Merchant Banking and Financial Services

Important concepts:
Features of financial services.
Difference between goods and services marketing.
Components of marketing environment.
Importance of mutual funds.
Hire purchase.
Sales promotion of financial services marketing.
Various kinds of credit cards.
Financial service industry in India.
Product life cycle concept.
Various types of pricing.
Role of mutual funds
Environment of financial services marketing.
Process of new product development.
Price determination under perfect competition.
Part A-Q&A:
1. Explain the components of financial services?
1. Financial Institutions: It ensures smooth working of the financial system by making investors and borrowers meet. They mobilize the savings of investors either directly or indirectly via financial markets by making use of different financial instruments as well as in the process using the services of numerous financial services providers. They could be categorized into Regulatory, Intermediaries, Non-intermediaries and Others. They offer services to organizations looking for advises on different problems including restructuring to diversification strategies. They offer complete series of services to the organizations who want to raise funds from the markets and take care of financial assets, for example deposits, securities, loans, etc.
2. Financial Markets: A Financial Market can be defined as the market in which financial assets are created or transferred. As against a real transaction that involves exchange of money for real goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represent a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend. There are four components of financial market are given below:
I. Money Market: The money market is a wholesale debt market for low-risk, highly-liquid, short-term instrument.  Funds are available in this market for periods ranging from a single day up to a year.  This market is dominated mostly by government, banks and financial institutions.
II. Capital Market: The capital market is designed to finance the long-term investments.  The transactions taking place in this market will be for periods over a year.
III. Foreign Exchange Market: The Foreign Exchange market deals with the multicurrency requirements which are met by the exchange of currencies.  Depending on the exchange rate that is applicable, the transfer of funds takes place in this market.  This is one of the most developed and integrated markets across the globe.
IV. Credit Market- Credit market is a place where banks, Financial Institutions (FIs) and Non-Bank Financial Institutions (NBFCs) purvey short, medium and long-term loans to corporate and individuals.
3. Financial Instruments: This is an important component of financial system. The products which are traded in a financial market are financial assets, securities or other types of financial instruments. There are a wide range of securities in the markets since the needs of investors and credit seekers are different. They indicate a claim on the settlement of principal down the road or payment of a regular amount by means of interest or dividend. Equity shares, debentures, bonds, etc. are some examples.
4. Financial Services: It consists of services provided by Asset Management and Liability Management Companies. They help to get the required funds and also make sure that they are efficiently invested. They assist to determine the financing combination and extend their professional services up to the stage of servicing of lenders. They help with borrowing, selling and purchasing securities, lending and investing, making and allowing payments and settlements and taking care of risk exposures in financial markets. These range from the leasing companies, mutual fund houses, merchant bankers, portfolio managers, and bill discounting and acceptance houses. The financial services sector offers a number of professional services like credit rating, venture capital financing, mutual funds, merchant banking, depository services, book building, etc. Financial institutions and financial markets help in the working of the financial system by means of financial instruments. To be able to carry out the jobs given, they need several services of financial nature. Therefore, financial services are considered as the 4th major component of the financial system.
5. Money:  It is understood to be anything that is accepted for payment of products and services or for the repayment of debt. It is a medium of exchange and acts as a store of value. It eases the exchange of different goods and services for money.
Conclusion: Hence it can be said that a financial provides a platform to the lenders and borrowers to interact with each other for their mutual benefits. The ultimate profits of this interaction come in the form of capital accumulation (which is very crucial for the developing countries like India, who faces the problem of capital crunch) and economic development of the country.

2. Discuss the scope of financial activities?
  1. Some experts believe that financial management is all about providing funds needed by a business on terms that are most favourable, keeping its objectives in mind. Therefore, this approach concerns primarily with the procurement of funds which may include instruments, institutions, and practices to raise funds. It also takes care of the legal and accounting relationship between an enterprise and its source of funds.
  2. Another set of experts believe that finance is all about cash. Since all business transactions involve cash, directly or indirectly, finance is concerned with everything done by the business.
  3. The third and more widely accepted point of view is that financial management includes the procurement of funds and their effective utilization. For example, in the case of a manufacturing company, financial management must ensure that funds are available for installing the production plant and machinery. Further, it must also ensure that the profits adequately compensate the costs and risks borne by the business.

3. What do you mean by underwriter and what are the obligations and responsibility of underwriter?
In the securities industry an underwriter is a company, usually an investment bank, which helps companies introduce their new securities to the market.  In the insurance business, an underwriter is a company liable for insured losses in return for a fee (premium).
  • Underwriters are the risk experts of the financial world.
  • The term underwriter first emerged in the early days of marine insurance when businessmen agreed to assume some of the risk of shipments during transport.
  • Underwriters are critical to the mortgage industry, insurance industry, equity markets, and common types of debt security trading.
·         An underwriter should:
·          1. Make all efforts to protect the interests of its clients.
·          2. Maintain high standards of integrity, dignity and fairness in the conduct of its business.
·          3.  Ensure that it and its personnel will act in an ethical manner in all its dealings with a body corporate making an issue of securities (i.e. the issuer).
·          4. Endeavour to ensure all professional dealings are affected in a prompt, efficient and effective manner.
·         5. At all times render high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgment.
·         6. Not make any statement, either oral or written, which would misrepresent (a) the services that the underwriter is capable of performing for its client, or has rendered to any other issuer company; (b) his underwriting commitment.
·         7. Avoid conflict of interest and make adequate disclosure of his interest.
·          8.  Put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arises, should take reasonable steps to resolve the same in any equitable manner.
·          9. Make appropriate disclosure to the client of its possible source or potential in areas of conflict of duties and interest while acting as underwriter which would impair its ability to render fair, objective and unbiased services.
·          10. Not divulge to other issuer, press or any party any confidential information about its issuer company, which has come to its knowledge and deal in securities of any issuer company without making disclosure to the SEBI as required under these regulations and also to the Board directors of the issuer company.
·         11.   Not discriminate amongst its clients, save and except on ethical and commercial considerations. 12. Ensure that any charge in registration status/any penal action taken by SEBI or any material change in financials which may adversely affect the interests of clients/ investors is promptly informed to the clients and any business remaining outstanding is transferred to another registered person in accordance with any instructions of the affected clients/investors. 
·         13.Maintain an appropriate level of knowledge and competency and abide by the provisions of the SEBI Act, regulations, circulars and guidelines issued by the SEBI. The underwriter should also comply with the award of the Ombudsman under the SEBI (Ombudsman) Regulations, 2003.
·         14.Ensure that the SEBI is promptly informed about any action, legal proceedings, etc. initiated against it in respect of any material breach or non-compliance by it, of any law, rules, regulations, and directions of the SEBI or of any other regulatory body.
·         15. Not make any untrue statement or suppress any material fact in any documents, reports, papers or information furnished to the SEBI.
·         (a) Not render, directly or indirectly any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including its long or short position in the security has been made, while rendering such advice; (b) In case an employee or an underwriter is rendering such advice, the underwriter should ensure that he should disclose his interest, the interest of his dependent family members and that of the employer including their long or short position in the security, while rendering such advice.
·          16. Not be party to or instrumental for (a) certain of false market, (b) price rigging or manipulation, or; (c) passing of unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange to any person or intermediary.
·         17. Not either through its account or their respective accounts or through their associates or family members, relatives or friends indulges in any insider trading. 
·         18.Not indulge in any unfair competition, which is likely to be harmful to the interest of other underwriters carrying on the business of underwriting or likely to place such other underwriters in a disadvantageous position in relation to the underwriter while competing for, or carrying out any assignment.
·          19. Have internal control procedures and financial and operational capabilities which can be reasonably expected to protect its operations, its clients and other registered entities from financial loss arising from theft, fraud, and other dishonest acts, professional misconduct or commissions.
·          20.  Provide adequate freedom and powers to its compliance officer for the effective discharge of his duties.
·          21. Develop its own internal code of conduct for governing its internal operations and laying down its standards of appropriate conduct for its employees and officers in the carrying out of their duties. Such a code may extend to the maintenance of professional excellence and standards, integrity, confidentiality, objectivity, avoidance of conflict of interest, disclosure of shareholdings and interests, etc.
·          22.   Ensure that good corporate policies and corporate governance is in place.
·          23. Ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in the capacity so employed or appointed (including having relevant professional training or experience).
·          24. Ensure that it has adequate resources to supervise diligently and does supervise diligently persons employed or appointed by it to conduct business on its behalf.
·          25.            be responsible for the acts or omissions of its employees and agents in respect to the conduct of its business.
·          26. Ensure that the senior management, particularly decision makers have access to all relevant information about the business on a timely basis.

