BFSI Sector Model Q&A

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Banking Financial Service & Insurance (BFSI) Sector Model Questions and Answers
Prof. (Dr). Sujoy Kumar Dhar

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Banking Financial Service & Insurance (BFSI) Sector Model Questions and Answers
by Prof. (Dr). Sujoy Kumar Dhar

Associate Dean and Academic Coordinator;
Faculty Member of Finance, Economics and Control,
ICFAI Business School, Kolkata

First e-book edition: 15 April, 2025

ISBN: 978-93-342-8697-7

Price: Rs.50/-

If you like this book, kindly send the amount through UPI to this no. 9163924147.

Samanwoy, Karunamoyee Samanwoy Samiti, G-12/1, Karunamoyee Housing Estate, ED Block, Sector-II, Salt Lake City, Kolkata-700091

Compose & Proof Reading: Sujoy Kumar Dhar

E-mail: samanwoy23wm@gmail.com

Website: www.samanwoy23.com

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Preface

The big financial consulting firms and BFSI (Banking, Financial Services and Insurance) companies are major recruiters for M.Com. and MBA Finance final year students. It has been observed that in majority of the cases, interview panel members ask questions related to basics of Accounting and Finance. They prefer to verify whether the candidates have basic conceptual clarity regarding their functional domain or not. Students are utterly confused how to prepare for the interview. They are unable to understand what to refer as the last-minute suggestion. Companies visit the campus within a very short notice. Hence it is almost impossible for students to prepare for the interview at the eleventh hour. In order to crack the interview in a reputed company, the necessary and sufficient condition is sound domain, proper skill set as well as a flexible and dynamic attitude. To acquire sound subject knowledge, students should attend all the sessions of core as well as elective subjects offered by their post-graduation Institutes/Universities. Simultaneously students should study the prescribed textbooks of different courses to get an in-depth knowledge about the subjects. Since course curriculum of M.Com. and MBA are really vast and different subjects are offered in various semesters, it becomes essential to revise the content before the final interview. To facilitate the selection process of post-graduation students, this book has been authored. The book contains 145 suggested question answers of basic accounting, finance, banking and current affairs. The interviewee may use it as handbook for their placement preparation.

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Brief Profile of Prof. (Dr). Sujoy Kumar Dhar

Prof. (Dr). Sujoy Kumar Dhar is Associate Dean and Academic Coordinator of ICFAI Business School, Kolkata. His core area of expertise is Finance, Economics and Control. He has more than 19 years of teaching experience. He has obtained his Degree of Doctor of Philosophy (Ph.D.) in Commerce from the University of Calcutta and his title of thesis is "A Study of Corporate Governance Practices in the Indian Banking Sector". He has done M.Sc. in Economics with specialization in Econometrics and Statistics from University of Calcutta. He has also done his MBA with Finance specialization from IISWBM under University of Calcutta.

Professor Dhar is the Member of Federation of Indian Professional Trainers. He has authored a derivative book named as 'Investment Strategies for Individual Investors' by ICFAI University Press in 2008. He has also authored a book titled as 'Marketing the Financial Services to the Unbanked Population' published by the LAMBERT Academic Publishing in 2013. He has also authored a book titled as 'Corporate Governance Practices in Indian Banking Sector and Its Several Perspectives' published by the Vandana Publications in 2022. He has also authored a book titled 'Futuristic Trends in Management' Volume 3, Book 12 published by IIP publications in 2024. He has more than 70 research publications in different national and international reputed journals. He has also attended and presented research papers in different National and International Seminars as well as Conferences.

He has conducted different Corporate Training programs as well as Management Development Programs in branded organizations such as Kotak Mahindra Asset Management Company, ICICI Bank, ICICI Securities, Life Insurance Corporation of India (LIC), M Junction, Peerless General Finance and Investment Company Limited, Anand Group, Apollo Nursinghome, Asian Paints, Tata Metaliks and HPCL. Professor Dhar is the recipient of 'IBSAF Best Faculty Award' for the year 2015-16 and 2011-12. He served several business Schools as the Academic Consultant such as Indian Institute of Foreign Trade, International School of Business, International School of Business and Media, NIS Academy, ICFAI 360 flexi, National Institutes of Securities Management, NSHM Business School, Manipal Universities, Strategy Academy mentored by Prof. Ranjan Das of IIM Calcutta, Narsee Monjee Institute of Management Studies and Xavier's College. His area of research interest is capital market, banking and corporate governance.

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Acknowledgement

At the outset, I want to express my heartfelt gratitude to Dr. Ajay Pathak, Senior Director of ICFAI Business School, Kolkata as he has provided me ample opportunities and motivated me constantly to contribute in the sphere of intellectual capital apart from teaching and other institutional assignments. I have to mention the name of IBS separately as whatever little bit I have learnt about teaching and research; entire credit goes to the institution as it provided me excellent research infrastructure. I have learnt a lot from my colleagues and friends. I am also grateful to my students both the current as well as previous batches as I believe students are my gurus. Last but not the least, I have no words to mention or complement for the contributions made by my parents. They have provided their all-out support without which it would have not been possible for me to complete this book.

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Model Questions and Answers

1. What is the difference between Preference share and Equity share?

Ans. Preference shareholder enjoys preference in case of distribution of dividend and repayment of capital when company goes on liquidation. All Preference shares are redeemable in India. Preference share holder has no voting right and it is not market traded. Therefore, preference shareholders only can enjoy dividend gain.

Equity share is not redeemable. Equity shareholders are owner of the company. Equity shareholder has voting right in selection of board of directors of company. Equity shares are market traded. Equity shareholders will enjoy both dividend and capital gain.

2. What is the difference between NPV and IRR?

Ans. Net Present Value (NPV) of a project is defined as excess of the sum total of present value of future inflow over and above the current outflow. If NPV of the project is positive, project is accepted. NPV follows additive rule. Multiple NPV is not possible for a project. NPV aims to maximize the wealth of the firm.

Internal Rate of Return (IRR) is the discounting rate for which sum total of present value of future inflows will be equal to current outflow. If IRR is greater than cost of capital, project is accepted. IRR does not follow additive rule. Multiple IRR is possible if direction of cash flow of the project changes more than once, so many times direction will be changed, so much number of IRR will be there. IRR maximizes the return from the project.

3. What is the difference between forward and future?

Ans. Both forward and futures are examples of derivative instrument. They are basically the agreement between buyers and sellers to deliver a particular asset at a predetermined future price at a predetermined future date. They are different due to following aspects. Forward is not market traded but future is market traded. Default risk is high in forward but in future there is no default risk. Forward is highly illiquid but liquidity of future is high. Forward has no standardized format but future has standardized format. No margin money is required for forward as there is no clearing house between buyer and seller but both the buyer and seller have to deposit margin money in future to the clearing house.

4. What is the difference between future and option?

Ans. Future is an agreement between buyers and sellers to deliver an instrument at a particular predetermined price at a predetermined future date.

Option is an agreement that gives the buyers right but no obligation to buy or sell any instrument at a particular price within or on a predetermined future date. Option seller is obliged to sell or buy the instrument when option buyer exercises its option. Option seller is enjoying premium from option buyer. The option that gives right to buy is called call option. The option that gives right to sell is called put option.

In case of future, either trader has to take or make the delivery of the underlying asset on the delivery date or they have to square off their position before the maturity date. In case of option, buyer has the right but no obligation to exercise the contract. In future possible profit or loss cannot be forecasted in advance unless and until trader squares of its position. In case of option, for the buyer maximum possible loss is limited to premium price.

