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Spring 2012

Master of Business Administration – Semester 4

MA 0041: “Merchant Banking and Financial Services”

(4 credits) (Book ID: B1318) ASSIGNMENT- Set 1 Marks 60


Note: Each Question carries 10 marks. Answer all the questions.

1. Describe issue management in merchant banking.

The primary market intermediaries are the merchant bankers, underwriters to issue and brokers to issues. The merchant bankers are the issue managers who bring the issues to the primary market investors. Issue management is a tedious job and is closely regulated by SEBI. In many countries, the regulators implement a licensing mechanism for issue management.

Issue management is one of the important fee-based services provided by financial institutions. There are few large-scale and specialised issue management agencies in the country. The growth of stock market and opening up of economy has increased the scope of issue management activity. SEBI has laid guidelines as ground rules relating to new issue management activities to protect the investor’s interest and for development of market. The guidelines are in addition to the company’s law requirements for the issue of capital.

1.3.1 Merchant bankers as lead managers

Merchant banker is the person who arranges or assists in funds from investors through stocks, bonds or shares on behalf of the issuer for corporate establishment or for expansion purpose of the corporate firms. The main merchant banker is the lead manager. The lead manager can have associate merchant bankers to the issue. The merchant banker is a channel between the issuer and investors. As per SEBI, merchant banker is anyone who is engaged in business of issue management by making arrangements related to buying, selling or subscribing securities or providing corporate advisory service related to issue management. The importance of merchant bankers as sponsors of capital issues is seen in their major services such as determining the composition of securities types to be issues, draft of prospectus, appointment of registrars, arrangement of underwriters, selection of brokers and advertising agents, and so on. The role of merchant bankers in the process of capital issues is very important. All public issues must be managed by merchant bankers who function as lead managers.

1.3.2 Underwriters

A significant intermediary in issue market is the underwriters to issue of capital who take up securities which are not fully subscribed. Underwriter is a person who agrees to take up shares specified in the underwriting agreement of the public, who fails to subscribe them. SEBI has allowed merchant bankers and registered underwriters to act as underwriters. To act as underwriter, a certificate of registration must be obtained from SEBI. The underwriter makes profit on the difference between the public offering price and the price paid to the issuer; and that is called the underwriting spread or price spread. Underwriters are appointed by the issuing companies after consulting with the merchant bankers to the issues.

1.3.3 Bankers to an issue

The bankers to an issue engage in activities such as acceptance of applications along with the application money from the investors with respect to issues of capital and refund application of money. Bankers to an issue accept applications with the subscriptions offered at their designated branches and forward them to the registrar in agreement with instructions issued to them. They undertake publicity to the issue by distributing publicity material, prospectus and application forms. They are entitled for brokerage on shares allocated against applications bearing their stamps. In case of large issues, sufficient numbers of banks with branches at major centres are appointed. According to SEBI regulations, registration of bankers to issues with SEBI is compulsory. Under the regulations, inspection of bankers to an issue is done by Reserve Bank on request from SEBI.

1.3.4 Brokers to an issue

Brokers are mainly concerned about obtaining the subscription to the issue from the prospective investors. The appointment of brokers is not compulsory. Members of established stock exchange are appointed as brokers to issue. Companies are permitted to appoint any number of brokers. The official brokers together with the managers to the issue coordinate the preliminary distribution of securities and acquire direct subscription from many investors. The stock exchange laws prohibit the members from acting as brokers to the issue. The stock exchange grants permission to the members if the members give their approval and the company conforms to the requirements and undertakes to have its securities listed on a recognised stock exchange. The company appoints the broker to the issue at every centre where stock exchanges are located.

1.3.5 Registrar to an issue and share transfer agents

Registrar to an issue is an intermediary in primary market. They conduct activities such as maintaining records of applications and money received from investors or money paid to the seller of securities, assisting companies in deciding the basis of allotment of securities in consultation with stock exchanges, finalising the allotment of securities and dispatching allotment letters, refund orders, and other documents related to issue of capital. Merchant bankers have a panel of registrars who help the issuing company to finalise the terms and conditions of application. Lead managers ensure that the registrar to issue is registered with SEBI and is appointed in all public issues. The registrar to issue is completely responsible for all activities allocated to him for issue management.

