QP CODE: 24020868

B.Com. DEGREE (C.B.C.S.S.) EXAMINATION, APRIL 2024

Fourth Semester
Optional Core- FINANCIAL SERVICES
(Common for Model I Finance and Taxation, Model II Finance and Taxation Model III
Taxation)
[2017Admission Onwards]

Time: Three Hours Maximum Marks: 80

Part A
Answer any Ten questions. Each question carries 2 marks.

1. What is project counseling?

Project counseling is a merchant banking service that includes preparing project reports,
deciding the finance pattern, and appraising the project report with the financial institutions and
banks necessary to obtain financial assistance and approval from governments and institutions.

2. What is a VCF
A venture Capital Fund is a fund established in the form of a trust or company having a
dedicated pool of capital that raises money through loans, donations, or issue of securities or
units as the case may be, and makes or proposes to make investments in accordance with these
regulations

3. What is Securitization?
Securitization is the process of converting long-term illiquid assets in the balance sheet
of financial institutions into liquid cash by issuing securities against them. Financial
institutions/banks offload their given loans and make room for financing new projects by
securitization.

4. What do you know about SARFAESI Act?

The Securities and Reconstruction of Financial Assets and Enforcement of Securities
Interest Act was passed in 2002 which has given a legal framework for banks and financial
institutions to recover their non-performing assets. The act allows these financial institutions to
auction properties when borrowers fail to repay their loans. It enables banks to reduce their NPA
by adopting for recovery or reconstruction.

5. Define Leasing?
Leasing can be defined as a contractual agreement or a financial arrangement in which
the owner of an asset or property (lessor) grants to a firm or person (lessee) the use of the
property for a specified period for an agreed sum of rent.

6. What do you mean by consumer lease.

Consumer lease means a lease that a lessor regularly engaged in the business of leasing
or selling makes to a lessee who is an individual and who takes under the lease primarily for a
personal, family, or household purpose.

7. What is meant by forfaiting?

Forfaiting is the non-recourse purchase by a bank or other financial institution
(forfaitor) of receivables arising from the export of goods and services. The exporter gets the
money soon on receipt of the bills from the importer which is presented to the forfaitor.

8. Explain the concept of credit rating.

Credit rating is an analysis of the creditworthiness of a company. It is a process by which
risk associated with financial (debt) instruments is evaluated. However, It does not indicate
market-related risk or prices or yields of financial instruments.
QP CODE: 24020868

9. Write a note on the rating sybols used by CRISIL

CRISIL rating symbols:
C RISIL AAA - Highest Safety
C RISIL AA - High Safety
C RISIL A - Adequate Safety
C RISIL BBB - Moderate Safety
C RISIL BB - Moderate Risk
C RISIL B - Risk- prone
C RISIL C - Substantial Risk
C RISIL D - Default

10. What is meant by cross-border merger?

A cross-border merger explained in simplistic terms is a merger of two companies located
in different countries resulting in a third company. A cross-border merger could involve an Indian
company merging with a foreign company or vice versa. A company in one country can be
acquired by an entity (another company) from other countries

11. What is meant by takeover?

A takeover is a special form of acquisition that occurs when a company takes control of
another company without the acquired firm's agreement.

12. What is meant by shadow banking?

The shadow banking system is a term for the collection of non-bank financial
intermediaries that legally provide services similar to traditional commercial banks but outside
normal banking regulations. The shadow banking system also refers to unregulated activities by
regulated institutions.

Part B
Answer any six questions.
Each question carries 5 marks.

13. Explain the post-issue activities involved in issue management.

Generally, the post-issue management activities depend on the response to the issue.
The various activities can be classified as given below.
1. Analysis of collection, 2. Processing of data, 3. Allotment of shares/ Debentures, 4. Issue of
refund orders and allotment letters, 5. Listing of securities. (explanation needed)

14. Write a note on later-stage venture financing.

This stage of venture capital financing is needed by established businesses for additional
financial support but cannot resort to public issues of capital. The different forms of finacing in
this stage are:
a) Development financing
b) Expansion financing
c) Replacement Financing
d) Acquisition/ Buyout financing
e) Turnaround financing

15. Explain the problems faced by venture capital firms in India.

a) Lack of capital
b) Lack of market
c) Dull economic growth
d) Lack of policy support
e) Legal compliances
QP CODE: 24020868

f) No investor protection
(Explanation needed)