5. What is the difference between systematic and unsystematic risk?

Ans. Systematic risk implies that risk which will affect the share of all sectors. Example of systematic risk is political risk, inflation risk, interest risk. Systematic risk can be reduced by hedging.

Unsystematic risk is a sector specific risk which arises due to inefficient operation of a particular sector. Example of unsystematic risk is Government regulation, external risk, market risk, financial risk, corporate governance risk. If investor can invest in different stocks of diversified nature, unsystematic risk can be reduced to minimum.

6. What is the difference between CML and SML?

Ans. Capital Market Line (CML) shows linear relationship between portfolio risk and portfolio return. Capital market line is efficient frontier when the individual diversifies their investment into risk free and risky asset.

Security Market Line (SML) measures the required rate of return of an individual security. Required rate of return of a security is risk free rate of return plus risk premium multiplied by beta value of the security. If the expected return from the security is greater than the required rate of return, the asset is underpriced or vice versa. Whether an asset is overpriced or underpriced, it is determined by SML. If the asset is plotted above SML, it is underpriced and if the asset is plotted below SML, it is overpriced.

7. What do you mean by hedger, speculator and arbitrageur?

Ans. Hedger wants to minimize their risk by adopting appropriating investment strategy.

Speculator wants to maximize its gain by using their speculation power. They are ready to take higher risk to get higher return.

Arbitrageur wants to earn risk less profit by taking the advantage of price differentials.

8. What do you mean by Sensex and Nifty?

Ans. Sensex is the index of 'Bombay Stock Exchange'. It is the weighted average of the price of top 30 securities on the basis of free float market capitalization.

Nifty is the index of 'National Stock Exchange'. It is the weighted average of the price of top 50 securities on the basis of free float market capitalization.

9. What do you mean by beta value of a security? How it is calculated?

Ans. Beta value is the market sensitivity of a stock. It measures the change in the market price of the security due to change in market index. Beta is the measure of systematic risk.

Beta value of the stock is calculated by the formula = Covariance between the return of market index and return of the particular stock/variance of the market index.

10. What is trading on Equity?

Ans. If return on capital employed of the firm is greater than cost of debt capital, by relying more and more on debt capital, firm can raise its earnings per share. It is called trading on equity.

11. In future trading, how many types of margins an investor is required to keep?

Ans. There are three types of margins - initial margin, variation margin, maintenance margin, that a future trader is required to keep. Both the buyer and seller of the contract have to deposit a certain percentage (usually 10%) of total value of the contract in the clearing house as initial margin. If any one of the parties makes default, clearing house will compensate the other party with the help of the margin money. Maintenance margin is the minimum necessary margin money that each party to has to keep in their account. Since future is being traded daily, depending on appreciation or depreciation of the market price of future margin will increase or decrease. If Margin money falls below the maintenance margin, party will get a call from the clearing house to deposit the money so that his margin balance will increase to initial margin level. This is known as variation margin.

12. What is the difference between Technical analysis and Fundamental analysis?

Ans. According to Technical analysis market price of the stock is determined by the free movement of market forces such as demand and supply. These demand and supply are influence by both fundamental and psychological factors. The bottom line is that barring few exceptions, stock prices are moving along a particular trend. Therefore, future stock price trend can be determined from the past movement of stock price. Stock price movement can be explained with the help of graph and charts.

Fundamental analysis is used to determine the intrinsic value of the share. It includes analysis of economy, industry and company. Economy analysis takes into account different factors such as GDP of the nation, Saving and investment pattern, Money supply, inflation and interest rate, Union Budget, balance of payment position etc. Industry analysis incorporates Porter's five factor model, Industry life cycle and nature of industry (Growth industry, cyclical industry, defensive industry). Company analysis includes analysis of liquidity, solvency, profitability position of the company which will be followed by valuation of the company by discounted cash flow method such as Dividend Discount Model, Free cash flow to equity Model, Free cash flow to firm model etc. If the intrinsic value of the stock is less than the market price, it is overpriced or vice versa.

13. What do you mean by weak, semi strong and strong form of efficiency in the market?

Ans. Market efficiency means to which extent current information are instantaneously reflected in the market price of the stock.

Weak from of efficiency implies that all the market participants have the information of past period stock price. Therefore, current period stock price is reflecting the past period stock price. On the basis on past period stock price information, nobody can earn extraordinary profit in the weak form efficient market. Autocorrelation test and run tests are used to judge whether the market is following weak form efficiency or not.

Semi strong form of efficiency implies market participants have information about the past period stock price movement as well as all published information about the company such as quarterly financial report, dividend declaration, bonus issue, right issue, stock split, merger acquisition news etc. Thus, current stock price reflects previous period stock price as well as all publicly available information. On the basis of information of past period stock price and published information, nobody can earn extraordinary profit if market is semi strong efficient.

Strong form of efficiency implies market participants have the easy access to both internal and published information about the company. Thus, stock price will reflect publicly available information as well as internal information. Insider trading also not possible if market is strong form efficient.

14. What is Dow Theory?

Ans. According to Dow Theory of Technical Analysis, stock price is moving along a particular cyclical trend. Market is governed by primary trend, secondary trend and day to day fluctuation. Primary trend shows the long-range cycle which makes the entire market up or down. Secondary trend implies market correction that restraints the movement of primary trend. Secondary trend moves in opposite direction of primary trend. Day to Day fluctuation of stock price depends on sentiments of the people. Volume will also move along the primary trend. If primary trend is bullish, volume will increase when share prices are going up and volume will go down when share price decreases. On the contrary, if primary trend is bearish, volume will increase when share prices are going down and volume will fall when share prices are going up.

15. What is REPO and Reverse REPO?

Ans. Often commercial banks borrow from RBI by selling their securities with an agreement to repurchase it after a certain period of time at a higher price. The rate the commercial bank has to pay to RBI is called REPO (Repurchase Agreement or Repurchasing Option) Rate. In inflationary period, RBI raises the Repo rate. During the recession time, Repo rate is reduced. Current Repo rate is 6% as on 14th April, 2025.

When RBI is borrowing from RBI, the commercial bank will receive the interest from the borrowers. The rate commercial banks receive from the RBI is known as the reverse Repo. Current reverse Repo rate is 3.35% as on 14th April, 2025.

16. What is covered call and naked call?

Ans. A covered call strategy involves writing a call option on an asset along with buying the asset. It is called covered position because potential obligation to deliver the stock is covered by the underlying stock in portfolio.

A naked call strategy involves writing a call option on asset without buying the asset. It is called naked position because potential obligation to deliver the stock is not covered by the underlying stock in the portfolio.

17. What is in the money and out of the money call option?

Ans. If buyer of the call option has a net cash inflow as because spot price is greater than the exercise price, it is in the Money Call Option.

If buyer of the call option has a net cash inflow as because spot price is less than the exercise price, it is Out the Money Call Option.

18. What do you mean by protective put strategy?

Ans. When an investor purchases an underpriced stock with the anticipation that its price will go up in the near future, there is a risk that due to market risk price of the stock may fall. To hedge risk, it will purchase put option. It is known as protective put.

19. What is the difference between the close-ended and open-ended mutual fund scheme?

Ans. The subscription to a close ended scheme is kept open only for a limited period. A close-ended scheme does not allow investors to with draw funds as and when they like. A close-ended fund has a fixed maturity period.