The share transfer agents deal with all matters related to transfer of the company’s securities. They maintain the records of holders of securities for and on behalf of the companies. The agents undertake various activities ranging from transfer of holdings to dispatch of documents, annual reports, notices, and other related activities. SEBI has laid guidelines regarding the authorisation to registrar to issue and share transfer agents. According to the guidelines a fee must be paid to SEBI. The authorisation has validity for one year which can be renewed annually.

1.3.6 Debenture trustees

Debenture trustee is the trustee of debenture stock. A debenture stock is issued as loan security to secure debts of the company. It is necessary to get a certificate of registration from the SEBI to act as a debenture trustee. The debenture trustee holds a secured property on behalf of the issuer of security. The trustee has the right to carry on with the sale of secured property in case of default by the issuer of security, according to the procedure in the Transfer of Property Act. The profits of sales will be applied to redeem the debentures. The appointment of debenture trustee is mandatory. A company appoints debenture trustees when there is a need for executing a trust deed. This occurs when the company wants to issue a prospectus or letter of offer to the public for securing subscription to its debentures. A debenture trustee is an intermediary between the issuer of debentures and the holder of debentures. The main responsibility of the debenture trustee is to safeguard the interest of holders of debentures. This includes creation of security by the company issuing the debenture and to compensate their grievances.

1.3.7 Portfolio managers

Portfolio manager is a person responsible for investing a mutual, exchange-traded fund asset and also responsible for implementing investment strategy and managing the day-to-day portfolio trading. The portfolio manager is an important factor that needs to be considered regarding fund investing. He undertakes the management and administration of portfolio of securities and funds of clients on their behalf. Portfolio management is the art of making decisions about investments and policy, allocating assets for individuals and balancing risk against performance. Portfolio management can be classified into two types-

· Discretionary portfolio management — It permits the use of discretion regarding investment and management of the portfolio of the securities and funds. In this type of management the manager independently manages the capital of each client.

· Non-discretionary portfolio management — In this type of management the manager manages funds according to the directions of the client.

It is mandatory to obtain a certificate from SEBI in order to carry on portfolio management services.


2. Explain the IPO issuance process

3. Discuss the difference between asset and fee based financial services.

4. Describe consumer credit

5. Explain the Insurance Act, 1938.

6. Write short notes on the following:

A. Credit rating

B. Leasing



Spring 2012

Master of Business Administration – Semester 4

MA 0041: “Merchant Banking and Financial Services”

(4 credits) (Book ID: B1318) ASSIGNMENT- Set 2 Marks 60

Note: Each Question carries 10 marks


1. Describe Merchant Banking and list its functions

2. Explain the post- issue obligations of a merchant banker.

3. Describe consumer credit

4. Discuss the role of SEBI in the regulation of mutual funds.

5. Describe the different types of bills.

6. Write short notes on the following:

a. Factoring and Forfaiting

b. Hire-purchase


Spring 2012

Master of Business Administration – Semester 4

MA 0042: “Treasury Management”

(4 credits) (Book ID: B1311) ASSIGNMENT- Set 1 Marks 60

Note: Each Question carries 10 marks. Answer all the questions.


1. Explain treasury management, its need and benefits and treasury exposure.


Treasury management is the process of planning, organising and managing the organisation’s holdings, trading’s, corporate bonds, currencies, financial futures, associated risks, options, derivatives, and payment systems. It handles all the financial matters including external and internal funds for business, complex strategies, and procedures of corporate finance to optimise interest and currency flows. It helps in planning and executing communication programmes to enhance investors’ confidence in the organisation.

According to Teigen Lee E (July 2001), “Treasury is the place of deposit reserved for storing treasures and disbursement of collected funds”. The responsibility of treasury management lies with the Chief Financial Officer (CFO) of the organisation. The CFO’s responsibilities include capital and risk management, planning strategies, investor relations and financial reporting. In large organisations, these responsibilities are divided among the accounting and treasury sectors. Hence the workflow between these two sectors must be ethical.

Figure 1.1 depicts treasury management in an organisation.