4. Write short notes on:
1. Portfolio manager:
A portfolio manager is one who helps an individual invest in the best available investment plans for guaranteed returns in the future.
Let us go through some roles and responsibilities of a Portfolio manager:
  • A portfolio manager plays a pivotal role in deciding the best investment plan for an individual as per his income, age as well as ability to undertake risks. Investment is essential for every earning individual. One must keep aside some amount of his/her income for tough times. Unavoidable circumstances might arise anytime and one needs to have sufficient funds to overcome the same.
  • A portfolio manager is responsible for making an individual aware of the various investment tools available in the market and benefits associated with each plan. Make an individual realize why he actually needs to invest and which plan would be the best for him.
  • A portfolio manager is responsible for designing customized investment solutions for the clients. No two individuals can have the same financial needs. It is essential for the portfolio manager to first analyze the background of his client. Know an individual’s earnings and his capacity to invest. Sit with your client and understand his financial needs and requirement.
  • A portfolio manager must keep himself abreast with the latest changes in the financial market. Suggest the best plan for your client with minimum risks involved and maximum returns. Make him understand the investment plans and the risks involved with each plan in a jargon free language. A portfolio manager must be transparent with individuals. Read out the terms and conditions and never hide anything from any of your clients. Be honest to your client for a long term relationship.
  • A portfolio manager ought to be unbiased and a thorough professional. Don’t always look for your commissions or money. It is your responsibility to guide your client and help him choose the best investment plan. A portfolio manager must design tailor made investment solutions for individuals which guarantee maximum returns and benefits within a stipulated time frame. It is the portfolio manager’s duty to suggest the individual where to invest and where not to invest? Keep a check on the market fluctuations and guide the individual accordingly.
  • A portfolio manager needs to be a good decision maker. He should be prompt enough to finalize the best financial plan for an individual and invest on his behalf.
  • Communicate with your client on a regular basis. A portfolio manager plays a major role in setting financial goal of an individual. Be accessible to your clients. Never ignore them. Remember you have the responsibility of putting their hard earned money into something which would benefit them in the long run.
  • Be patient with your clients. You might need to meet them twice or even thrice to explain them all the investment plans, benefits, maturity period, terms and conditions, risks involved and so on. Don’t ever get hyper with them.
  • Never sign any important document on your client’s behalf. Never pressurize your client for any plan. It is his money and he has all the rights to select the best plan for himself.
2. Banker to an issue:
Bankers to the issue is the collection of activities which are performed by the banker to an issue such as submission of application, application with money from investors. To adhere to the rules a certificate has to be obtained by a person from SEBI which grants the registration on the basis of all the activities performed by the banker to an issue. The bankers to an issue are engaged in activities such as acceptance of applications along with application money from the investors in respect of issues of capital and refund of application money. The bankers to an issue are engaged in activities such as acceptance of applications along with application money from the investors in respect of issues of capital and refund of application money. The requirements are as follows:-
1) the application must be complete and the applicant must have the infrastructure, communication and data processing facilities to run those activities effectively.
2) Directors of applicant are not involved in any of this application and don’t have any securities market.
3) Banker to an issue also has to take care of some information like number of issues which is coming to the banker, number of application with the money, dates on which the application is been received and date on which the refund is done to the investors.

3. Green shoe option:
A Greenshoe Option, coined after the firm named Green Shoe Manufacturing (first to incorporate Greenshoe clause in its underwriter’s agreement).
This is how Greenshoe Options works:
  1. When a company wants to raise capital for some of its future developmental plans, one of the ways it can raise money is through an IPO.
  2. During an IPO, a company declares an issue price for its securities and announces a particular quantity of stocks it will issue (say 1 million securities at $5.00 each). In case of a blue chip company or a company with a very good background and statistics, it may so happen that, the demand for such security goes uncontrollably up, and due to which prices will rise.
  3. Secondly, since demand goes up the actual subscriptions are way more than that expected (say 500,000 actual vs 100,000 expected). In this case, the number of shares allotted to each subscriber comes down proportionately (2 numbers actual vs 10 expected).
  4. Thus there is a gap created between the required price and actual price, which is due to the unexpected nature of demand for this security. In order to control this demand-supply gap, companies come up with the “Greenshoe Option”.
  5. In this type of Option, the company, at the time of its proposal for IPO, declares its strategy to exercise the Greenshoe Option. Hence, it approaches a merchant banker in the market, who will act as a “Stabilizing Agent”.
4. What are the benefits of mutual funds?
1.      Diversification
Investors enjoy the benefit of asset diversification, when they invest in mutual funds. Diversified portfolios invest in a variety of instruments, from low to high risk, such as bonds, stocks, international securities, etc. Underperformance of one fund can be balanced out by the performance of other funds in the portfolio. Having a diversified portfolio increases the chance of earning higher returns, while minimizing risks.
2.      Liquidity
one of the biggest advantages of mutual funds is the ability to invest and redeem with relative ease, compared to other instruments. Investors have the advantage of getting their money back almost instantly in case of mutual funds, based on the Net Asset Value (NAV) at that time. The only thing to watch out for is exit load, which may apply to some funds.  However, we do not recommend redeeming your investments unless your fund underperforms or you’ve reached your goals. Speak to your personal financial advisor when it comes to redemption of assets.
3.      Flexibility
Unlike the traditional investing instruments, mutual funds come with less or even zero lock-in period, depending on the kind of fund you pick. This means you can redeem your investments in times of utmost need. While most of the funds do not have a lock-in period, tax-saving ELSS funds come with a lock-in period of 3 years, which is relatively lesser compared to bank deposits.
4.      Higher return potential
Mutual funds, in general, have the potential to generate higher returns compared to traditional investment instruments, as they invest in a variety of market-linked instruments. So, those having a low risk-appetite could invest in debt mutual funds, which tend to deliver FD-beating returns.  Equity mutual funds have delivered 11-15% over the last 10 years. Hence, for investors with moderate to high risk-appetite, investing in equities through mutual funds would help them earn superior returns, while minimizing risk, thanks to rupee-cost averaging. At Funds India, our expert advisors can help you pick and invest in the right funds based on your requirements and risk-tolerance levels.
5.      Professionally managed and secure
Mutual funds are managed by professional fund managers, who are qualified experts in this field. They identify the best stocks in the market, and track their performance on a regular basis to ensure that they deliver high returns to the investors. They also help investors make an informed choice, when it comes to picking the right funds. What’s more? Mutual funds in India are moderated by the industry body, SEBI, which ensures transparency and security. So, to answer the question “is it safe to invest in mutual funds?” – yes, it is perfectly safe to invest in mutual funds because of its well regulated, transparent structure.