The open-ended scheme accepts funds from investors by offering its units on a continuous basis. Open-ended scheme permits investors to withdraw funds on a continuing basis under a repurchase agreement. An open-ended scheme has no maturity period.

20. What is Systematic Investment Plan and Systematic Withdrawal Plan?

Ans. Under Systematic Investment Plan, the investor can invest regular sums of money every month to buy units of a mutual fund scheme. As the investment is made regularly, the investor buys more units when the price is low and buys fewer units when the price is high. It implies SIP provides the opportunity of rupee cost averaging to the investor.

Systematic Withdrawal Plan allows the investor to withdraw a fixed amount every month. The mutual fund sends the redemption proceeds to the investor every month automatically. The investor can opt for a fixed sum every month or a certain percentage of the capital appreciation in the NAV of the scheme.

21. What is Book Building Process?

Ans. Public companies are entitled to raise the fund by issuing the shares. Public companies are those which are not Private Limited companies. To become eligible for IPO, Public companies have to conform to any one out of the three entry norms mentioned in the SEBI DIP Guideline. Book building process is used in IPO and FPO where issue price is not disclosed earlier. When a company is going for a public issue, first it has to file a draft prospectus to SEBI with the help of Merchant Banker 21 days prior of filing red herrings prospectus with the Registrar of the Companies provided company is going for 100% book building process. In the red herring prospectus, only the information such as total number of shares issued by the company, the face value of the share and total number of shares available for Net Public Offer are given. Just before two days of opening the bidding process, cap and floor price is provided. The cap should not be more than 120% of floor price. Floor price is the minimum price which an investor can bid and cap is the maximum price for which investor can bid in order to get the allotment of the share. After the bidding process is over, issue price is determined depending on the demand pattern for the stock. In a book building offer, issue price reflects revealed demand and contemporary market conditions. In book building process, if the company wants to revise the price band, they can do so but they have to disseminate the necessary information about change by a press release, as well as information should be available in the company's website, in the website of all merchant bankers who are managing the issue and, in all print, as well as electronic media. After the revision of price band, bidding should be open at least for three days. In book Building process, issue price is determined at a price at which company can generate maximum sale proceed as well as company will be able to offload its target volume of shares.

22. What is Circuit Filter/Circuit Breaker?

Ans. Stock market volatility is generally a cause of concern for both policy maker as well as investors. To curb excess volatility, SEBI has prescribed a system of price bands. Price bands or circuit breakers bring about a coordinated trading halt in all equity and equity derivative markets nationwide. An index-based market wide circuit breaker system at three stages of index movement either way at 10%, 15% and 20% has been prescribed. The breakers are triggered by movement of either Nifty or Sensex whichever is beached earlier.

I) For 10% Up or down

Before 1.00 - halt 60 minutes

Between 1.00 to 2.30 - Halt for 30 minutes

2.30 onwards - No trading for the day

II) 15% Up or down

Before 1.00, halt for 2 hours

1.00 to 2.00, halt for 1 hour

2.00 onwards halt for the day

III) 20% - No trading for the day

As an additional measure of safety, individual scrip wise price bands of 2%, 5%,10%, 20% either way have been imposed for all scrip. No price bands will be applied for Derivative securities, Securities included in an index on which derivative products are available, and Day one of listing.

23. What do you mean by Transaction, Translation and Operating Exposure?

Ans. When a firm has a receivable or payable in a foreign currency, a change in exchange rate will alter the amount of local currency received or paid. Such risk exposure is referred as transaction exposure. If home currency appreciates, exporters will suffer but importers will be gainer.

On the other hand if home currency depreciates, importers will suffer but exporter will be gainer. The law in many countries requires that the financial statements of foreign subsidiaries and branches have to be consolidated with the parent company at the end of the financial year. For such considerations, assets and liabilities of the subsidiaries are required to be translated into domestic currency at the exchange rate prevailing on the consolidation date. If the value of foreign currency changes on the consolidation dates, translation gain or loss will arise. But it is paper profit or paper loss as there will be no cash outflow.

The essence of Operating Exposure is that exchange rate changes significantly alter the cost of a firm's input and the price of its output provided cost of production is incurred in one nation and target market for selling the product is in another nation. If the currency of the producing nation appreciates with respect to the currency of the nation from where company generates revenue from selling, by default profit margin of the nation will be squeezed. It is possible when manufacturing takes place in one nation and selling takes place in another nation.

24. What do you mean by Global Depository Receipt (GDR), American Depository Receipt (ADR) and Indian Depository Receipt (IDR)?

Ans. A depository receipt is a negotiable certificate that usually presents a company's publicly traded equity or debt. Depository receipts are created when a broker purchases the company's share on the home stock market and deliver those to the depository's local custodian bank which then instructs the depository bank to issue a depository receipt. Depository receipts are quoted and traded in the country in which they trade and are governed by trading and settlement procedure of the market. All the depository receipts including GDR are essentially equity instrument created or issued abroad, not by the companies but by the oversea depository's bank which are authorized by the company in say India to issue them to nonresident investors against their shares. These shares are physically held by domestic custodian banks nominated or appointed by Overseas Depositories Banks (ODB). In the company's book the ODBs' name appears as the holder of their shares.

When an Indian company is willing to raise the fund from USA without being listed in the 'New York Stock Exchange', the company can do so by issuing ADR. On the other hand, if an Indian company is willing to raise the fund from rest of the globe apart from USA, it can do so by issuing GDR.

When a foreign company is willing to raise fund from Indian market without being listed in the Indian stock exchanges, the company can go for issuing IDR.

25. What is difference between European an American option?

Ans. A European option can be exercised only on the expiration date whereas an American option can be exercised on or before the expiration date. Therefore, American option offers much flexibility than European option.

26. Mention some names of Credit Rating Agencies.

Ans. In India, the Credit Rating Information Services Limited (CRISIL), Investment Information and Credit Rating Agency (ICRA) and Credit Analysis and Research Limited (CARE) provide bond and other debt rating.

27. What are the instruments in Money Market?

Ans. Money Market is a mechanism when fund can be borrowed or lent for short term that is less than one year. The instruments in the Money Market are Call Money, Notice Money, Treasury Bill, Bills of Exchange, Commercial bill, Certificate of Deposits and Repo and Reverse Repo rate.

28. What is Short Selling?

Ans. Often investors sell the shares of a company in the first half of the day when they do not have the ownership of the share. This is known as short selling which takes place specifically in intraday activity where traders have to buy the shares in the second half of the day. They anticipate that price will go down in the second half of the day. If their speculation is correct, they will earn lucrative profit. On the contrary, if speculation goes wrong, they have to incur loss.

29. What is straddle?

Ans. When investor is feeling that there will be a big suing in the market, but he is uncertain that it will take place in which direction, he uses the strategy known as straddle. Straddle is a strategy to purchase/sell a call and a put option simultaneously with same exercise price and same expiration date. Long straddle is used when it is expected that spot price will move to the either direction from the exercise price. Short straddle is used when stock price is expected to be very close with exercise price.

30. Explain the concept of Bull Spread and Bear Spread Strategy.

Ans. If investor perceives that there will be bullish trend in the market but he is not very sure about it, he uses Bull Spread Strategy. Here investor buys one call option and sells another call option with same expiration date but with different exercise price. Investor purchases that call option whose exercise price is below than the spot price and sells that call option whose exercise price is greater than the spot price. Profit will be maximized if the spot price is above than out the money call option. Loss will be maximum if the spot price is below the in the money call option.

