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DAYALBAGH EDUCATIONAL INSTITUTE

QUESTION BANK, 2018


MBM455, FINANCIAL SERVICES
Updated in March 2018

UNIT – I
1. Define a financial service industry and discuss the various services rendered by it.
Also discuss various components of Indian Financial System.
2. Discuss major financial reforms that have taken place in post liberalization (after
1991).
3. Classify the various financial intermediaries functioning in the Indian financial system
and bring out their features.
4. Why are financial intermediaries special? Explain with suitable comments.
5. Liquidity Risk is an important risk which derives other risks too. Elucidate the
statement with reference to financial intermediaries.
6. What is a NBFC? Discuss various types of NBFC'S and their registration process.
7. Outline the framework of regulation of NBFCs under the RBI Directions. Discuss the
main features of the modifications in the scheme of regulation of NBFCs introduced
by the RBI (Amendment) Act, 1997.
8. What is systemic risk? How this is related to financial services industry?
9. Critically analyse the present position of the financial service sector in India and state
the challenges it has to face in the years to come.
10. Discuss various global changes affecting organizations in the financial services sector.
11. Show the classification of Indian financial markets in the form of a chart and explain
the features of each market.
12. Discuss various regulatory measures adopted by RBI, SEBI & Govt. of India in the
Indian Banking & Financial Services sector.
UNIT - II
13. Explain the concept of Leasing and Hire-purchase and also discuss cash flow
consequences of leasing from lessee's point of view.
14. What factors would you, as a lessee, keep in mind while selecting the lessor?
15. Differentiate among Operating Lease, Financial Lease and Lease & Sale back.
16. Reliance Equipment corporation is considering to lease an equipment which has a
purchase price of Rs. 3,50,000. The equipment has an estimated economic life of 5
years. As per the Income Tax Rule a written down depreciation at 25% is allowed. The
lease rentals per year are Rs. 1,20,000. The company’s marginal tax rate is 50%. If the
before-tax borrowing rate for the company is 16%, should the company lease the
equipment?
(Hint: purchase option: Rs. 2,38,833 and Lease option: Rs. 2,39,580)

17. ABC Company Ltd., has two financial options in respect of procuring an Equipment
for utilizing the same for 5 years costing Rs. 10,00,000. The two options are:
Option 1: Borrow Rs. 10,00,000 at an interest rate of 15%. The loan is repayable at 5
year end instalments. The equipment could be sold at the end of its 5 year economic life
at a realisable value of Rs. 1,00,000.
Option 2: lease in the asset for a period of 5 years at yearly rental of Rs. 3,30,000
payable at year end.
The rate of depreciation allowable on the equipment is 15%. The company has to pay
Income Tax @ 50% and has a discounting rate of 16%. Capital gain or loss is to be
ignored. Evaluate the two options and give your opinion.
(Hint: purchase option: Rs. 5,78,164 and Lease option: Rs. 5,40,210)

18. A company is thinking of installing a Machine. It is to decide whether the machine is


to be purchased outright (through 14% borrowings) or to be acquired on lease rental
basis. The firm is in the 50% tax bracket. The other available details are:
Buying Option:
Purchase Price Rs. 20,00,000
Expected Economic Life 6 years
Depreciation Straight line method
Salvage value Rs. 2,00,000
Lease Option:
Lease charges to be paid in advance Rs. 4,00,000
Maintenance Expenses To be borne by the lessor
Payment of loan 6 year equal annual instalment of Rs. 5,14,271
(Hint: purchase option: NPV of outflows: Rs. 11,51,526, Lease option: Rs. 10,86,800)
19. XYZ Ltd is in the business of manufacturing steel utensils. The firm is planning to
diversify and add a new product line. The firm can either buy the required machinery
or get it on lease.
The machine can be purchased for $ 15,00,000. It is expected to have a useful life of
5 years with salvage value of $ 1,00,000 after the expiry of 5 years. The purchase
can be financed by 20 per cent loan repayable in 5 equal annual instalments
(inclusive of interest) becoming due at the end of each year. Alternatively, the
machine can be taken on year-end lease rentals of $ 4,50,000 for 5 years. Advise the
company on which option it should choose. For your exercise, you may assume the
following:
(i) The machine will constitute a separate block for depreciation purposes. The
company follows written down value method of depreciation, the rate of
depreciation being 25 per cent.
(ii) Tax rate is 35 per cent and cost of capital is 18 per cent.
(iii) Lease rents are to be paid at the end of the year.
(iv) Maintenance expenses estimated at $ 30,000 per year are to be borne by the
lessee.