Treasury management is important for the following reasons:

· The development in technology, breakdown of exchange controls, unpredictable changes in interest and exchange rates, and globalisation of businesses requires treasury management.

· To actively manage financial environment, organisations require treasury management that provides the ability to undertake business opportunities and their exposure to risks.

· The expanding range of hybrid capital instruments like convertible preference issued with respect to subsidiary registration of the government need treasury management to select the appropriate businesses in the various circumstances.

· It provides the caliber to develop appropriate skills in achieving economies of scale, lower borrowing rates and netting-off balances.

· It enhances relationship between entity and its financial stakeholders which include shareholders, fund lenders and taxation authorities.

· The treasury management acts as a centralised head office in the organisation and provides financial service to various departments and enhances the financial growth in the organisation.

Few benefits of treasury management are:

· Implementation of treasury management in the organisation increases sales of the products.

· It helps in providing confident employees who work effectively in the organisation.

· It enhances better guidelines and methods to manage risks especially in the areas like foreign currency, and helps in maintaining banking relationships in the organisation.

· The treasury management model helps in identifying risks based on changes in the business conditions and operations, and implements relevant methods to reduce the risk.

· The forecasted cash flow exposures can be derived from the historical data.

· In banking organisations, it helps to optimise asset and debt performance while minimising the needs for external funding.

· The financial sector in the organisation will be able to analyse a variety of data which include funds, transactions, foreign exchange rates, market data and third party information.

· The treasury management system advises the organisation management on aspects of liquidity of its short and long term planning.

· The organisation obtains a well maintained system of policies and procedures to impose adequate level of control over treasury activities.

· An organisation investing in treasury management can expect increase in cash visibility, better management of financial risk and enhancement of treasury efficiency and accuracy.

In this section we discussed about treasury management and its need and benefits. Next section deals with treasury exposure; need to manage risk, and the concepts of corporate and hidden risks.


2. What are the features of ADRs and GDRs?

3. Define the role of RBI in exchange management

4. Explain the framework for measuring and managing the liquidity risks.

5. Discuss the interest rate management using FRAs and swaps .

6. Write short notes on the following:

a. VaR

b. Back testing



Spring 2012

Master of Business Administration – Semester 4

MA 0042: “Treasury Management”

(4 credits) (Book ID: B1311)ASSIGNMENT- Set 1 Marks 60

Note: Each Question carries 10 marks. Answer all the questions.


1. What are the benefits of future commodity markets.?

2. What are the objectives of working capital management?

3. Describe the concept of foreign exchange risk management?

4. Explain the process of risk management and various tools involved in managing risks

5. What are treasury management practices?

6. Write short notes on the following:

a. Asset Liability Management

b. Exchange Rate mechanism

Spring 2012



Spring 2012

Master of Business Administration – Semester 4

MA 0043: “Corporate Banking”

(4 credits) (Book ID: B1312) ASSIGNMENT- Set 1 Marks 60

Note: Each Question carries 10 marks. Answer all the questions.


1. Write a detailed note on evolution of corporate banking.

Thus, they play a pivotal role as a financial intermediary in an economy.

Around banking system is, therefore, extremely essential for the development of a nation.

As in case of any other business, the soundness of the banking business can be analysed through the bank’s profit and loss account and its balance sheet.

  • Meaning :

The balance sheet of a commercial bank is a statement of its assets and liabilities at a particular time.

The assets of the bank include all the amounts owed by others to the bank

They represent the application of funds to generate income for the bank.

The liabilities of the bank include all the amounts due to depositors and share holders.

The liabilities represent the sources of funds through which bank raises funds for its business.

  • Explanation :

The funds raised by the bank are applied to various terms that form the assets of the bank.

These assets are represented in order of their liquidity.

They can be categorized as follows :


Every bank holds cash balances to meet its customers’ requests for withdrawal

These balances are held with the bank itself, with other banks and with the RBI

A certain proportion of cash balances is also held with the Central Bank.

In India, it is obligatory for banks to keep a certain proportion of its total deposits with the RBI

Though cash balances do not earn direct revenue to the bank, they are of utmost importance to maintain sound liquidity position.