Bear Spread Strategy is used when investor anticipates there will be bearish trend in the market but he is not certain about the intensity of it. Here investor buys a call option whose exercise price is higher than spot price and sells a call option whose exercise price is less than spot price. Profit will be maximized if spot price falls below the exercise price of in the money of the call option and loss will be maximized when spot price is above the exercise price of out the money call option.

31. What is Butterfly Strategy?

Ans. Another popular strategy is called Butterfly Strategy. In long butterfly, investor purchases two extreme call options and sell 2 units of intermediate call options. For example, if there are 3 call options A, B, C whose exercise price are Rs. 100, 150, 200 respectively, in long butterfly investor will buy A and C and sell 2 units of B. In long butterfly, profit will be maximized if spot price comes close to the exercise price of B. in short butterfly, investor will sell A and C and buy 2 units of B. In short butterfly, profit will be maximized if spot price becomes either below the exercise price of A or above the exercise price of B.

32. Define Decision Tree and its uses.

Ans. Concept of Decision Tree is widely used in investment analysis. Decision Tree is graphical method for identifying alternative actions, estimating probabilities and indicating the resulting payoff. A decision tree is basically used to make decisions in complex situations when outcome of a later situation is dependent on the outcome of the former. By incorporating the probabilities of various investment possibilities in the Decision Tree, it is possible to comprehend the true probability of a decision leading to results desired. A basic value of Decision Tree lies in expressing all outcomes or events in quantitative terms which provide precision in decision making.

33. How liquidity position of a company is judged?

Ans. To conclude regarding the firm's liquidity position, concept of ratio analysis is to be taken into account.

a) Current ratio = Current asset/Current liability Current assets are those assets which can be converted into cash within one year without any diminution in value such as cash in hand, cash in bank, sundry debtors, bills receivables, stocks, prepaid expenses etc. Current liability is the expenses those are to be incurred within one year such as bills payable, sundry creditors, outstanding expenses, provision for taxation, provision for depreciation and proposed dividend etc. The ideal current ratio is 1.5 so that each rupee of current liability should be backed by 1.5 rupee of current asset.

b) Quick ratio = Quick ratio is the ratio of quick asset to quick liability. It is defined as current asset - stock/current liability - bank overdraft. Sometimes it happens that current ratio is high but quick ratio is low. It shows majority of the current assets are in the form of stocks where there is no guarantee whether company will be able to offload the stock within one year or not. Higher quick ratio stands for sound liquidity position of the company. Company has consolidated its position in such way, that there is no chance of payment default to the suppliers and creditors.

34. How solvency position of a company is judged?

Ans. When an investor is willing to invest in a stock, at first the solvency aspect of the company is to be judged.

a) Debt Equity ratio = Debt equity ratio is an indicator of long-term solvency position of the firm.

Debt Equity ratio = Long term debt/shareholder's fund. Long term debt includes long term loan from bank or financial institution, bond and debenture.

Shareholder's fund = equity capital + preference share capital + reserve and surplus - fictitious asset if any.

If firm has lower debt equity ratio, it implies that firm is depending more and more on equity capital instead of debt capital. So, investor's fund is almost safe. On the contrary if debt equity ratio is high, there is a risk of insolvency as the firm relying more and more on debt capital.

b) Proprietary ratio = by definition, Proprietary ratio = Shareholder's/proprietor's fund/Total asset. If proprietary ratio of the firm is high, it interprets that long term solvency position of the firm is good. Majority of the assets are financed by shareholder's fund. Low proprietary ratio presents just reverse scenario that firm has a lot of debt burden.

35. What do you mean by Efficiency or Turnover Analysis of a firm?

Ans. This describes the degree of efficiency in utilization of various assets deployed in the firm.

a) Inventory turnover ratio = Inventory turnover ratio is defined cost of goods sold/average inventory.

Average inventory holding period = 365/Inventory turn over

Inventory turnover throws light at the degree of efficiency in inventory management. A high inventory turnover ratio is the indicator of sound inventory management. A low inventory turnover ratio implies excessive inventory levels than warranted by volume of operation. A high level of idle or obsolete inventory means blockage or loss of capital. A very high inventory turnover ratio should be examined cautiously. It may be due to maintaining an inadequate level of inventory which may cause frequent stock out.

b) Debtors' turnover ratio = It is defined as Credit sales/average receivables.

Average collection period = 365/debtors' turnover ratio

Higher debtor turnover ratio means shorter average collection period. It indicates efficiency in collection of debt. Debtors are not allowed to linger their payment. Lower debt turnover ratio means longer average collection period. This reflects inefficiency in collection of debt. It may result the bad debt which may erode profitability.

c) Creditors turnover ratio = It is explained as

Annual Credit purchase/Average payable.

Average payment period = 365/creditors turnover ratio. A low credit turnover ratio is apparently favorable as in that case firm enjoys lengthy credit period. Strain on working capital is low. High credit turnover ratio indicates firm is to pay its suppliers immediately after purchase.

36. How profitability position of a firm is judged?

Ans. Vital parameter to measure the success of the company is its profitability. Usually, profit is defined as the difference between total revenue and total cost. There are several measurements of profitability -

a) Gross profit margin = Gross profit is nothing but excess of sales over and above the cost of goods sold. Gross profit margin = gross profit/sales x 100.

If gross profit margin of a firm is high it indicates that firm has achieved excellence in curtailing the production/manufacturing cost.

b) Net profit margin = Net profit is nothing but post tax profit of the company. Net profit = operating income + income from other sources - depreciation - interest - tax. Net profit margin = net profit/sales x 100. If net profit margin of a firm is high it implies that the firm is able to cope with all unfavorable circumstances whatever may take place in near future such as fall in the price of the product, emergence of substitutes, difficulty of obtaining raw materials etc. If gross profit margin is high but net profit margin is low, it implies though firm has attained efficiency in manufacturing but due to higher office and administrative expense, its net profit is not up to the mark.

c) Return on equity = The most important indicator of financial performance, the Return on Equity (ROE) is defined as

ROE = PBIT/sales x sales/assets x PBT/PBIT x PAT/PBT x asset/net worth

ROE = PBIT efficiency x asset turnover x interest burden x tax burden x leverage

In simple version Return on Equity is interpreted as PAT/Net worth.

Net worth of a company is Equity capital + Preference capital + Reserve and surplus - fictitious assets if any.

If return on equity is high, it shows stock performance of the company is very good.

d) Earnings per share = Earnings per share is the ratio of firm's total earnings, net taxes minus preference dividend over the number of equity shares. It is desirable that a company should have a higher EPS. Then the stock of the company will be lucrative option for the investor.

37. What do you mean by Operating Leverage and Financial Leverage?

Ans. Leverage analysis of firm is also very vital to get an idea about the firm.

a) Operating Leverage = Operating Leverage measures disproportionate change in profit due to proportionate change in sales.

Degree of Operating Leverage (DOL) is defined as contribution/contribution - fixed cost. If fixed cost of a firm is higher, its DOL will be higher. Breakeven point of output will be higher. The firm will be in a risky position. There is a risk that due to reduction of small amount of sale, profit will be reduced to large extent. Higher DOL is preferable when demand for the product or service of the firm is more or less stable.

b) Financial Leverage = Financial Leverage measures disproportionate change in earning per share due to proportionate change in profit.

Degree of Financial Leverage (DFL) is defined as Profit before Interest and Tax (PBIT)/Profit before Tax (PBT).