20. Discuss the tax implications for lessor and lessee in a leasing contract.
21. Differentiate between financial lease and operating lease.
22. Explain various kinds of lease prevalent in Global markets.
23. State the essential requisites of a valid hire purchase agreement and the tax
treatment of hire purchase.
24. How is depreciation allowed on an asset acquired through hire purchase?
25. What is international factoring? How does it differ from forfeiting? Explain the
mechanism of international factoring.
26. Distinguish between factoring and forfaiting and state the scope for the introduction
of such service in India and what are future challenges with respect to factoring
business in India?
27. Explain the concept of bills discounting in detail. What are the difference between
factoring & bills discounting.
28. What is forfaiting? Explain in detail. Distinguish between factoring and forfeiting.
29. What are the RBI guidelines related to bills discounting facility?
30. What are the major credit rating agencies operating in India? Explain the nature of
these credit rating agencies of both public and private.
31. Explain the methodology followed by CRISIL in rating credit instruments and also
state the organisation and working of CRISIL.
32. Write short notes on the following:
a. Types / forms of factoring.
b. Discuss the origin and growth of credit rating.
c. Discuss SEBI regulations for rating agencies in India.
d. What are the Limitations of credit rating in India

UNIT - III
33. Define Merchant Banking and discuss in detail various merchant banking activities.
34. What is the code of conduct for merchant bankers in India? Comment on its
appropriateness.
35. Discuss the various factors, which have to be kept in mind by a merchant banker
while appraising a project.
36. Explain the concept of venture capital and how its different from the traditional
forms of financing.
37. Explain the various stages of Venture Capital financing. Also discuss the scope of
Venture Capital in India.
38. Describe different types of venture capital investors and also state that how do you
find a right investor for your venture?
39. Discuss various investment strategies of Private Equity firms
40. What factors should be kept in mind while preparing a business plan for the PE
financing.
41. Write short notes on the following:
a. Various types of venture capital investors
b. Limitations of Private Equity financing
c. Leveraged buyouts

UNIT - IV
42. What is the need for housing finance? Mention various agencies involved in
financing houses.
43. What is the role of National Housing Bank (NHB) in promoting housing finance
institutions?
44. Write a brief note on the National Housing Bank as the apex housing finance agency.
45. What are the operating guidelines issued by NHB to HFCs (Housing Finance
companies)
46. What are the sources of funds for HFC's ? Briefly explain the tax treatment of HFCs.
47. Write short nots on :a. HUDCO b. HDFC c. LICHF d. SBIHF
48. Discus housing finance schemes offered by HDFC in detail.
49. Explain the role of National Housing Bank in house financing. Examine critically.
50. Explain in brief various house finance schemes available in the country.
51. Explain the institutional structure of housing industry along with its weakness.

UNIT - V
52. Discuss nature of insurance companies in India and types & structure of insurance
plans in India.
53. Discuss the investment pattern and policy of insurance companies.
54. Differentiate between General Insurance Corporation and Life Insurance
Corporation.
55. Define an insurance service contract. How is life insurance different from general
insurance, as a fund based service?
56. Briefly describe the main features of life insurance polices.
57. Write a detailed note on the types of fire insurance policies.
58. Explain the procedures of insurance claim in the event of death or an accident.
59. What are the principal functions of Insurance Regulatory and Development Authority
(IRDA)
60. Critically examine the follow-up action to the Malhotra Committee on reforms of the
insurance sector.
61. Comment on the scheme of regulation of the insurance sector contained in the
report of the Malhotra Committee.

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References:

1. Financial Services by Bharti V Pathak


2. Merchant Banking and Financial Services, by Dr. K. Ravichandran, Himalaya
Publishing House
3. Financial Markets and Services by E. Gordon & Dr. K. Natarajan, Himalaya Publishing
House