16. Explain the differences between installment purchase and leasing.

Leasing Installment purchase

1 Ownership Transfer of ownership Ownership of the asset is

depends on the type of lease transferred to the purchaser on
the payment of the last
installment.
2 Repairs and maintenance Depends on the type of lease Responsibility of the purchaser
3 Consideration Lease rental forms the Initial payment plus installment
consideration forms the consideration
4 Duration Leasing is normally of long Short Duration
duration
5 Depreciation Leasing depreciation can be Depreciation claimed by hirer
claimed by the lessor
6 Relationship The relationship that of lessor The relationship that of owner
and lessee and hirer
7 Nature of goods The lease agreement is made Hire purchase is more common
usually among business with consumer durables
concerns

17. Distinguish between Factoring and Bill discounting.

criteria Bill Discounting Factoring

Nature of Short-term financing against the Sale of accounts receivable or invoices to a
Transaction discounted value of a bill of exchange third-party (factor) at a discount
or promissory note
Parties Involves the drawer of the bill (seller), Involves the seller (client), the buyer
Involved the drawee (buyer), and a financing (debtor), and the factor (financing
institution company)
Financing Provides immediate cash flow by Provides immediate cash flow by selling
receiving a discounted value of the bill invoices or accounts receivable to the
from the financing institution factor
Ownership of The seller retains ownership of the bill The factor takes ownership of the
Receivables and is responsible for collecting accounts receivable and is responsible for
payment from the buyer collecting payment
Risk and The seller remains responsible for The factor assumes the risk of non-
Responsibility credit risk, collection, and credit payment and is responsible for credit
control control and collection
Relationship The seller maintains a direct The factor may establish a direct
with Buyer relationship with the buyer, who is relationship with the buyer for payment
obligated to pay the bill collection
Focus Focuses on short-term financing and Provides comprehensive accounts
working capital needs of the seller receivable management, credit protection,
and working capital solutions
Control of The seller maintains control over the The factor assumes control over
Collections collections and is responsible for collections and follows up with the buyer
pursuing payment for payment
 QP CODE: 24020868

18. What are the main limitations of credit rating in a country like India?
Following may be considered to be the limitations of credit rating in developing
economy like India:
a) Biased rating and misrepresentations
b) Static study
c) Concealment of material information
d) No guarantee for the soundness of the company
e) Downgrading
(Explanation Needed)

19. Credit rating process is considered to be subjective in nature. Prove.

The credit rating process is considered subjective in nature due to the following reasons:

1. Discretionary judgments: Rating agencies use subjective judgments when evaluating

creditworthiness, which can lead to biases.
2. Qualitative factors: Agencies consider non-quantifiable factors like management
quality, industry trends, and market conditions.
3. Weightage allocation: Different agencies assign varying weights to factors, influencing
ratings.
4. Rating scales: Agencies use different rating scales, making comparisons challenging.
5. Information asymmetry: Agencies may have access to non-public information,
influencing ratings.
6. Conflicts of interest: Agencies may face pressure from clients or have business
relationships, potentially impacting ratings.
7. Model errors: Rating models can be flawed or outdated.
8. Human error: Analysts may make mistakes or have biases.
9. Industry-specific factors: Agencies may apply different criteria for different industries.
10. Sovereign rating biases: Agencies may apply different standards for developed vs.
emerging markets.

20. Differentiate between mergers and acquisitions. How is takeover different from
acquisitions
Merger Acquisition
Procedure Two or more individual One company completely takes over the operations of
companies join to form a new another.
business entity.
Mutual A merger is agreed upon by
The decision of acquisition might not be mutual; in case
Decision mutual consent of the the acquiring company takes over another enterprise
involved parties. without the latter’s consent, it is termed as a hostile
takeover.
Name of The merged entity operates The acquired company mostly operates under the name
Company under a new name. of the parent company. In some cases, however, the
former can retain its original name if the parent
company allows it.
Comparative The parties involved in a The acquiring company is larger and financially stronger
Stature merger are of similar stature, than the target company.
size, and scale of operations.
Power There is dilution of power The acquiring company exerts absolute power over the
between the involved acquired one.
companies.
QP CODE: 24020868

Merger Acquisition

21. Explain the important defense strategies against a hostile takeover

There are several ways to defend against a hostile takeover. The most effective methods
are built-in defensive measures that make a company difficult to take over. These methods are
collectively known as “shark repellent”. The are areas as follows:
(1) Green mailing
(2) Golden Parachute
(3) Poison Pill
(4) Crown jewels
(5)White knight
(6) Leveraged recapitalization
(7) The supermajority
(8) A staggered board
(explanation needed)

Part C
Answer any two questions.
Each question carries 15 marks.