DFL = PBIT/PBIT - I. If interest burden of a firm is high, DFL will be higher. When firm depends more and more on borrowed capital, firm will be in risky position because due to higher DFL there is a risk that earning per share will fall to a larger extent when profit falls. Higher financial leverage is favorable if the return on capital employed is higher than the cost of raising capital. In this case, by relying more and more on debt capital, earning per share can be enhanced which is known as Trading on Equity.

38. What is Random Walk Theory?

Ans. Random Walk Theory implies that stock price of today has no influence on stock price of tomorrow. Change in stock price occurs if there is a change in economy, industry or company. That information is immediately and instantaneously reflected in the stock price. Therefore, movement of stock price is at random rather than in a predicted pattern.

39. Mention some methods of capital budgeting where risk and uncertainty are incorporated.

Ans. Some methods of capital budgeting with risk and uncertainty are -

1) Risk Adjusted Discount Rate = RADR implies discounting rate should take into account both time value of money as well as risk premium.

RADR = Time value of money + risk premium

2) Certainty Equivalent method = Certainty equivalent factor is measured as risk free cash flow divided by risky cashflow.

For the sake of simplicity if it is assumed that Rs. 12000 certain cashflow is generated out of Rs. 20000, certainty equivalent factor is 12000/20000 = 0.6

3) Sensitivity Analysis = As future is full of risk and uncertainty, it is assumed that there are three possibilities such as most optimistic, equally likely and most pessimistic situation. If NPV of the project remains positive in all three cases, project may be accepted without any ambiguity.

40. What do you mean by intangible assets and fictitious asset?

Ans. Intangible assets are those assets which are created through time and effort but they are not physically measurable. Intangible assets are of two types such as official asset and fictitious asset. The example of official assets is patent, copyright. These are intellectual property right that the innovator of a new product, process, and concept enjoys. Patent and copyright has finite period of life. Over the life company has to write them off.

Fictitious assets are those which have monetary value without backed by any physical asset. The externally generated goodwill can be cited as the example of fictitious assets. When one company acquires another company, the excess of book value acquirer company pays to the target company for its each share multiplied by number of outstanding shares of the target company is known as externally generated good will for the acquirer company and it will be shown as the asset side of the balance sheet. In case of fictitious assets, they have to be written off at a higher rate.

There are some items which are placed in the asset side of balance sheet in accounting sense but they cannot be considered as the asset of the company logically. If a company incurs loss, it will be shown in the asset side of the balance sheet though loss is not an asset for a company. Preliminary expense and discount on issue of shares are also example of fictitious asset.

41. What is the difference between Free Cash Flow to Equity (FCFE) and Free Cash Flow to Firm (FCFF) concept?

Ans. FCFE model is used as a modern equity valuation approach. It shows the free cash flow available to equity shareholder after meeting all expenses.

FCFE = Net Income - (Capital expenditure - Depreciation - amortization) - Change in non-cash working capital + Net cash inflow from debt issue.

Net Income = Profit After tax

Current Market price of the share = FCFE1/(r - g)

FCFE1 = Free cash flow equity shareholder after 1 year.

r = cost of equity (determined by CAPM model)

r = risk free rate of return + Beta value x risk premium

g = expected growth rate

Reinvestment rate calculation is done on the basis of FCFE model. In case of equity valuation, Growth rate = Reinvestment rate x return on Equity

Reinvestment rate = (Capital expenditure - depreciation - amortization + change in non-cash WC - debt issue + debt redemption)/Net Income, Return on Equity = PAT/Net worth

FCFF model shows cash flow available to the members of the firm that is both debt and equity holder.

FCFF = PBIT (1 - t) + R (1 - t) + Depreciation + Amortization - Capital expenditure - change in non-cash working capital R = Interest payment by the company to creditor

g = ROCE x Reinvestment rate

ROCE = PBIT (1 - t)/(book value of debt + book value of equity)

Reinvestment rate = (Capital expenditure - depreciation - amortization + Change in Non-cash working capital)/[PBIT (1 - t) + R (1 - t)]

Current price of the market share = FCFF1/(k - g), K = weighted average cost of capital = WACC = (Book value of debt/Book value) x cost of debt + (Book value of equity/Book value) x cost of equity

42. Compare between EVA and MVA.

Ans. EVA is the Economic Value Added which is considered as a performance evaluation for the company. EVA can be computed by two methods - Residual Income method and Refined Earning method.

According to Residual Income Method,

EVA = {(NOPLAT/Total capital) - WACC} x total capital

NOPLAT = Net Operating Profit Less Adjusted Tax

WACC = Weighted Average Cost of Capital

WACC = (Book Value of debt/Total book value) x cost of debt x (1 - t) + (Book value of Equity/total book value) x cost of equity

According to refined earning method, EVA is calculated as

EVA = (sales - operating expense) - WACC x net assets

If EVA of a company is positive, it implies return earned from investment is greater than cost of capital. Therefore, if sales are increased, marginal revenue will always be greater than marginal cost. When EVA is negative, for incremental sales, marginal revenue will be less than the marginal cost.

EVA is the best financial indicator for the financial organization because

It takes into account only operating profit.

For computation of EVA, WACC is taken into consideration where both cost of equity and cost of debt are included.

MVA is market value added which is defined as

MVA = Market value of equity - (Book value of debt + Book Value of Preference Share + Book Value of equity)

MVA of a company is the sum total of present value of future EVA.

MVA = EVA1/(1 + WACC) + EVA2/(1 + WACC) 2 + EVA3/(1 + WACC) 3 + ---- EVAn/(1 + WACC)n

If MVA of a company is positive, it implies company's performance in terms of shareholders wealth maximization is satisfactory. Otherwise, investors will think twice before investing in that company.

43. What is Hedge Fund?

Ans. A Hedge Fund is an investment fund that can take wider range of investment and trading activities than other funds. This is only open for investment for particular types of investors specified by the regulators. These investors are typically Qualified Institutional Buyers (QIB) such as Pension Fund, University Endowment Fund and High Net worth Individuals (HNI). Hedge Funds are typically open ended as the investors can invest and withdraw money at regular specified intervals. Hedge Fund typically pays its investment manager which is the percentage of the assets of the fund and a participation fee of the funds and a performance fee if the net asset value of the fund increases during the year. Since Hedge Funds are not sold to the retail investors, the funds and their managers historically not been subject to the same restrictions that governs other fund and investment fund managers with regard to the disclosure of basic information which includes how the fund is structured and how strategies are employed.

The elements contribute to the Hedge Fund strategy includes the Hedge Fund's approach to the market, the particular instrument used, the market sector the fund specializes (For example - FMCG, Pharmaceutical, IT, Real Estate sectors etc.), the method used to select the instruments, the amount of diversification within the fund.

There are four broad group of Hedge Fund strategies: arbitrage, event driven, equity related and macro. The first two groups in many cases attempt to achieve the returns that are uncorrelated with general market driven. Managers of these strategies try to find price discrepancies between related securities, using derivatives and active trading based on computer driven models and extensive research.

The second two groups are impacted by movement of markets and they require intelligent anticipation of price movement in stocks, bonds, foreign exchange, and physical commodities based on extensive research and model building.

44. What do you mean by sinking fund factor and capital recovery factor?

Ans. If a certain amount of fund (Y) is to be realized after certain period of time (n), what amount (X) should be invested at the end of every year - that is determined by sinking fund factor.