5. Discuss the various types of insurance policy?
Life insurance
As the name suggests, life insurance is insurance on your life. You buy life insurance to make sure your dependents are financially secured in the event of your untimely demise. Life insurance is particularly important if you are the sole breadwinner for your family or if your family is heavily reliant on your income. Under life insurance, the policyholder’s family is financially compensated in case the policyholder expires during the term of the policy.
Health insurance
Health insurance is bought to cover medical costs for expensive treatments. Different types of health insurance policies cover an array of diseases and ailments. You can buy a generic health insurance policy as well as policies for specific diseases. The premium paid towards a health insurance policy usually covers treatment, hospitalization and medication costs.
Car insurance
In today’s world, a car insurance is an important policy for every car owner. This insurance protects you against any untoward incident like accidents. Some policies also compensate for damages to your car during natural calamities like floods or earthquakes. It also covers third-party liability where you have to pay damages to other vehicle owners.
Education Insurance
The child education insurance is akin to a life insurance policy which has been specially designed as a saving tool. An education insurance can be a great way to provide a lump sum amount of money when your child reaches the age for higher education and gains entry into college (18 years and above). This fund can then be used to pay for your child’s higher education expenses. Under this insurance, the child is the life assured or the recipient of the funds, while the parent/legal guardian is the owner of the policy.
You can estimate the amount of money that will go into funding your children’s higher education using Education Planning Calculator.
Home insurance
We all dreaming of owning our own homes. Home insurance can help with covering loss or damage caused to your home due to accidents like fire and other natural calamities or perils. Home insurance covers other instances like lightning, earthquakes etc.

6. Describe the features of venture capital?
(i) High Degrees of Risk:
Venture capital represents financial investment in a highly risk project with the objective of earning a high rate of return.
(ii) Equity Participation:
Venture capital financing is, invariably, an actual or potential equity participation wherein the objective of venture capitalist is to make capital gain by selling the shares once the firm becomes profitable.
(iii) Long Term Investment:
Venture capital financing is a long term investment. It generally takes a long period to encash the investment in securities made by the venture capitalists.
(iv) Participation in Management:
In addition to providing capital, venture capital funds take an active interest in the management of the assisted firms. Thus, the approach of venture capital firms is different from that of a traditional lender of banker.
It is also different from that of a ordinary stock market investor who merely trades in the shares of a company without participating in their management. It has been rightly said, “venture capital combines the qualities of banker, stock market investor and entrepreneur in one.”

7. Describe the various methods of underwriting. Bring out the benefits of underwriting?
1. The Judgment Method:
Under this method the individual decisions of experienced persons, in the medical, actuarial, underwriting and other departments are combined. These persons are qualified and permitted to take decision. Unlike the other method, no rigid rules and scales are prescribed and followed. Personal judgment, therefore, plays vital part in the whole system of underwriting.
Under this system the routine cases are processed with a minimum of consideration by assistants trained in the review of applications and doubtful or significant cases or border line cases are resolved by experts who take the decision on their experience and general impressions. This method is still used in India by the Life Insurance Corporation.
The judgment method is generally used where a single factor is to be considered or where the decision for acceptance or rejection is to be taken. The second use of this method is that where numerical rating fails to decide, this method comes to much assistance because the merit of each and every factor is personally considered.
The personal decision of the officers and experts may be quick and significant. The various difference in the reports, thorough inquiries is made and personal judgment is substituted by the other method.
The disadvantage of this method is that the personal direction may be biased by the whims and negligence of the officers. Inexperienced decision may harm the insurance business. The second criticism is that it is not very much scientific. There is no basis except the personal experience, for taking correct decision.
To avoid the weaknesses of the judgment method, a method known as the numerical rating system was devised and is commonly used by the insurers.
2. Numerical Rating System:
This system is based upon the principle that a large number of factors enter into the composition of a risk and that the impact of each of these factors on the longevity of the risk can be determined by a statistical study of lives possessing that factor.
It assumes that a standard risk has a rating of 100. Each factor has 100 if they are standard and no marks will be assigned. Information for each factor one by one is considered.

Benefits of Underwriting:
1. Underwriting ensures success of the proposed issue of shares since it provides an insurance against the risk.
2. Underwriting enables a company to get the required minimum subscription. Even if the public fail to subscribe, the underwriters will fulfil their commitments.
3. The reputation of the underwriter acts as a confidence to investors. The underwriters who are called the lead managers provide financial recognition to the company, whose shares are issued to the public. Thus, the reputation of the issuing company also improves because of the reputation of underwriters.

8. Write a short note on book building?
Book Building may be defined as a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) and Follow-on Public Offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional investors as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process.
Under book building process, the issuing company is required to tie up the issue amount by way of private placement. The issue price is not priced in advance. It is determined by offer of potential investors about price which they may be willing to pay for the issue. To tie-up the issue amount, the company organizes road shows and various advertisement campaigns.

9. Define factoring. Explain the types of factoring?
Factoring is a financial service in which the business entity sells its bill receivables to a third party at a discount in order to raise funds. It differs from invoice discounting. The concept of invoice discounting involves, getting the invoice discounted at a certain rate to get the funds, whereas the concept of factoring is broader. Factoring involves the selling of all the accounts receivable to an outside agency. Such an agency is called a factor.