22. What is merchant banking? Distinguish between merchant banking and investment
banking in detail.
merchant bank is a financial institution that conducts underwriting, loan services,
financial advising, and fundraising services for large corporations and high-net-worth
individuals. Merchant banks specialize in international trade, providing services for multinational
corporations. Unlike retail or commercial banks, merchant banks do not provide financial
services to the general public. Merchant banking can be defined as” any person who is engaged in
the business of issue management either y making arrangements regarding selling buying or
subscribing to securities as manger, consultant, advisor or rendering corporate advisory services
in relation to such issue arrangement”
Merchant Banks Commercial Banks

Merchant bankers play the role of financial Commercial banks plays the role of
advisor or intermediary finances

Merchant banks offer services that suit the Commercial banks cater the finance needs
need of corporate. of general public and corporate as well

Merchant banks offer both fund based and Commercial banks main business is fund
fee based services. based

Service fees collected from clients is the Banks get interest on loans and service
main source of income for merchant banks charges for services offered

Merchant banks are regulated by merchant Commercial banks are regulated by the
banks regulations 1992 of SEBI provisions of banking regulations act, 1949
and directives of RBI
QP CODE: 24020868

23. Explain different types of securitization

Securitization is the process of converting long-term illiquid assets in the balance sheet
of financial institutions into liquid cash by issuing securities against them. Financial
institutions/banks offload their given loans and make room for financing new projects by
securitization.
Securitization is a process where an owner of receivables (the originator or seller) sells
of its receivables to a third party ( the purchaser or special purpose vehicle) in return for a price
payable immediately on sale, who will sell them to investors. In this process, the long-term
assets of lending institutions are replaced with liquid cash.
Based on the nature of the assets collateralized there are two types of securitization,viz.
asset-based securitization and Mortgage based securitization
1. Asset Backed Securitization (ABS)
ABS is a process that creates a series of securities which is collateralized by a pool of
unsecured assets( such as consumer loans, credit card debt etc.)
2. Mortgage Backed Securitization (MBS)
MBS is a process that creates a series of securities which is collateralized by a pool of
secured assets mortgaged against loans
(Explanation Needed)

24. What is meant by factoring? Explain the various types of factoring.

Factoring, also known as accounts receivable financing or invoice financing, is a financial
arrangement in which a business sells its accounts receivable (unpaid invoices) to a third party,
known as a factor, at a discount. It allows businesses to convert their accounts receivable into
immediate cash, improving cash flow and providing working capital for their operations. Here
are the various types of factoring:
1. Recourse Factoring
2. Non-Recourse Factoring
3. Domestic Factoring
4. International Factoring:
5. Spot Factoring
6. Maturity Factoring:
7. Full-Service Factoring
8. Disclosed Factoring
9. Agency Factoring
10. Full Factoring and
11. Limited Factoring (Explanations needed for each points)

25. Explain the reasons for the failure of merger and acquisition.
The main problems that may be encountered during post-merger integration which may
lead to the failure of mergers and acquisitions are:
a) Resistance to change
b) Divided loyalties
c) Blurred roles and responsibilities
d) Unclear reporting relationships
e) Communication tangles
f) Job insecurity
g) Unusual employee turnover
h) infighting
QP CODE: 24020868

SECTION II

1.(b)Corporate Counselling
2.(a)Venture Capital
3.(d)Second round Financing
4.(b)Buyout
5.(b) Hands-off
6. (a) 1987
7. (b) 1993
8.(b) Originator
9.(c)None of these
10.(d)1973
11.(a)Financial lease
12.(d)Cross- boarder lease
13.(a)Business Analysis
14.(b)SEBI
15.(c)ICRA Ltd.
16.(a)Operating
17.(a) Vertical
18.(d) Conglomerate
19.(d) Franchising
20.(b) The competition Act 2002