These are short term loans ( between 1 day to 15 days ) made in the money market.

The loans are repayable at the insistence of either the borrower’s demand or the lender’s demand.

These assets are highly liquid as they can be quickly converted into cash at call (i.e. on demand ) or at a short notice.

These loans are generally given to the bill market

To the stock market between banks

To individuals having high financial status.

These loans may be given against collateral security.


Banks provide credit to businessmen against discounting of bills.

The bill finance is repayable either demand or after a period not exceeding 90 days, whichever is EARLIER.


Thus, they can be converted into cash in less than 3 months.

These discounted bills can be further rediscounted by the bank with other financial institutions.

Banks may also purchase these bills and obtain the funds on due date.


The investments made by a bank form the major part of its assets.

The investments of a commercial bank can be categorized as :

a)      Investment in SLR securities.

b)      Investment in non- SLR securities.

a)      SLR securities :

At present ,  as per the RBI norms, commercial banks are statutorily required to invest 25% of their demand and time liabilities in the Government and Approved Securities.

  • Government Securities

Securities issued by central and state government agencies.

Securities issued by PSUs of the Central and the state governments.

  • Approved securities :

Securities issued by Quasi- Government agencies.

Such securities are issued on a case to case basis

b)      Non — SLR securities :

After the liberalization of investment norms for banks (1985), commercial banks have become active players in the financial market.

Hence banks invest in non- SLR securities like :

Commercial papers } of PSUs and private sectors,

Mutual funds}

Shares & stocks.}

Bonds & debentures}

The limit on investment in capital market has gradually shown an upward trend.


This is the most important item in the bank’s asset column.

These include the following:

  • Cash credit :

Borrower withdraws funds on collateral security

Credit limit is sanctioned by the bank .

Interest is charged on the amount outstanding.

  • Overdraft :

It is a short term advance

It is allowed on current accounts.

Interest is charged.

  • Demand loans :

They are short — term loans.

They are to be repaid on demand made by the creditor.

  • Term loans :

These loans are generally given for a period exceeding one year.

Loans are given against the security of tangible assets.

They have a specific schedule of repayment.

  1. OTHER ASSETS : These include :

Fixed assets.

Bank premises

Items in transit

furnitures and fixtures

though they do not earn direct revenue for the bank, they are vital for its day-to-day functioning.


The funds raised by the banker for carrying out its business are derived from various sources .

These founds comprise the liabilities of the bank

They can be categorized as follows :


The bank raise their share capital for commencing their banking business as well as for expansion and nodernisation.

this is actvally the contribution of funds by the share holders.

Hence it is listed in the ‘ liabilities’ column of the balance sheet.


This amount represents the sum of undistributed profit accumulated by the bank over a period of years.

According to the Banking Regulation Act 1949, a commercial bank needs to provide for at least 20% of its profit every year to reserves.

Reserves are maintained to meet contingencies

Since the reserves actually belong to the shareholders, they are the liabilities of the bank.


Banks accept various forms of deposits from the people.

These deposits are the major source of funds for the bank

The main types of  deposits are :

Current deposits}                            (refer to notes on Banking function for detailed explanation )

Savings deposits }

Fixed deposits }

Recurring deposits }


Commercial banks resort to borrowings from other financial institutions including the RBI an other commercial bank

  • They may be in the form of direct borrowing or re financing
  • It also comprises of overseas borrowings of Indian banks and borrowings of foreign branches.
  • They are generally utilized to meet working capital needs (medium & long term )
  • These liabilities are incurred by the bank in course of banking operations.
  • They include drafts

Pay slips

Traveller’s cheques

Bankers cheques etc.

  • Other liabilities include : interest accrued but not due provision for tax, etc.

Thus, assets and liabilities of a commercial bank reflect the performance and soundness of a commercial bank.





  1. Paid-up capital
  2. Cash balances.
  3. Reserves and surplus

2.Money at call/short notice.

  1. Deposits

3.Discounting /purchasing of B/E

  1. Borrowings


  1. Other liabilities and advances

6.other assets.