CONCEPT OF FACTORING

The seller makes the sale of goods or services and generates invoices for the same. The business then sells all its invoices to a third party called the factor. The factor pays the seller, after deducting some discount on the invoice value. The rate of discount in factoring ranges from 2 to 6 percent. However, the factor does not make the payment of all invoices immediately to the seller. Rather, it pays only up to 75 to 80 percent of the invoice value after deducting the discount. The remaining 20 to 25 percent of the invoice value is paid after the factor receives the payments from the seller’s customers. It is called factor reserve.
Types of Factoring:
Recourse Factoring:
In this type of factoring, the factor has recourse to the client (seller of goods) if importer (buyer of goods) become insolvent. In other words, risk of account receivables purchased from client becoming bad is borne by client himself.
Non Recourse Factoring:
In this type of factoring, factor has no recourse to the client if the debt / account receivables purchased turns out be bad or irrecoverable. Factor cannot claim the amount from the client. As factor bear the risk of non-payment, commission charged for the services is higher than recourse type of factoring.
Maturity Factoring :
No advance payment is made by the factor to client. Factor pay the client only after collection of account receivables/ debt or on a guaranteed payment date. The guaranteed payment date is usually fixed taking into account the previous ledger experience of the client and a period for slow collection after the due date of the invoice.
Advance Factoring:
Factor pay the advance varying between 75-85 percent of the value of receivables or invoice factored. The balance is paid upon collection or on the guaranteed payment date.
Invoice Discounting :
Under Invoice Factoring arrangement, factor makes prepayment to the client against the purchase of book debts and charges interest for the period spanning the date of pre payment to the date of collection. The sales ledger administration and collection are carried out by the client. The client provides the factor with periodical reports on the value of unpaid invoices and the ageing schedule of debts. This facility is usually kept confidential i.e., the customers (whose debts have been purchased by the factor) are not informed of the arrangement. Therefore, this arrangement is also referred as ‘Confidential Factoring’ or undisclosed factoring.
Full Factoring :
Also known as Conventional Factoring, it combines the features of both non recourse and advance factoring arrangement. Full factoring provides the entire spectrum of services – collection, credit protection, sales-ledger administration and short-term finance.
Bank participation factoring :
Under this arrangement, a bank participate in factoring by providing an advance to the client against the reserves maintained by the factor. For example, assume that a factor has advanced 80 percent of the value of factored receivables and the commercial bank provides an advance limited to 50 percent of the factor reserves. The client is required to fund only 10 percent of the investment in receivables, the balance 90 percent being provided by the factor and the commercial bank.
Domestic and Cross Border Factoring :
The basic difference in domestic and cross border factoring is on account of number of parties involved in factoring process.
In domestic factoring, three parties are involved – seller (client), Factor, Buyer While in cross border or export factoring, four parties are involved in transaction – Exporter (Seller/client), Importer (buyer), Export Factor, Import Factor.
It is also known as Two Factor system of Factoring as there are two factors involved in the transaction.
10. What are the facilities offered to credit card holders?
  • Purchasing Power: Credit Cards enable users to make big ticket purchases they might not otherwise be able to afford.
  • Rewards: Many cards offer rewards programs that will accrue points, discounts, or other benefits like frequent flyer miles.
  • Convenience: Credit cards reduce the need to carry cash. Most retailers accept credit cards and they are pretty much required for online purchases.
  • Trackability: The electronic record keeping that comes with credit cards make it easy to track your spending and identify fraud.
  • Use during an emergency: There are times when money is the simple solution to an emergency. If you get hit with an unexpected expense, credit cards can be the quick and easy solution you need.
  • Builds credit history: Responsible use of a credit card over time builds your credit history, qualifying you for better interest rates and other financial benefits.
·         Equated Monthly Instalments – Credit card come with the feature of allowing the user to convert their big purchases into EMIs which can then be paid off in parts, every month. The interest charged on the EMIs is much less compared to the interest charged on revolving credit.
·         Add-on Credit Card – You also have the opportunity to share the features and benefits of their credit card with their immediate family members. Add-on cards allow the family members to make use of the credit limit that was assigned to the primary cardholder.
·         Utility Bill Payment – Utility bills can be paid through credit card. Moreover, this can be automated by giving standing instructions to the credit card provider. This way you do not have to worry about paying your bills on time.
·         Worldwide Acceptance – The credit cards are accepted worldwide especially if they use Visa or MasterCard payment network.
·         Balance Transfer – Credit cards also allow the opportunity to transfer the outstanding amount from other credit card accounts to avail lower interest rates or payback in EMIs.
·         Draft or Cheque Issuance – Drafts or cheques can be issued against the cash or credit limit on your credit card. These documents are then delivered to your doorstep.
·         Online Accessibility – Net banking and apps make your financial world more simple and convenient. You can transfer the funds, pay the outstanding amount or simply hotlist your card all from the convenience of your home or mobile.
·         Cash Withdrawal – Credit cards should not be used for cash withdrawals but if you have an urgent need for cash then a credit card can be used to withdraw cash.
·         SMS Alert – All your transactions are reported to you via an SMS sent to the mobile number registered with the bank.
·         Customer Services – Credit card users can avail customer care services to address any query or doubt that they have. The customer care cell is available 24×7.
·         Waived Annual Fee – Some Credit cards that charge Annual Fee also give the option of waiving it off completely on spending a particular amount in the previous year. This way you can save the fee for Annual Fee of your credit card.

11. Distinguish factoring from forfeiting?
BASIS FOR COMPARISON
FACTORING
FORFAITING
Meaning
Factoring is an arrangement that converts your receivables into ready cash and you don't need to wait for the payment of receivables at a future date.
Forfaiting implies a transaction in which the forfeiter purchases claims from the exporter in return for cash payment.
Maturity of receivables
Involves account receivables of short maturities.
Involves account receivables of medium to long term maturities.
Goods
Trade receivables on ordinary goods.
Trade receivables on capital goods.
Finance up to
80-90%
100%
Type
Recourse or Non-recourse
Non-recourse
Cost
Cost of factoring borne by the seller (client).
Cost of forfaiting borne by the overseas buyer.
Negotiable Instrument
Does not deals in negotiable instrument.
Involves dealing in negotiable instrument.
Secondary market
No
Yes

