What is financial lease and operating lease? State the condition of financial lease?

The lessee is the person who leases the asset. The lessor is the person who leases the asset to the lessee. Finance Lease A finance lease is a type of lease where the lessor has transferred the risks and rewards of ownership to the lessee. This includes maintenance of the asset and the risk of obsolescence. The lessee would have to bear these risks of ownership of the asset. In a finance lease, the lessee would pay an amount of lease payments which covers all or most of the cost of the asset to the lessor. The lessee would also have use of the asset for most of its useful life. A finance lease would usually give the lessee an option to purchase the asset after the lease term at a discounted price. A finance lease is not easily cancellable. Even if it was, there would be high penalties for cancellation. An example of a finance lease is the lease of a production machine by a company. The company would have to be responsible for the maintenance of the machine Features of Financial Leasing

economic ownership with lessee legal ownership with lessor first preferred title to assets involved price quoted as a spread over the benchmark annuity payment schedule

Operating Lease An operating lease on the other hand, is a lease where the lessor retains ownership of the asset. This means that the risk and rewards of ownership has not been transferred to the lessee. The lessor is liable for maintenance payments on the asset. After the lease period, the asset would still have a substantial residual value left. The lease period is also usually a minor part of the asset's useful life.

An operating lease is also easily cancellable given a short notice. An example of an operating lease is the lease of computers by a company. The company does not need to pay for repairs of the computer and does not need to worry that the computers being obsolete as the lessor would be the one responsible for the computers. Define the term credit rating. State silent features of credit rating along with the example An assessment of the credit worthiness of individuals and corporations It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of liabilities. A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers chances of default. Credit ratings are determined by credit ratings agencies. The credit rating represents the credit rating agency's evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysts. The main features which are involved with the credit ratings are as follows:1) It is used to estimate the worthiness of the credit for the company, country or any individual company. 2) Credit rating is been done after considering various factors such as financial, nonfinancial parameters, and past credit history. 3) The rating which gets done is simple and it facilitates universal understanding. Credit rating also makes it widely accepted as the symbols which are used are generalized and made common for all. 4) The process of credit rating is very detailed and it involves lots of information such as financial information, client's office and works information and other management information. It involves in-depth study.

Explain SEBI role in promoting Indian financial market. State some key initiatives taken by SEBI in order to promote Indian financial market A financial market is a market in which people and entities can trade financial securities, commodities, and other items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods. What were the problems that the India capital market faced before establishment of SEBI? The capital market had witnessed a tremendous growth during the 1980s characterized by the increasing participation of the public. This ever expanding investor population led to a variety of malpractices on the part of companies, brokers, investment consultants and others involved in the securities market. These malpractices and unfair trade practices have eroded investor confidence and multiplied investor grievances The government and the stock exchanges were rather helpless in redressing the investors problems because of lack of proper penal provisions in the existing legislation. Therefore it was decided to set up SEBI a separate regulatory body Define the term bill of exchange and list the parties involved in discounting process. What are the advantages of bill discounting financing? Bill of exchangeAn unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated also called draft.

There are three parties involved in the bills of exchange - the drawer, the drawee and the Payee. The Drawer - Is the party that issues a bill of exchange in an international trade transaction; usually the seller. The Drawee - Is the recipient of the Bill of Exchange for payment or acceptance in an international trade transaction; usually the buyer. The Payee - Is the party to whom the Bill is payable; usually the seller or their bankers. Advantages of bill discounting 1. Bill is separately examined and discounted. 2. Financial Institution does not have responsibility of Sales Ledger Administration and collection of Debts. 3. No notice of assignment provided to customers of the Client. 4. Bills discounting is usually done with recourse. 5. Financial Institution can get the bills re-discounted before they mature for payment. State the classification of mutual fund significant of services in Indian financial market