2. What are the key features of recovery management.

3. Write a detailed note on the various accounting concepts.

4. Explain in detail how a balance sheet should be analysed.

5. Explain the role of DRTs and DRATs in resolution of loan recovery issues.

6. Write short notes on the following:

a. Assignment

b. Lien



Spring 2012

Master of Business Administration – Semester 4

MA 0043: “Corporate Banking”

(4 credits) (Book ID: B1312) ASSIGNMENT- Set 2 Marks 60

Note: Each Question carries 10 marks. Answer all the questions.


1. Write a detailed note on advancing against document of title to goods.

2. Why do documents need registration?. Which are the documents to be necessarily registered?

3. What are priority sector advances? How can such advances be classified?

4. Explain the concept of off-shore banking and how it is different from international banking.

5. Write a note on the various tools available for credit risk management in banks.

6. Write short notes on the following

a. NPA

b. CDR


Spring 2012

Master of Business Administration – Semester 4

MA 0044: “Institutional Banking”

(4 credits) (Book ID: B1313) ASSIGNMENT- Set 1 Marks 60

Note: Each Question carries 10 marks. Answer all the questions.


1. What/who are financial intermediaries? Explain their role in the growth of the economy?


Financial intermediaries are those entities with “low-cost” money (banks, credit unions, savings & loan associations, mutual and pension funds and insurance companies) that act as providers of money (as loans or investments) to those needing funding. They have developed a sophisticated network to allow them to have these funds available and deliver them as quickly and efficiently as electronically possible.


  • Financial intermediaries perform as provider of funds to those who need money. From banks, credit unions, savings & loans, mutual funds, insurance companies and pension funds, financial intermediaries provide funds for all manner of borrowers and investors. Whether it’s a bank providing a personal loan, a mortgage lender or financial entities creating investment markets, financial intermediaries keep the flow of funds moving.


  • Individuals and businesses often need funds for working capital, asset purchases (homes, cars, equipment, buildings and computer systems) and the financial intermediary network serves as the source of this money. Borrowing from savers (depositors in banks and credit unions), financial intermediaries provide monies at a reasonable cost to those who need them. Their network, a finely tuned money machine, eliminates most difficulties for those needing funds.
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  • Financial intermediaries exercise great power and control over the country’s economy. In theory, their network allows the country’s financial transactions and money movement to keep funds flowing. At most times, this theory is the reality. However, they can also enhance the effects of a negative economy by refusing to become players in the global financial game. When regional, national or global economic problems occur, financial intermediaries sometimes choose to tighten their requirements or even to suspend money offerings. This action often makes a bad situation worse.


  • While always necessary components to the economy, the sophistication of computers and the Internet has allowed financial intermediaries to become even more efficient and important. Those needing funds can often be anywhere in the world and receive the money they need electronically. The risk of transferring funds, the time delay and the need for “hard cash” have all been effectively eliminated. This has allowed financial intermediaries to serve just as professionally as banking institutions. For example, mutual and pension funds effectively offer financial intermediary services to individuals and businesses at reasonable rates.


  • It is important to understand both what financial intermediaries are able to do and what they are willing to do for you. Having large amounts of money for loan or investment without the desire to provide these monies to others serves little purpose to those individuals and companies needing funding. Carefully consider your need for funds and those financial intermediaries most interested in providing the money.

Transformation of the risk characteristics of assets

The second main service financial intermediaries and markets provide is the transformation of the risk characteristics of assets. Financial systems perform this function in at least two ways. First, they can enhance risk diversification and second, they resolve an information asymmetry problem that may otherwise prevent the exchange of goods and services, in this case the provision of capital (Akerlof 1970).

Financial systems facilitate risk-sharing by reducing information and transactions costs. If there are costs associated with the channelling of funds between borrowers and lenders, financial systems can reduce the costs of holding a diversified portfolio of assets. Intermediaries perform this role by taking advantage of economies of scale, markets do so by facilitating the broad offer and trade of assets comprising investors’ portfolios.