12. Outline the process of credit rating in India?
Credit Rating Process
The rating process begins with the receipt of formal request from a company desirous of having its issue obligations rated by credit rating agency. A credit rating agency constantly monitors all ratings with reference to new political, economic and financial developments and industry trends. The process/ procedure followed by all the major credit rating agencies in the country is almost similar and usually comprises of the following steps.
1. Receipt of the request: The rating process begins, with the receipt of formal request for rating from a company desirous of having its issue obligations under proposed instrument rated by credit rating agencies. An agreement is entered into between the rating agency and the issuer company.
The agreement spells out the terms of the rating assignment and covers the following aspects:
i. It requires the CRA (Credit Rating Agency) to keep the information confidential.
ii. It gives right to the issuer company to accept or not to accept the rating.
iii. It requires the issuer company to provide all material information to the CRA for rating and subsequent surveillance.
2. Assignment to analytical team: On receipt of the above request, the CRA assigns the job to an analytical team. The team usually comprises of two members/analysts who have expertise in the relevant business area and are responsible for carrying out the rating assignments.
3. Obtaining information: The analytical team obtains the requisite information from the client company. Issuers are usually provided a list of information requirements and broad framework for discussions. These requirements are derived from the experience of the issuers business and broadly confirms to all the aspects which have a bearing on the rating. The analytical team analyses the information relating to its financial statements, cash flow projections and other relevant information.
4. Plant visits and meeting with management: To obtain classification and better understanding of the client’s operations, the team visits and interacts with the company’s executives. Plants visits facilitate understanding of the production process, assess the state of equipment and main facilities, evaluate the quality of technical personnel and form an opinion on the key variables that influence level, quality and cost of production.
A direct dialogue is maintained with the issuer company as this enables the CRAs to incorporate non-public information in a rating decision and also enables the rating’ to be forward looking. The topics discussed during the management meeting are wide ranging including competitive position, strategies, financial policies, historical performance, risk profile and strategies in addition to reviewing financial data.
5. Presentation of findings: After completing the analysis, the findings are discussed at length in the Internal
Committee, comprising senior analysts of the credit rating agency. All the issue having a bearing on rating are identified. An opinion on the rating is also formed. The findings of the team are finally presented to Rating Committee.
6. Rating committee meeting: This is the final authority for assigning ratings. The rating committee meeting is the only aspect of the process in which the issuer does not participate directly. The rating is arrived at after composite assessment of all the factors concerning the issuer, with the key issues getting greater attention.
7. Communication of decision: The assigned rating grade is communicated finally to the issuer along with reasons or rationale supporting the rating. The ratings which are not accepted are either rejected or reviewed in the light of additional facts provided by the issuer. The rejected ratings are not disclosed and complete confidentiality is maintained.
8. Dissemination to the public: Once the issuer accepts the rating, the credit rating agencies disseminate it through printed reports to the public.
9. Monitoring for possible change: Once the company has decided to use the rating, CRAs are obliged to monitor the accepted ratings over the life of the instrument. The CRA constantly monitors all ratings with reference to new political, economic and financial developments and industry trends. All this information is reviewed regularly to find companies for, major rating changes. Any changes in the rating are made public through published reports by CRAs.

13. Define leasing. Explain the different types of leasing?
Leasing is an old method of financing which is now gaining popularity almost in whole world. Legally, the lease contract is not a sale of the object, but rather a sale of the usufruct (the right to use the object) for a specified period of time. Under it, there are two parties one is the owner or lessor of the asset and other is the lessee or the party that takes the asset on lease. The lessee takes the asset for use for a specified period of time and makes rental payments. The ownership of the asset rests with the lessor but it is in the possession of lessee and right of use is also transferred to lessee.
It has following are different types. The two basic types of leasing are: Finance Lease and Operating Lease. These are explained below:
(1) Finance Lease: Under finance lease all risks and rewards of ownership of asset are transferred to lessee. The ownership or title may or may not be transferred. A finance lease is somewhat like a hire purchase agreement. Under finance lease the lessee after paying agreed number of instalments, is entitled to exercise an option to become the owner of asset.
Example:
Suppose the AB Company takes a new automobile on lease for three year. Also assume that at the end of three years the AB Company will be called to take the ownership of vehicle at no extra cost. Here not only the vehicle is taken on lease but also the AB Company is using the lease agreement as a means of financing the automobile. This type is called capital lease or finance lease.
(2) Operating Lease: According to International Accounting Standard (IAS-17) the operating lease is one which is not a finance lease. Under operating lease, the lessor gives the right to lessee to use the asset or property for a specified period of time, but risks and rewards of ownership are retained by the lesser.
Example:
Let up suppose that MY enterprises owns a complete 6th floor in Eden Tower, a multi-story building. Further assume that MY enterprises gives some rooms of this floor on lease to XY Corporation.
Now if the value of this building increase due to good business activity then the lessor i.e., MY enterprises can take the benefit of this increase by either selling out the rooms or by increasing the rental amount. On the other hand if the building decreases in value than also the MY enterprises will be the sufferer of loss. This type of leasing is called operating lease.
Besides these two main types, some other types of leasing are explained below:
(3) Sale and Lease Back: Under sale and lease back agreement, an asset is first sold to the financial institution. The sale is made at the genuine market value. After that the asset is taken back on a lease. This type of leasing is advantageous for those companies which do not want to show high debt balances in their financial statement.
(4) Capital Lease: This type of leasing is governed by the financial standard board which is not applicable in Pakistan. Under this type, when lessee acquires an asset on lease, he simultaneously recognizes it as a liability in the financial statement.
(5) Leveraged Lease: This type of leasing involves three parties including a lender, a lessor and a lessee. The lender and lessor join hands to accumulate funds to buy the asset. The asset purchased is then given on the lease to lessee. The lessee makes periodic payments to the lessor who in turn makes payment to the lender.
(6) Cross Border Leasing: It means to operate lease agreement in other countries. Such type of leasing is very difficult in present circumstances. The reasons being that different accounting treatments, tax charges and incidental criteria prevail in foreign countries. Also the tax rules differ from country to country. So a big problem arises as how to present such lease agreement in financial statement.

14. Write a short note on green shoe option?
The term Green Shoe Option is derived from a company named “Green Shoe Manufacturing Company established in 1919. This company is currently known as Stride Rite Corp. This Company was first to commence this option in 1960. It is mainly practiced in US and European Market
Green shoe option means an option of allocating shares in excess of the shares included in the public issue and operating a post listing price stabilizing mechanism through a stabilizing agent.
The green shoe option has the ability to diminish the risk for the company issuing the shares. It allows the underwriters to have good buying power in order to cover their deficit when a stock price falls without the risk of having to buy stock if the price rises. This in turn ensures the price stability of share prices which has greater positive impact on the investors and issuers.
For Instance if a company decides to publicly sell 10 lakh shares, the underwriters can implement their green shoe option and sell 10.15 lakh shares. When the shares are priced and can be publicly traded, the underwriters can buy back 15% of the shares. This enables underwriters to alleviate fluctuating share prices by increasing or decreasing the supply of shares according to initial public demand.
Why GSO?
It is to reduce the risk of the IPO (Initial Public Offering). When the public demand for the shares exceeds expectations and the stock trades above the offering price.
Objectives of GSO
                        Risk diminution
                        Price constancy

15. What do you mean by mortgage-Backed Securitization?
A mortgage-backed security (MBS) is an investment similar to a bond that is made up of a bundle of home loans bought from the banks that issued them. Investors in MBS receive periodic payments similar to bond coupon payments.
The MBS is a type of asset-backed security. As became glaringly obvious in the subprime mortgage meltdown of 2007-2008, a mortgage-backed security is only as sound as the mortgages that back it up.
An MBS may also be called a mortgage-related security or a mortgage pass-through.

Types of Mortgage-Backed Securities

Pass-Through

Pass-through are structured as trusts in which mortgage payments are collected and passed through to investors. They typically have stated maturities of five, 15, or 30 years. The life of a pass-through may be less than the stated maturity depending on the principal payments on the mortgages that make up the pass-through.

Collateralized Mortgage Obligations                                                                       

CMOs consist of multiple pools of securities which are known as slices, or tranches. The tranches are given credit ratings which determine the rates that are returned to investors.

