CUSTOMER_CODE
SMUDE
DIVISION_CODE
SMUDE
EVENT_CODE
SMUAPR15
ASSESSMENT_CODE MBF302_SMUAPR15
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125656
What is Cash Credit system? Explain the various types of Cash credit
QUESTION_TEXT system in detail.
(2 Marks each)
∗
The Cash Credit System is a system that provides credit to a
business. It is available in different forms like cash credit, Overdraft,
Commercial loans and purchase of Commercial bills and so on.
Types of Credit lines:
∗
Cash Credit: A loan taken by a company for a short period is cash
credit. For this type of funding, the bank requests the company to provide
securities. A limit is set by the bank based on the value of the security
provided.
∗
Overdraft: When a customer withdraws an amount exceeding the
available amount in the bank account, it is termed as Overdraft. The
following are the types of Overdraft –
SCHEME OF
EVALUATION
∙
Current Account Overdraft: When a bank authorizes the customer to
withdraw more than the available credit facility, the transaction is termed as
Current account overdraft.
∙
Temporary Overdraft: When a bank extends the Overdraft facility for a
short term, the transaction is referred to as temporary overdraft.
∗
Channel financing: Channel financing gives financial assistance to a
company in the entire process of supply and distribution. Banks consider
the credibility of the customer and loans will be availed for list of suppliers
and dealers given by the principal company. Banks also conduct a
background check on the credit worthiness of the suppliers and retailers
before granting loans.
∗
Vendor financing: Vendor financing is the finance offered by a
company to its customers to buy its own product. In this type of finance,
there is a limit set by the supplier and the company regarding the extent of
loan given, the rate of interest, repayment period and other terms and
conditions.
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125657
QUESTION_TEXT
List out the different types of charges in charge creation.
(2 Marks each)
∗
Fixed Charge: refers to mortgage on specific fixed assets (such as
land) that ensures repayment of a loan. Since the asset belongs to the
lender, the creditor and the borrower will need permission to sell the asset.
∗
Floating Charge: A floating charge is a security that is subject to
change in quantity and value. Businesses use floating charges as it does
not affect their ability to use the fundamental asset. If the company fails to
repay the loan and declares itself bankrupt, the floating charge become
crystallized or frozen into a fixed charge.
SCHEME OF
EVALUATION
∗
First Charge: A first charge or priority charge refers to any type of
primary credit available on a property. If a borrower fails to maintain the
repayments, the mortgage lender (owner of the first charge) has the right to
take the property until the credit is fully repaid.
∗
Second and subsequent Charge: A second or a subsequent charge
is also called a second mortgage. The second charge is typically a smaller
mortgage debt than the borrower’s first credit. It is a legal charge on
property in favor of the lender. The second charge comes after the first,
which is the mortgage.
∗
Pari–passu Charge: Parri Passu is a Latin tem which means “with
equal progresses”. The phrase is used to describe simultaneous, equal
charge and similar ranking of securities. Banks have Parri Passu charge on
securities.
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125658
QUESTION_TEXT
Describe the characteristics of Secondary Reserve in Commercial banks.
(Student is expected to explain any 5 points: 2 Marks each)
SCHEME OF
EVALUATION
∗
High Liquid earning asset: The secondary reserve consists of
aggregate of high liquid earnings assets. Assets with high liquidity are
repo, reverse repo and treasury bills.
∗
Adequate liquidity to funds: One of the objectives of maintaining
secondary reserve is to impart adequate liquidity to funds without
adversely affecting profitability.
∗
Investment in assets: Investment in assets such as government
securities yield income with high liquidity without any material loss based
on following conditions: Shiftability, Low risk and Yield.
∗
Interest bearing securities: The maturity price of fixed interest that
is, the security would be equal to the face value of the security during the
end of the maturity period.
∗
Less vulnerable to interest: Assets with short period securities are
less vulnerable to interest rates fluctuate and therefore have low risks.
∗
Balance sheet: Secondary reserves are a source of supplementary
liquidity and are not listed as part of balance sheet items.
∗
Ready convertibility: The liquidity of secondary reserves depend on
the following aspects:
∙
It’s insurance
∙
Self–liquidating quality
∙
Organization of the market for the assets.
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125659
QUESTION_TEXT
Discuss the various types of loans in India?
(2 Marks each)
∗
Unsecured Loans: are also known as personal loans. The borrower
initially receives an amount of money from the lender which is paid back in
regular installments over pre–defined period of time. Most short–term
business loans are unsecured, in which the credit rating of an established
company qualifies for a loan.
∗
Secured Loans: These loans are also referred to as home–owner
loan. Secured loans are available through many sources including banks,
building societies and even super markets. The secured loan is similar to
the personal loan.
SCHEME OF
EVALUATION
∗
Term Loans: A term loan is business credit which has a maturity of
more than one year but less than 15 years. Commercial banks and life
insurance companies are the principle suppliers of term loans.
∗
Export Loans: Export loans are based on the goods delivered and
proof of the transaction agreement. As the goods are already shipped, the
loans are unsecured and the business owner must provide a personal
guarantee.
∗
Demand Loans: Demand loans are repayable on demand and are
given against the security of assets like gold or Jewellery, fixed deposits
held in the bank. Demand loans are taken to meet to meet contingencies
and normally for a short period not exceeding a year
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125662
QUESTION_TEXT
Explain ECGC, its functions and guarantees offered by the ECGC to banks
ECGC is a company owned by the government of India established in 1957 to
promote trade in India. The ECGC works under the administrative control of the
ministry of commerce and Industry and its head office is in Mumbai The ECGC
provides export credit insurance to all exporters and bankers in India. The company
provides guarantees to financial Institutions that assist exporters. The objective of
setting up ECGC was to provide export credit insurance and trade related services
to all exporters. (1 Mark)
Functions of the ECGC:
SCHEME OF
EVALUATION
1.
Insurance to exporters: (1 Mark)
2.
Export credit insurance (1 Mark)
3.
Protection against political uncertainty (1 Mark)
Guarantees offered by ECGC to banks:
1.
Packing credit guarantee: (1 Mark)
2.
Export production finance guarantee: (1 Mark)
3.
Post shipment credit guarantee: (1 Mark)
4.
Export finance guarantee: (1 Mark)
5.
Export performance guarantee: (1 Mark)
6.
Export finance(overseas lending) guarantee: (1 Mark)
QUESTION_TYPE
DESCRIPTIVE_QUESTION
QUESTION_ID
125663
QUESTION_TEXT
What do you mean by letter of credit (LC)? What are the different types of LC?
A letter of credit is an obligatory document that a buyer requests from his bank to
guarantee the payment for goods which will be transferred to the seller. A LC
assures the seller that the payment will be received for the goods. To get the
payment seller must present the bank LC with the essential shipping documents
within a given period. It is mostly used in international trade to reduce risks (1 Mark)
Types of letters o credit:
SCHEME OF
EVALUATION
1.
Revocable LC: (1 Mark)
2.
Irrevocable LC: (1 Mark)
3.
Confirmed LC: (1 Mark)
4.
Unconfirmed LC: (1 Mark)
5.
Sight credit and usance credit: (1 Mark)
6.
Back to back LC: (1 Mark)
7.
Transferrable LC: (1 Mark)
8.
Standby LC: (1 Mark)
9.
Revolving letter of credit: (1 Mark)