Financial systems can reduce information and transaction costs that arise from an information asymmetry between borrowers and lenders.[3] In credit markets an information asymmetry arises because borrowers generally know more about their investment projects than lenders. A borrower may have an entrepreneurial “gut feeling” that can not be communicated to lenders, or more simply, may have information about a looming financial risk to their firm that they may not wish to share with past or potential lenders. An information asymmetry can occur ex ante or ex post. An ex ante information asymmetry arises when lenders can not differentiate between borrowers with different credit risks before providing a loan and leads to an adverse selection problem. Adverse selection problems arise when lenders are more likely to make a loan to high-risk borrowers, because those who are willing to pay high interest rates will, on average, be worse risks. The information asymmetry problem occurs ex post when only borrowers, but not lenders, can observe actual returns after project completion. This leads to a moral hazard problem. Moral hazard problems arise when borrowers engage in activities that reduce the likelihood of their loan being repaid. They also arise when borrowers take excessive risk because the costs may fall more on lenders compared to the benefits, which can be captured by borrowers.

The problem with imperfect information is that information is a “public good”. If costly privately-produced information can subsequently be used at less cost by other agents, there will be inadequate motivation to invest in the publicly optimal quantity of information (Hirshleifer and Riley 1979). The implication for financial intermediaries is as follows. Once financial intermediaries obtain information they must be able to obtain a market return on that information before any signalling of that information advantage results in it being bid away. If they can not prevent information from being revealed prior to obtaining that return, they will not commit the resources necessary to obtain it. One reason financial intermediaries can obtain information at a lower cost than individual lenders is that financial intermediation avoids duplication of the production of information faced by multiple individual lenders. Moreover, financial intermediaries develop special skills in evaluating prospective borrowers and investment projects. They can also exploit cross- customer information and re-use information over time. Financial intermediaries thus improve the screening of potential borrowers and investment projects before finance is committed and enforce monitoring and corporate control after investment projects have been funded. Financial intermediation thus leads to a more efficient allocation of capital. The information acquisition cost may be lowered further as financial intermediaries and borrowers develop long-run relationships (Petersen and Rajan 1994 and Faulkender and Petersen 2003).[4]

Financial markets create their own incentives to acquire and process information for listed firms. The larger and more liquid financial markets become the more incentive market participants have to collect information about these firms. However, because information is quickly revealed in financial markets through posted prices, there may be less of an incentive to use private resources to acquire information. In financial markets information is aggregated and disseminated through published prices, which means that agents who do not undertake the costly process of ex ante screening and ex post monitoring, can freely observe the information obtained by other investors as reflected in financial prices. Rules and regulation, such as continuous disclosure requirements, can help encourage the production of information.

Financial intermediaries and financial markets resolve ex post information asymmetries and the resulting moral hazard problem by improving the ability of investors to directly evaluate the returns to projects by monitoring, by increasing the ability of investors to influence management decisions and by facilitating the takeover of poorly managed firms. When these issues are not well managed, investors will not be willing to delegate control of their savings to borrowers. Diamond (1984), for example, develops a model in which the returns from firms’ investment projects are not known ex post to external investors, unless information is gathered to assess the outcome, i.e. there is “costly state verification” (Townsend 1979). This leads to a moral hazard problem. Moral hazard arises when a borrower engages in activities that reduce the likelihood of a loan being repaid. For example, when firms’ owners “siphon off” funds (legally or illegally) to themselves or their associates through loss-making contracts signed with associated firms.


2. Discuss the role of NABARD in the development of microfinance sector?

3. Write a note on the institutions handling finance in India.

4. What are HFCs? Discuss the performance of some prominent HFCs in the country.

5. Write a detailed notes on RTGS and NEFT facilities.

6. Write short notes on the following:

a. Securitization

b. Depository



Spring 2012

Master of Business Administration – Semester 4

MA 0044: “Institutional Banking”

(4 credits) (Book ID: B1313) ASSIGNMENT- Set 2 Marks 60

Note: Each Question carries 10 marks. Answer all the questions.


1. Discuss the concept of Universal Banking.

2. What do you think are the key strengths and challenges faced by the microfinance sector?

3. NABARD is a refinance institution. Explain this role of NABARD in detail.

4. What is your understanding of the concept of cash management services by banks?

5. What are the measures to be taken for monitoring a term loan?

6. Write short notes on the following terms:


b. National Electronic Funds Transfer

Spring 2012

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