16. What are the different forms of venture capital financing?
1. Equity All VCFs in India provide equity. The effective control and majority ownership of the firm remain with the entrepreneur. The advantage of equity financing for the company seeking venture finance is that it does not have the burden of serving the capital, as dividends will not be paid if the company has no cash flows.
2. Conditional Loan a conditional loan is repayable in the form of a royalty after the venture is able to generate sales. No interest is paid on such loans. VCFs charge royalty ranging from 2-15% depending on the factors of the venture such as gestation period, risk, and cash flow patterns etc.
3. Conventional Loan Under this form of assistance, a lower fixed rate of interest is charged till the assisted units become commercially operational, after which the loan carries normal or higher rate of interest. The loan has to be repaid according to a predetermined schedule of repayment as per terms of loan agreement.
4. Income Note A unique way of venture financing in India was the income note. It was hybrid security which combined the features of both conventional and conditional loan. The entrepreneur had to pay both interest and royalty on sales, but at substantially low rates.
5. Participating Debentures A few venture capitalists, particularly in the private sector, introduced innovative financial securities known as participating debentures. Such security carries charges in three phases namely, start-up phase, operational level phase and at full commercialization of operational phase.
6. Cumulative Convertible Preference Shares CCPSs could be particularly attractive in Indian context since CCPS shareholders do not have a right to vote. They are, however, entitled to vote if they do not receive dividend consecutively for two years.
7. Deferred Shares deferred shares are those shares where ordinary share rights are deferred for a certain number of years.
8. Convertible Loan Stock Convertible loan stock is an unsecured long-term loan convertible into ordinary shares and subordinated to all creditors.
9. Special Ordinary Shares Special ordinary shares are the shares having voting rights but without a commitment towards dividends.
10. Preferred Ordinary Shares preferred ordinary shares are the shares with voting rights and a modest fixed dividend right and a right to share in profits.

17. Explain the different types of insurance and insurance companies?
Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the individual (insured). In this, the insurance company promises to make good the losses of the insured on happening of the insured contingency.
The contingency is the event which causes a loss. It can be the death of the policyholder or damage/destruction of the property. It’s called a contingency because there’s an uncertainty regarding happening of the event. The insured pays a premium in return for the promise made by the insurer.

Life insurance

As the name suggests, life insurance is insurance on your life. You buy life insurance to make sure your dependents are financially secured in the event of your untimely demise. Life insurance is particularly important if you are the sole breadwinner for your family or if your family is heavily reliant on your income. Under life insurance, the policyholder’s family is financially compensated in case the policyholder expires during the term of the policy. 

Health insurance

Health insurance is bought to cover medical costs for expensive treatments. Different types of health insurance policies cover an array of diseases and ailments. You can buy a generic health insurance policy as well as policies for specific diseases. The premium paid towards a health insurance policy usually covers treatment, hospitalization and medication costs. 

Car insurance

In today’s world, a car insurance is an important policy for every car owner. This insurance protects you against any untoward incident like accidents. Some policies also compensate for damages to your car during natural calamities like floods or earthquakes. It also covers third-party liability where you have to pay damages to other vehicle owners.

Education Insurance

The child education insurance is akin to a life insurance policy which has been specially designed as a saving tool. An education insurance can be a great way to provide a lump sum amount of money when your child reaches the age for higher education and gains entry into college (18 years and above). This fund can then be used to pay for your child’s higher education expenses.

Home insurance

We all dreaming of owning our own homes. Home insurance can help with covering loss or damage caused to your home due to accidents like fire and other natural calamities or perils. Home insurance covers other instances like lightning, earthquakes etc.
Insurance Companies:

Standard Lines

A standard lines carrier is much as its name implies. It is an insurance company that has a license to operate and sell specific lines of insurance in a particular state. Another word for standard lines carriers is “admitted carriers.” The rates charged for coverage for a standard lines carrier is regulated by the state board of insurance in the state or states where it offers coverage. These admitted carriers are also subject to laws and restrictions of the states where licensed to operate.
A standard lines carrier must contribute to a state guarantee fund. This guarantee fund pays claims presented should the insurance company become insolvent.

Excess Lines

Another name for an excess lines insurance company is a “surplus lines” company. These types of companies mainly insure specialty risks such as high-risk auto insurance or high-risk individuals that would not be eligible for coverage by a standard lines carrier because of its underwriting guidelines or restrictions. An example would be a driver who has many speeding tickets or other traffic violations or a company who has just opened up and has no prior coverage.

Captives

A captive insurance company is one that typically insures the risks of a specific industry or group of individuals or a specific type of risk such as shipping (transit insurance) and fleet insurance. For example, if a shipping business could not find affordable coverage through the standard insurance market, it may form a company to provide insurance for itself. The company created to provide the insurance is a “captive” of the parent company.

Direct Sellers

A company that sells directly is one that does not use insurance agents but sells directly to the insurance consumer. Many of these direct selling companies do have local field offices with company representatives but the majority of the business is conducted online or over the phone.

Domestic

A domestic insurance company operates and is licensed in the state where it is domiciled. The company can be licensed to operate in other states but is considered an alien carrier in those states.

Alien

The alien insurance company is incorporated on laws of another country. For example, an insurance company incorporated as a U.S. company but operating in France would be considered an alien carrier by the perspective of France.

Lloyds of London

Lloyds of London specializes in insuring unusual or high-risk items and are underwritten through authorization of the English Parliament. Even though the risks are often unusual such as celebrity body part or offshore oil risks, “Main Street” or more common types of risks are also insured.

Mutual Companies

Mutual companies are actually owned by the policyholders who are considered shareholders and can receive dividend payment distributions and may not be penalized by an increase in premium due to losses. This can vary by company. A well-known mutual company is Liberty Mutual.

Stock Companies and Additional Classifications

Stock companies are corporations with shareholders and distribute excess earnings as dividend payments to shareholders. Additionally, a company may be classified as a “monoline carrier” meaning it only writes one line of coverage or as a “multi-line company” who writes policies on several different types of insurance.

18. Distinguish debit and credit cards?
Credit card
Debit card
Borrow money to make purchases and repay it later
Money deducted from your bank account to pay for purchases
Can help build your credit history
Won’t help build your credit history
Likely charged interest if you don’t pay your bill in full every month by the due date
No interest charges
Can be used to make purchases even if you don’t have cash on hand
Typically need money in your bank account to make purchases
Fees include late, return payment, balance transfer, cash advance and/or foreign transaction fees
Fees include overdraft and out-of-network ATM fees, as well as fees for using your PIN during transactions
Liability for fraudulent purchases is limited
You could be liable for fraudulent purchases

19. Discuss macro and micro components of marketing environment?

Internal Environment

The internal environment of the business includes all the forces and factors inside the organisation which affect its marketing operations. These components can be grouped under the Five Ms of the business, which are:
§  Men
§  Money
§  Machinery
§  Materials
§  Markets
The internal environment is under the control of the marketer and can be changed with the changing external environment. Nevertheless, the internal marketing environment is as important for the business as the external marketing environment. This environment includes the sales department, marketing department, the manufacturing unit, the human resource department, etc.