There are different types of mutual funds in India available in the market which an investor can choose depending on his profile, risk taking capacity and time horizon. The classification of mutual funds can be done on either the investment objective or on structure of the mutual fund. Miscellaneous Classification: Open and Close Ended Mutual Funds: A mutual fund can be either Open ended or Close ended. Open ended funds can buy and sell its units at any time so an investor, you can purchase and sell your holdings in such funds at any time. Investors can sell them either on the stock exchanges where it is listed or during special buy back periods which the AMC (Asset Management Company) schedules. Growth and Dividend Mutual Funds: Funds that make your capital grow over a period of time without giving out profits/dividends to you are called growth funds. In case you received dividends from them, its called a dividend fund. Obviously, in the latter case,

since the profits are paid out from the fund corpus, the NAV of the fund will be less while that of the growth option will be more. Debt Mutual Funds: These invest in commercial papers, certificates of deposits, treasury bills, corporate bonds, debentures and government bonds among others. There are other classification of such funds, depending on the maturity of the paper held, for e.g., short-term and medium-term to long-term funds. So these invest in mainly debt securities and their agenda is to generate stable income for investors with less amount of risk. These shall be covered in a later lesson in more detail. Equity Mutual Funds: These invest primarily in stocks of companies in a sense, you own up ending a part of the company when you buy into these. These are meant for long term investments and carry a great deal of risk. Their purpose is capital appreciation over a long period of time. Diversified Equity funds invest in a wide selection of stocks across different companies and market capitalizations so as to reduce the risk for the investor. Index funds invest in companies that comprise the benchmark index (say NSE or BSE) and in the same proportion as the index itself. So the returns of these are in line with the index. ELSS (equity linked savings schemes) or tax saving mutual funds provide tax benefit to investors under section 80(C) and also have a lock-in period of 3 years this means that as an investor, you cannot redeem(sell) your holdings before three years of buying the mutual fund. Sector or Thematic funds invest in a particular sector eg, there could be a fund investing in only the banking sector. Similarly, there could be thematic funds investing in a particular theme, example, and infrastructure. Large-cap mutual funds invest in large market capitalization companies. There is no clear definition of what large capitalization means, many AMCs pick the top 100 companies (based on market cap) on the Sensex and call them large-cap. Similarly, there exist mid-cap and small-cap mutual funds those which invest in medium market capitalization companies and small market capitalization companies respectively. Among these, large-cap carries the lowest risk while the small cap carries the most risk. Hybrid Mutual Funds: Balanced Mutual Funds invest in at least 65% equities and the rest 35% in debt. The debt portion provides stability while the equity portion provides capital appreciation.

Monthly Income Plans (MIPs) are plans which invest around 15%-25% in equities and the rest in debt and money market instruments. Other Types: Gold Mutual Funds are those that invest in gold as the underlying assets. International Funds invest in companies outside India. Exchange Traded Funds (ETFs) are those that are traded on the stock exchange on a real time basis. Socially responsible mutual funds invest in companies that have social, environmental or moral beliefs and promote the same. Fund of Funds do not invest in any companies instead they put in their money into other AMCs mutual funds.

State the advantages and disadvantages of leasing Advantages of Leasing: 1. Leasing offers fixed rate financing; you pay at the same rate each month. 2. Leasing is inflation friendly. As the costs go up over five years, you still pay the same rate as when you began the lease, therefore making your dollar stretch farther. 3. There is less upfront cash outlay; you do not need to make large cash payments for the purchase of needed equipment.

4. Leasing better utilizes equipment; you lease and pay for equipment only for the time you need it (until the end of the lease). 5. There is typically an option to buy equipment at end of the term of the lease. 6. You can keep upgrading; as new equipment becomes available you can upgrade to the latest models each time your lease ends. 7. It is easier to obtain lease financing than loans from commercial lenders (in most cases). 8. It offers potential tax benefits depending on how the lease is structured. Disadvantages of leasing 1. You have an obligation to continue making payments. Typically, leases may not be terminated before the original term is completed. The renter is responsible for paying off the lease. This can create a major financial problem for the owner of a business experiencing a downturn. 2. You have no equity until you decide to purchase the equipment at the end of the lease term, at which point the equipment may have depreciated significantly.

3. Although you are not the owner, you are still responsible for maintaining the equipment as specified by the terms of the lease.