X x FVIFA (r%, n year) = Y

Or x = Y x 1/FVIFA (r%, n year) = Y x sinking fund factor

Sinking fund factor is reciprocal of FVIFA.

If an investor invests a certain amount of fund (Y) in a project in the current period and willing to realize the fund within a certain period of time that is (n years), the amount of inflow (X) that project is expected to generate - that is determined by capital recovery factor.

X x PVIFA (r%, n year) = Y

Or x = Y x 1/PVIFA (r%, n year) = Y x Capital recovery factor

Capital recovery factor is the reciprocal of PVIFA.

45. What is BASEL II and how it is different from BASEL I?

Ans. The Basel Committee on Banking Supervision is a committee of banking supervisory authorities which were established by Central Bank Governors of the Group 10 (G-10) countries at the end the end of 1974. According to Basel I, all the banks are advised to main capital adequacy ratio at least 8%. Capital adequacy ratio = (Tier I capital + Tier II capital)/risk weighted asset. Tier I capital includes equity capital and reserve and surplus. Tier II capital includes hidden reserve, revaluation reserve, general provision, hybrid instruments, subordinated debt etc.

Usually, fixed assets of the company are measured at historical cost. If their valuation can be done on mark to market basis, asset value will go up which will exaggerate the profit of the company. Therefore, companies don't prefer to do the revaluation of the asset. This is known as revaluation reserve. General provision implies it will not take into account some specific reserve such as reserve for bed debt, reserve for depreciation etc. Hybrid instruments are convertible bonds and Cumulative Convertible Preference Share. If one company acquires another company, debt of the target company becomes the subordinated debt for the acquirer company. At the outset Acquirer Company will repay its own debt and then it will repay the debt of the target company.

RBI has instructed all Indian Commercial banks to hold capital adequacy ratio at least 9%.

The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of risk. According to Basel-II, apart from credit risk, banks are facing market risk and operation risk.

The three main pillar of Basel II is

i. It allows the bank to a certain extent to determine its own capital requirement depending on its credit rating. If credit rating is good, banks are permissible to maintain less capital.

ii. Continuous and close regulatory supervision and monitoring whether banks are adopting proper risk management technique or not.

iii. Continuous and mandatory disclosure of the banks about their risk management practices.

46. What is securitization and subprime crisis?

Ans. Generally commercial banks provide loan to the borrower depending on their credit history and financial capability. If a person's credit history is poor or he has the irregularity in income, he is not eligible to get the loan. But specifically in USA, some financial institutes take loan from the banks in prime lending rate and they are providing the loan comparatively poorer section at a higher rate for example PLR + 2%. This rate that a subprime borrower has to pay is known as subprime rate. After that the institution, immediately hedge their risk by selling the loan as a debt security to the Institutional Investors where those Institutional Investors are entitled to received equated monthly installment. This is known as securitization by which adequate liquidity can be provided to mortgage market of illiquid asset and simultaneously hedging can be done against default risk.

The cash realized by this way is immediately paid to the Bank. When market interest goes up, PLR + 2% will also go up. So, borrowers make default in payment. Then Institutional investors make lien on the real estate property and try to sell it.As a result, selling pressure in market has gone up, real estate price started to fall rapidly. Therefore, institutional Investor started to suffer from liquidity crisis. This is known as subprime crisis.

But intermediate financial institution continued their credit creation process as their credit history is always good as they are paying timely to the banks. Sometimes they are intentionally inflating the borrower's level of income so that Institutional Investors will be motivated to purchase the debt security. This will further worsen the situation.

47. What do you mean by alpha value of an asset?

Ans. Alpha value of an asset implies risk free rate of return from risky security. Alpha value can be determined with the help of characteristic line. Characteristic line shows the relationship between stock price movement and the market index movement. The equation of the characteristic line can be expressed as -

Y = alpha value + Beta value* x

Y = Return from the particular stock

X = Return from the market index

If alpha value of the stock is positive, it is underpriced or vice versa.

48. What do you mean by ASBA?

Ans. ASBA is Application Supported by Blocked Amount. It is a better way of applying for an IPO or FPO by simply blocking the fund in the bank account. In this case, the person will continue to earn interest on the amount. The only constraint is that, they cannot withdraw the fund from the account. Amount will be debited only if share is allotted to the individual. If the person is not allotted the share, automatically fund will be block free. ASBA is designed by SEBI to protect the interest of investors who are willing to apply for IPO but not at the expense of interest income loss.

49. What do you mean by inflation and its measurement?

Ans. Inflation is the sustained rise in price. In other words, inflation implies excess of money supply over and above the available goods and services in the economy.

Inflation can be measured by WPI (Wholesale Price Index Number) or CPI (Consumer Price Index Number).

In WPI, significant weight is given to manufactured article.

In CPI, it incorporates a basket of goods which consumers are usually used and significant weight is given to food articles.

WPI inflation rate in India is 2% and CPI inflation rate in India is 3.61% in February, 2025.

50. What do you mean by Balance of Payment (BOP) of a nation?

Ans. BOP is defined as systematic record of financial transactions with the residents of the member country and the residents of rest of world for a particular period of time. Balance of payment has two types of transactions - Autonomous transaction and Accommodating transaction.

Autonomous transactions include all the transactions which are taking place for the sake of business for example current account and capital account transaction. BOP is computed as a double entry accounting system. Any transaction which creates demand for home currency will be placed in credit side and any transaction which creates supply of home currency will be placed in supply side. Any transaction which is used as a source of fund is placed in credit side and any transaction which is used as application of fund is placed in debit side. Current account transaction includes export and import of goods and services and unilateral payment.

Export of goods and service will be posited in credit side and import of goods and services will be posited in debit side. If credit side of current account is greater that the debit side of current account, nation has current account surplus.

Capital account transaction includes inflow and outflow of FDI and FII. Inflow of FDI and FII is posited in credit side of BOP and outflow of FDI and FII is posited in debit side of BOP. If credit side in capital account is greater than debit side of the capital account, nation has capital account surplus.

If the sum total of credit side of current and capital account is greater than the sum total of debit side of current and capital account, nation is said to have a BOP surplus.

Accommodating transaction are those transactions which are taking place to make the balance of payment always balanced. For example - change if foreign exchange reserve, change in gold reserve etc.

India is always a current account deficit nation as its value of import is always higher than value of export. But due to being an emerging economy, India is the popular destiny of FDI and FII. Therefore Capital account of India remains always surplus to a such extent that it more than offset the current account deficit of the nation. (barring the time of global recession in 2008-09, due to huge withdrawal of funds by FII from Indian capital market, Capital Account balance became adverse).

51. What do you mean by consolidated balance sheet of a company?

Ans. When the asset and liability of the holding company as well as all of its subsidiaries are expressed in the currency of the parent company, it is known as Consolidated Balance Sheet of the holding company.

Characteristics of holding company is given as below -

Good will or capital reserve has to be mentioned. Minority interest has to be mentioned.

Adjustment of common debtor and common creditor has to be maintained.

52. Distinguish between provision and reserve of the company.

Ans. It is a known fact that there will be depreciation of the fixed asset of the company such as plant and machinery, building, furniture's etc. Similarly, a certain portion of credit sales of the organization will never be realized which will become bad debt. Therefore, company makes provision for depreciation and bad debt in the profit and loss account and they are charged in the debit side of the P/L A/c so that net profit can be reduced and company has to pay lower corporate profit tax. Provision can be made for proposed dividend payment to the shareholder also.