External Environment

The external environment constitutes factors and forces which are external to the business and on which the marketer has little or no control. The external environment is of two types:

Micro Environment

The micro-component of the external environment is also known as the task environment. It comprises of external forces and factors that are directly related to the business. These include suppliers, market intermediaries, customers, partners, competitors and the public
§  Suppliers include all the parties which provide resources needed by the organisation.
§  Market intermediaries include parties involved in distributing the product or service of the organisation.
§  Partners are all the separate entities like advertising agencies, market research organisations, banking and insurance companies, transportation companies, brokers, etc. which conduct business with the organisation.
§  Customers comprise of the target group of the organisation.
§  Competitors are the players in the same market who targets similar customers as that of the organisation.
§  Public is made up of any other group that has an actual or potential interest or affects the company’s ability to serve its customers.
Macro Environment
The macro component of the marketing environment is also known as the broad environment. It constitutes the external factors and forces which affect the industry as a whole but don’t have a direct effect on the business. The macro-environment can be divided into 6 parts.
Demographic Environment
The demographic environment is made up of the people who constitute the market. It is characterised as the factual investigation and segregation of the population according to their size, density, location, age, gender, race, and occupation.
Economic Environment
The economic environment constitutes factors which influence customers’ purchasing power and spending patterns. These factors include the GDP, GNP, interest rates, inflation, income distribution, government funding and subsidies, and other major economic variables.
Physical Environment
The physical environment includes the natural environment in which the business operates. This includes the climatic conditions, environmental change, accessibility to water and raw materials, natural disasters, pollution etc.
Technological Environment
The technological environment constitutes innovation, research and development in technology, technological alternatives, and innovation inducements also technological barriers to smooth operation. Technology is one of the biggest sources of threats and opportunities for the organisation and it is very dynamic.
Political-Legal Environment
The political & Legal environment includes laws and government’s policies prevailing in the country. It also includes other pressure groups and agencies which influence or limit the working of the industry and/or the business in the society.
Social-Cultural Environment
The social-cultural aspect of the macro-environment is made up of the lifestyle, values, culture, prejudice and beliefs of the people. This differs in different regions.

20. What are the concept of financial product in financial services?
Financial products refer to instruments that help you save, invest, get insurance or get a mortgage. These are issued by various banks, financial institutions, stock brokerages, insurance providers, credit card agencies and government sponsored entities. Financial products are categorised in terms of their type or underlying asset class, volatility, risk and return.

Types of financial products

  ·         Shares: These represent ownership of a company. While shares are initially issued by corporations to finance their business needs, they are subsequently bought and sold by individuals in the share market. They are associated with high risk and high returns. Returns on shares can be in the form of dividend payouts by the company or profits on the sale of shares in the stockmarket. Shares, stocks, equities and securities are words that are generally used interchangeably.
  ·         Bonds: These are issued by companies to finance their business operations and by governments to fund budget expenses like infrastructure and social programs. Bonds have a fixed interest rate, making the risk associated with them lower than that with shares. The principal or face value of bonds is recovered at the time of maturity.
  ·         Treasury Bills: These are instruments issued by the government for financing its short term needs. They are issued at a discount to the face value. The profit earned by the investor is the difference between the face or maturity value and the price at which the Treasury bill was issued.
  ·         Options: Options are rights to buy and sell shares. An option holder does not actually purchase shares. Instead, he purchases the rights on the shares.
  ·         Mutual Funds: These are professionally managed financial instruments that involve the diversification of investment into a number of financial products, such as shares, bonds and government securities. This helps to reduce an investor’s risk exposure, while increasing the profit potential.
  ·         Certificate of Deposit: Certificates of deposit (or CDs) are issued by banks, thrift institutions and credit unions. They usually have a fixed term and fixed interest rate.
  ·         Annuities: These are contracts between individual investors and insurance companies, where investors agree to pay an allocated amount of premium and at the end of a pre-determined fixed term, the insurer will guarantee a series of payments to the insured party.

21. Describe the new product development in financial services?
The new product development process goes on with the actual product development. Up to this point, for many new product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. But if the product concept passes the business test, it must be developed into a physical product to ensure that the product idea can be turned into a workable market offering. The problem is, though, that at this stage, R&D and engineering costs cause a huge jump in investment.
The R&D department will develop and test one or more physical versions of the product concept. Developing a successful prototype, however, can take days, weeks, months or even years, depending on the product and prototype methods.
Also, products often undergo tests to make sure they perform safely and effectively. This can be done by the firm itself or outsourced.
In many cases, marketers involve actual customers in product testing. Consumers can evaluate prototypes and work with pre-release products. Their experiences may be very useful in the product development stage.
Process:
1. Idea generation – brainstorming and coming up with innovative new ideas.
2. Idea evaluation - filtering out any ideas not worth taking forward.
3. Concept definition - considering specifications such as technical feasibility, product design and market potential. 4. Strategic analysis - ensuring your ideas fit into your business' strategic plans and determining the demand, the costs and the profit margin.
5. Product development and testing - creating a prototype product or pilot service.
6. Market testing - modifying the product or service according to customer, manufacturer and support organisations' feedback. This involves deciding the best timing and process for piloting your new product or service. 7. Commercialisation – determining the pricing for your product or service and finalising marketing plans.
8. Product launch – a detailed launch plan can help ensure a smooth introduction to market.

22. Explain the sales promotion of financial services marketing?
23. What is leasing? Why do people/ corporates go for leasing of assets?
Lease is a financial arrangement, wherein one party (lessor) allows another party (lessee) to use the capital asset or equipment for a definite period, in return for an adequate consideration.
Parties of Lease:
(i) Lessor:
The party who is the owner of the equipment permitting the use of the same by the other party on payment of a periodical amount.
(ii) Lessee:
The party who acquires the right to use equipment for which he pays periodically.
Why do people/ corporates go for leasing of assets:
You Get More Purchasing Power
If you decide to lease something for your business, it can give you more freedom on the type of items you can afford. Paying monthly means you can get higher-end equipment that you usually wouldn’t have the money for otherwise. This means you have more purchasing power - the type of items you will be getting from leasing is often better, more functional and more powerful than the items you could get from owning or already own.
There Are 100% Finance Options 
For most leases, it’s possible to arrange a 100% finance option, which means there are no upfront, initial payments, which means more money to help your business grow in the day-to-day. You won’t have to find and put together any big initial payments, which a lot of people opt for even if they could afford an upfront payment for the convenience of having the extra money to play within their business.

