company depending upon the investors preference. The rest of the assessment process is similar to the equity grading process, except that the end result is not in the form of a symbol but as an assessment report specific to the investors need and intended to he used by the investor only. Advisory services ICRAs foray into advisory services represents an organic growth of the cumulative expertise built by ICRA in different industries and sectors. ICRA advisory services offers independent, objective and high quality consulting services to organizations with an interest in India, with the fundamental aim of improving the quality of decision making. It is active in the areas of Strategy consulting, Risk Management and Policy Formulation.

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Question No.6
Describe issue management in merchant banking. Answer: Issue management A major function of merchant banking is issue management. The issue can be through offer of sale or private placements, prospectus, and so on. The issue management includes the following functions with respect to issue through prospectus: o To obtain approval for the issue from the SEBI. o To arrange underwriting for the proposed issue. o To draft and finalise the prospectus and to obtain clearance from the stock exchange, auditors, underwriters and registrar of companies. o To select registrar of the issue, advertising agencies, underwriters, bankers and brokers to the issue and finalise the charges to be paid to the registrar. o To arrange press conferences, and investors and brokers through advertising agency. o To finalise the terms of issue to make the issue more attractive. Issue Management: Intermediaries The primary market intermediaries are the merchant bankers, underwriters to issue and brokers to issues. The merchant bankers are the issue managers who bring the issues to the primary market investors. Issue management is a tedious job and is closely regulated by SEBI. In many countries, the regulators implement a licensing mechanism for issue management. Issue management is one of the important fee-based services provided by financial institutions. There are few large-scale and specialised issue management agencies in the country. The growth of stock market and opening up of economy has increased the scope of issue management activity. SEBI has laid guidelines as ground rules relating to new issue management activities to protect the investors interest and for development of market. The guidelines are in addition to the companys law requirements for the issue of capital. Merchant bankers as lead managers: Merchant banker is the person who arranges or assists in funds from investors through stocks, bonds or shares on behalf of the issuer for corporate establishment or for expansion purpose of the corporate firms. The main merchant banker is the lead manager. The lead manager can have associate merchant bankers to the issue. The merchant banker is a channel between the issuer and investors. As per SEBI, merchant banker is anyone who is engaged in business of issue management by making arrangements related to buying, selling or subscribing securities or providing corporate advisory service related to issue management. The importance of merchant bankers as sponsors of capital issues is seen in their major services such as determining the composition of securities types to be issues, draft of prospectus, appointment of registrars, arrangement of underwriters, selection of brokers and advertising agents, and so on. The role of merchant bankers in the process of capital issues is very important. All public issues must be managed by merchant bankers who function as lead managers.

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