When company earns profit certain amount will be paid to the shareholder a dividend and remaining amount will be kept as reserve and surplus.

Reserves are of two types - Revenue Reserve and Capital Reserve.

These reserves are created out of capital receipts such as capital subsidies received from the government towards meeting part of costs of new projects or share premium or on revaluation of assets or on amalgamation of another company. Such reserves are not created out of profit of company. Such reserves are not available for distribution as dividend.

Revaluation Reserve is a reserve created on revaluation of fixed assets. It is represented by the surplus of the estimated replacement cost or market value over book value of the related assets. Amalgamation Reserve is created when the consideration paid is less than the book value of the assets acquired.

Revenue Reserves are that part of open reserves which are created out of profit of company. It is showed in profit and loss appropriation account. It can be used for dividend to shareholders.

These revenue reserves can also be divided into two parts - General Reserve and Specific Reserve.

General Reserve is a reserve created out of profits and not earmarked for any specific purpose. It is found most commonly in corporate balance sheets.

Specific Reserves include dividend equalization reserve, capital redemption reserve, debenture redemption reserve, investment fluctuation reserve, taxation reserve, sinking fund and contingency reserves.

53. Distinguish between Indian GAAP and USA GAAP.

Ans.

India	USA
Indian GAAP allows deferred revenue expenditure.	USA GAAP does not allow it.
Related party transaction is strictly prohibited in India.	USA GAAP is liberal in related party transaction.
Emphasis is given on consolidation norm where goodwill or capital reserve has to be specified.	USA GAAP is more focused on minority interest.

54. Among inflation and deflation which do you prefer and why?

Ans. Inflation is sustained rise in price which reduces the purchasing power of money. But despite of its evils, a mild doze of inflation should be injected in the body of economy because it stimulates aggregate demand. If demand is higher, price will go up. Producer will be willing to supply more to boo higher profit. As a result, demand for factors will go up and employment goes up. All economic variables such as output, employment, income will go up.

Deflation means sustained fall in price. As price goes down, producer reduces production. Demand for factors will go down. Unemployment will go up. Demand goes down further. Again price moves in the downward direction. Therefore, all variables such as output, price, and employment will move in downward spiral. Therefore, inflation is bad but recession is worst.

55. Distinguish between Financial lease and Operating lease.

Ans. A Financial lease is structured to include the following characteristics -

The lessee selects the equipment according to his requirement from manufacturer or distributor. The lessee negotiates and settles with the manufacturer or distributor the price, delivery schedule, installation, maintenance etc. Financial lease may provide the right or option to the lessee to purchase the equipment at a future date. The lease period spreads over the expected economic life of the asset. The responsibility of suitability of the equipment, the risk of obsolesces and liability for repair, maintenance, insurance of the equipment rests with lessee.

An Operating lease is structured to incorporate the following characteristics -

Operating lease is generally for a period shorter than the economic life of the leased asset. Operating lease normally includes maintenance clause requiring the lesser to maintain the leased asset.

56. Distinguish between lease and hire purchase.

Ans.

Lease	Hire purchase
The lessor is the owner and lessee is entitled to the economic use of the asset.	Ownership of the asset passes on to the hirer in case of hire purchase on payment of last installment.
The depreciation of the asset is charged on the book of lessor.	Hirer is entitled for depreciation shield.
Cost of maintenance is borne by lessee in case of financial lease and cost of maintenance is borne by lessor in case of operating lease.	Cost of maintenance is borne by hirer.
Lessor is allowed to claim tax shield on depreciation and lessee is entitled to claim tax benefit on lease rental.	Hirer is allowed to claim tax shield on depreciation of the asset.

57. Distinguish between devaluation and depreciation.

Ans. Devaluation is reduction of the value of home currency in terms of foreign currency. It is a policy measure to encourage export and discourage import. The devaluation concept is applicable in fixed exchange rate regime.

Depreciation is also reduction of home currency in terms of foreign currency but it is applicable in case of flexible exchange rate. In flexible exchange rate, rate is determined by demand and supply force of the market. There is no intervention from the Government. Currency with higher inflation rate will depreciate. It is known as Purchasing Power Parity (PPP) theory. Currency with higher interest rate will depreciate. It is known as Interest Rate Parity theory (IRP).

58. What is FMC?

Ans. The Union cabinet on 17th September, 2010 approved long pending amendment to the Forward Contract (Regulation) Act and it will go for seeking Parliamentary approval to make the Forward Market Commission (FMC), an independent regulator and allow them to launch option in the commodity market among a host of other changes. Commodity market regulator is finally getting SEBI like status and power. FMC will be at par with SEBI, both regulators are likely to get place on each other's board. It paves the way for commodity-based exchange traded fund, trading on indices and weather-based product. Future and option together will give better liquidity in the market. Farmer's participation will increase through option route because they would not only become insurance in case market goes down but it will give the opportunity to the farmers to capture best possible price in case of a market rally. As per the Union budget 2015-16, it is recommended that FMC will merge with SEBI.

59. Mention the key features of Union Budget placed by Honorable Finance Minister Nirmala Sitharaman for the financial year 2025-26.

Ans. The main emphasis of the Budget for 2025-26 was as follows -

a)The budget has increased the income tax exemption threshold from Rs. 7 lakh to Rs. 12 lakh under the new tax regime.
b) The limit for Tax Deducted at Source (TDS) on interest for senior citizens has been increased from Rs. 50,000 to Rs. 1 lakh. Similarly, the annual limit for TDS on rent has been increased from Rs. 2.4 lakh to Rs. 6 lakh.
c) A new scheme has been announced to support 5 lakh first-time entrepreneurs, particularly women and individuals from Scheduled Castes and Scheduled Tribes, by providing term loans of up to Rs. 2 crore over the next five years.
d) According to the Union Budget 2025-26, the fiscal deficit for 2024-25 is projected to be 4.8% of GDP.
e) Long-term capital gain tax rate of 12.5% has been imposed for all financial and non-financial assets. Indexation benefit has been abolished.
f) Short-term capital gains tax on specified financial assets has been increased to 20%.

60. What is Demonetization?

Ans. The demonetization effort being led by Prime Minster in India is that idea that Rs. 500 and Rs. 1,000 notes should be declared no longer legal tender, to be replaced by other notes of different designs and in one case, denominations. The aim is to wash the stock of 'black money' out of the economy and get it into the licit, banked and taxable, part of the economy. There have long been concerns about terror financing through forged notes for example. There's quite obviously substantial tax revenue going uncollected.

According to the RBI press conference on November 8, 2016 organized immediately after the decision was made public, there were 16.5 billion Rs. 500 notes and 6.7 billion Rs. 1000 notes in circulation. They also revealed that share of Rs. 1000 notes in the stock of currency in circulation at the end of financial year 2014-15 was 39%. Rs. 500 notes accounted for a further 45% of the currency stock. By November 9, a little over 80% of the cash in India were worthless pieces of the paper. The replacement of all the Rs. 500 and Rs. 1000 denomination notes with new Rs. 500 and Rs. 2000 notes as ordered by the Government of India could cost the RBI at least Rs. 12000 crore. The decision that has been taken by the Government affected the common people.