You're Not Responsible for Upkeep
Lease packages are tailored to your needs, which means they can include maintenance of the items if they break. For a property lease, it is not necessarily needed, but for computers or machinery, this maintenance is exceedingly beneficial as it means if a breakdown occurs, the warrantor will come and fix it or replace it immediately. This feature means you don’t need to worry about forking out every time something needs repairing and also saves you loads in the reduced amount of downtime companies have who lease key function items compared to those that own all the assets pivotal to the running of their business.
There Are Tax Benefits
Depending on what you want to lease, you can get some tax relief for choosing this option. Leasing costs can count as a deductible expense at the end of your financial year which may reduce the amount of tax you pay overall. On all items, except cars where rules differ from vehicle to vehicle, you can also claim back the VAT on your rental payments. This saves your business money each year end which is another reason why companies prefer to lease.
You Get Your Items Quickly
With leasing, depending on what the asset is, it’s usually done and dusted in a matter of days. The asset supplier, knowing the lessor will pay for the items, will deliver whatever it is quickly depending on availability that much more quickly. The turnaround on leased items is usually quicker than having to wait for relevant checks and money to clear, especially on big purchases, such as cars and offices or factories.

24. What do you mean by factoring? Describe its mechanism.
 Factoring implies a financial arrangement between the factor and client, in which the firm (client) gets advances in return for receivables, from a financial institution (factor). It is a financing technique, in which there is an outright selling of trade debts by a firm to a third party, i.e. factor, at discounted prices. Factoring is a financial alternative, in financing and management of account receivables. It states the terms and conditions of the sale in the factoring agreement.
In finer terms factoring is a relationship between the factor and the client, in which the factor purchases the client’s account receivables and pay up to 80% (sometimes 90%) of the sum immediately, at the time of entering into the agreement. The factor pays the balance sum, i.e. 20% of the amount which includes finance cost and operating cost, to the client when the customer pays the obligation.
The mechanism of factoring is summed tip as below:
(i) An agreement is entered into between the selling firm and the factor firm. The agreement provides the basis and the scope of the understanding reached between the two for rendering factor services.
 (ii) The sales documents should contain the instructions to make payments directly to the factor who is assigned the job of collection of receivables.
(iii) When the payment is received by the factor, the account of the selling firm is credited by the factor after deducting its fees, charges, interest etc. as agreed.
(iv) The factor may provide advance finance to the selling firm if the conditions of the agreement so require.

25. Explain the role of financial service marketing?
26. What is marketing mix?
The marketing mix is the set of controllable, tactical marketing tools that a company uses to produce a desired response from its target market. It consists of everything that a company can do to influence demand for its product. It is also a tool to help marketing planning and execution.

The four Ps of marketing: product, price, place and promotion

The marketing mix can be divided into four groups of variables commonly known as the four Ps:
  1. Product: The goods and/or services offered by a company to its customers.
  2. Price: The amount of money paid by customers to purchase the product.
  3. Place (or distribution): The activities that make the product available to consumers.
  4. Promotion: The activities that communicate the product’s features and benefits and persuade customers to purchase the product.
27. Bring out the importance of branding in financial services?
Branding is critical in the financial sector given its integral role in society. In a time where there is increasing difficulty differentiating between companies, branding has never been more important. Branding gives a company a unique personality that sets it out from the rest and helps build the company a strong reputation and as well as creating value.
How a strong brand will impact your business:
1. Branding is a key component in gaining recognition. Every aspect, from a website, to photography, to corporate design, to e-promos is defined by your brand. Every touch point is an opportunity to increase brand awareness and improve client loyalty.
2. Branding creates and builds trust. Building a strong brand with loyal clients is of crucial importance as it provides considerable competitive and economic benefits to a firm. People are a lot more likely to do business with a company that is well polished and presented.
3. Branding is a valuable asset. Branding builds financial value and generates future business. Brands strengthen differentiation against peers, driving demand and sales, helping market share growth and building shareholder value.
4. A strong brand generates referral business, bringing you new clients. People love telling others about brands they have positive experiences with.
5. Strong brands attract talent and motivate staff, giving them something to believe in and to stand behind.
Branding is at the heart of every business. It’s vital to define what your brand stands for. Your brand is the way your client and potential client perceive you. It is fundamental to be aware of your brand experience and to make sure it is an experience you would want to have. Good branding elevates and differentiates your products and services, and gives clients a reason to choose you over your peers. A strong brand doesn’t just happen; it takes time, effort and a well thought out plan. As niche specialists in the sector we are uniquely placed to help provide insight on how our clients can find a point of difference.

28. What are the elements of marketing mix in financial services?
            §  Advertising. Advertising is any paid form of media communication. This includes print ads in magazines, trade journals and newspapers, radio and TV announcements, Web-based visibility-building, and billboards. Advertising is a nonpersonal promotional activity because the seller has no direct contact with the potential customer during the communication process.
          §  Sales Promotions. In-store demonstrations, displays, contests and price incentives (50% off, buy-one-get-one-free) are sales promotion techniques.
          §  Public Relations. These activities promote a positive image, generate publicity and foster goodwill with the intent of increasing sales. Generating favourable media coverage, hosting special events and sponsoring charitable campaigns are examples of public relations.
          §  Direct Marketing. A form of advertising aimed directly at target customers (usually in their homes or offices) that asks the receiver to take action, such as ordering a product, clipping a coupon, phoning a toll-free number or visiting a store. Catalogues, coupon mailers and letters are common forms of direct marketing.
          §  Personal Selling. Face-to-face communication between buyer and seller.

29. What are the effects of advertising in financial services?
Advertisement plays an important role in the society, and now financial sector is no exception to this. It generates the awareness between the consumers about the recent products which are being offered to them. It also creates a relationship between the company and the consumer. For example, if a bank offers the home loans at an attractive EMI’s, Fix account with more rate of interest, A post office has to offer various saving schemes, corporate loans, the financial intuitions by adopting the best mode of communication so that the people will be known to their offerings. Due to the paradigm change in the societal behavioural patterns and technology there are many new advertising opportunities which are coming like Popup ads, Flash ads, Banner ads, and email ads (often a form of SPAM), Social networking sites etc. Due to the privatization of financial sector the competition among the different Financial Institutions has increased tremendously, as each institute is trying to build its market share by offering variety of financial products designed for their targets markets. In this scenario, every institution claims uniqueness of its products and tries to impress upon the consumer that these products are best suitable for his needs. Due to strong and intense competition the advertising and other promotional strategies assumes a significant role as far as the promotion of these financial products and services are concerned.
Increasing knowledge among societies is forcing the financial institutions to adopt international best practices to remain in business. With the changing scenario financial services advertising and marketing campaigns are crucial to gain clients and promote financial services business. Various advertising and marketing agencies cater specifically to businesses in the financial services industry.

30. Explain the personal selling process in financial services?
1. Personal selling highlights potential customers on various new financial services launched in the market.
2. Personal selling draws the attention of customers towards transactions of financial services. The transactional analysis is the lever spring of personal selling.
3. Personal selling enables the service provider to know how and under what circumstances the customers make their purchase decisions.
4. Financial service providers are able to understand the buyer behaviour. The buying process involves the recognition of problem, search, alternative evaluation, choice and outcome. They explain the process which an individual goes through while arriving at a decision.
5. Personal selling views consumer behaviour as a process rather than a discrete act on the part of the consumer.
6. Personal selling communicates the general information of the financial services offered, their use and benefits, relationships of the services with customers and the justification for the services offered.