Assignment Set – 1

Q.1. Discuss the concept of financial services and how they assist in savings, investment, and risk management. Explain the reason that treasury bills are low-risk short-term instruments.

Ans 1.

Financial Services: Concept and Functions

Financial services are the various types of economic services that are provided by the finance sector, such as banking, insurance, investment management, brokerage and financial planning. These services have a vital function in the mobilisation and transfers of funds throughout the economy. They help persons and entities to save, invest, share financial risk and make payments. The absence of a well-developed financial services sector would

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Q.2. What is the role of POS terminals in promoting the use of cards in India. Explain the difference between IPO and FPO in the Indian Capital Market.

Ans 2.

Role of POS Terminals in Promoting Card Usage in India

Point of Sale (POS) terminals are electronic systems that are used at merchant outlets for the processing of debit card, credit card and prepaid card payments. They are responsible for a major and growing contribution in the development of the card-based payments industry in India, and in decreasing the number of cash-based transactions.

POS terminals have direct impact on the acceptance infrastructure of card payments. As more

Q.3. Why does underwriting enhance investor confidence? How does diversification help in portfolio risk management?

Ans 3.

How Underwriting Enhances Investor Confidence

Underwriting is a procedure where an investment bank, financial institution or underwriting firm assures that the securities issued by corporations or governments are sold. Underwriter guarantees to buy up any surplus volume of securities at the agreed price, so the issuing company can raise the capital it needs, even if the investors don’t buy it.

There are several important and closely related reasons why underwriting has the effect of

Assignment Set – 2

Q.4. Why do changes in employment stability and income level significantly influence borrowing decisions? Describe the stages of venture capital financing and analyze the change in funding needs in each stage.

Ans 4.

Employment Stability and Income Level in Borrowing Decisions

Two of the most basic factors financial institutions and lenders look at when determining if someone is creditworthy and can pay back a loan over time is employment stability and income level.

The stability of employment is directly correlated with the regularity and continuity of an income stream of a person. When a borrower has been working for a few years with a

Q.5. Why is a credit rating important to investors? Describe what merchant banking is and its central role in corporate finance?

Ans 5.

Importance of Credit Rating to Investors

The credit rating is an independent evaluation of the creditworthiness of a borrower, whether it is a corporation, a government, a financial institution or a given debt instrument. Ratings are given by the specialized agencies like CRISIL, ICRA, CARE in India and Moody’s, S&P, Fitch internationally. The rating indicates the likelihood that the borrower will meet its

individual clients.

Q.6. How does CAPM assist in the assessment of investment projects? What role do investment banks play in enhancing liquidity & efficiency in secondary capital markets?

Ans 6.

CAPM in Investment Project Assessment

The Capital Asset Pricing Model (CAPM) is a basic financial model that describes the relationship between the expected return on an asset and systematic market risk (beta coefficient). According to CAPM, the risk premium of any investment is equal to the beta of the investment times the market risk premium plus the risk-free rate. The risk-free rate is the rate of return on government securities and the market risk premium is the extra return