People deal with hard cash on a daily basis like traders, retailers, taxi drivers, auto drivers, domestic help and may such people be affected the most. Small businesses both in urban and rural areas were hugely affected. In rural India, people don't have access to bank accounts (roughly 200-300 million people at the last estimate) and depends on high value cash transactions are crippled. Those don't have Government identity proof had a tough time in exchanging notes. The Government issued a statement saying people need not worry if they have cash less than Rs. 2 lakh. They can go to their respective banks and deposit the money. But the Government has reportedly issued orders to both the Income Tax Department and the banks to keep tracks of all monetary transactions involving cash of Rs. 2 lakh or above.

61. What do you mean by Chit Fund?

Ans. According to 'The Chit Funds Act, 1982' "Chit" means a transaction whether called chit, chit fund, chitty, kuri or by any other name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount. The functional framework of the chit fund can be explained with the help of simple algebraic illustration. In the layman's perspective, it is taken into consideration that a particular Chit fund scheme is collecting fund from n number of depositors where maturity period of the particular scheme is n months.

For the sake of simplicity if it is assumed every investor is contributing Rs. m amount per month, the total amount of fund collected becomes Rs. mn at the end of the first month which is known as pot. (Both m and n are positive integers) When multiple contributors are willing to take the loan, formal bidding is conducted. The highest bidders will be awarded the pot. If the highest bidders have bidden p amount for the pot, this p is known as discount amount (p is a positive integer and p < mn). The highest bidder will realize the pot value less than discount value as well as less than foreman's payment which is fixed 5% of the pot's value. Therefore the highest bidder will ultimately realize (mn - p - 0.05 mn) which is equivalent to (0.95 mn - p).The discount amount will be distributed equally in the terms of dividend among the subscribers and in the next month the contribution of each investor will go down to the extent of dividend receipt which will be (m - p/n) and this cycle goes on until all the contributors appropriate their entire amount of receivables from the scheme.

Different State Governments have developed Chit Fund Acts to protect the interest of small investors such as Pondicherry Chit Funds Act 1966, Tamil Nadu Chit Funds Act 1971, Andhra Pradesh Chit Funds Act 1971, Goa, Daman and Diu Chit Funds Act 1973, Kerala Chitties Act 1975, Maharashtra Chit Funds Act 1975, Uttar Pradesh Chit Fund Acts 1975, Chit Fund Rules in Karnataka 1983, Delhi Chit Fund Rules 2007. In case any State does not have its own Chit Fund Act, by default it will come under the purview of the Central Government Chit Fund Act 1982. The major threat is coming from the unregistered chit funds which are doing mis-selling by taking the advantage of lack of awareness of the common people.

62. What do you mean by Ponzi Scheme?

Ans. Ponzi, the "deus ex machina" agent, engages in profitable activities by becoming indebted. Here the agent borrows more and more in order to repay their interest with the simplistic anticipation that profit and capital gain will be available to repay their commitments when they become due.

Charles Ponzi organized a scam in 1919 for which the name of the Ponzi Scheme is derived. A Ponzi Scheme is a fraudulent investment arrangement whereby unsuspecting investors give cash and property to the lead figure of the arrangement, who then misappropriates some or all of the funds, but reports to the investors that the fund made profits. The purported income being reported and even paid to investors comes from amounts received by the leader from later investors. The arrangement usually falls apart when a large number of investors want to withdraw their investments at the same time, especially during times when there is not enough new money being supplied by new investor.

63. Distinguish between TRIP and TRIM.

Ans. Trade Related Investment Measures (TRIM) refers to certain conditions or restrictions imposed by a Government in respect of foreign investment in the country.

TRIMs were widely employed in developing countries. An agreement on TRIMs provide that no contracting party shall apply any TRIM which is inconsistent with the WTO articles. An illustrative list identifies that following TRIMs are inconsistent.

• Local Content Requirement (certainamount of local inputs be used in products)
• Trade Balancing Requirement (import should not exceed a certain amount of export)
• Trade and Foreign Exchange Balancing Requirement
• Domestic Sales Requirement (a company shall sell a certain portion of its output locally).

The agreement requires the notification of all WTO inconsistent TRIMS and their phasing out within two, five, seven years by industrial, developing and less developed countries.

Trade Related Aspects of Intellectual Property Right (TRIP) is under the Uruguay round arrangement of GATT (Now WTO).

TRIP covers seven Intellectual properties -

• Copyright and related right
• Trademark
• Geographical Indications
• Industrial designs
• Patents
• Lay out design of integrated circuits
• Undisclosed information including trade secrets

64. What is GATT and WTO?

Ans. The General Agreement on Tariff and Trade (GATT) was born in 1948 as the result of International desire to liberalize the trade. The preamble of GATT mentioned the following as its important objectives -

• Raising standard of life
• Ensuring full employment and large and steadily growing volume of real income and effective demand
• Developing full uses of resources of the world
• Expansion of production and international trade

GATT adopted the following principles -

Non-discrimination: The principle of non-discrimination requires that no member country shall discriminate between the members of GATT in conduct of international trade.

Prohibitive of Quantitative Restrictions: It rules seek to prohibit quantitative restrictions as far as possible and limit restrictions on trade to the less rigid tariff.

Consultation: By providing a forum for continuing consultation, it sought to resolve disagreements through consultation.

Following the Uruguay round GATT was converted from a provisional agreement into a formal International Organization called World Trade Organization (WTO) with effect from January 1, 1995.

The WTO has the following functions -

The WTO will facilitate the implementation, administration, operation and further the objectives of Multilateral Trade Agreement.

The WTO shall provide the forum for negotiations among its members concerning their multiple trade relations in matter dealt with under agreement.

The WTO administers 'Understanding on Roles and procedures governing the settlement of disputes'.

The WTO administers 'Trade Review Mechanism'.

65. What do you mean by Venture Capital?

Ans. Venture Capital Fund is basically doing equity finance in relatively new companies or unlisted companies. However, such investment is not exclusively equity investment. It may do mezzanine finance which is nothing but hybrid of debt and equity finance. Risk appetite of venture capital fund is very high; therefore, they are expecting significantly higher amount of returns. A company which is not able to raise the fund from capital market, they are willing to be financed by venture capitalist. The company has to prepare a business plan and has to submit to the venture capital company. Venture Capital firm will critically evaluate the technical, financial and legal feasibility analysis of the project. If venture capitalist is satisfied with the outcome of the feasibility report, it will finance the company to facilitate its growth and expansion. Investment tenure will be on an average from 5 to 10 years. Venture capitalist closely monitors the performance of the company and nominates two or three nominee directors in the board of the company. As a result, company cannot take any crucial decision without the approval of venture capital firm. Target of venture capital firm is to prepare the company in such a way so that the company can go for IPO. During the time of IPO, Venture capital firm sell its stakes and quit from the company by earning a spectacular profit margin over their investment.

66. What is FERA and FEMA?

Ans. Foreign Exchange transactions were regulated in India by Foreign Exchange Regulation Act (FERA), 1973. This act was sought to regulate certain aspects of conduct of business outside the country by Indian companies and in India by foreign companies.

The FERA was widely described as draconian law. The main objective of FERA framed against the background of severe foreign exchange problem and controlled economic regime, was conservation and proper utilization of the foreign exchange resources of the country.

In the light of ongoing Economic liberalization of the country and improving foreign exchange reserve of the nation, a new Foreign Exchange Management Act (FEMA), 1999, replaced the FERA. Except as provided in terms of the act, or with the general or special permission of RBI, no person shall deal in any foreign exchange or foreign security other than authorized person, no person can make any payment to or for the credit of any person resident outside of India in any manner, No person can receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner, No person can enter into any financial transaction as consideration for or in association with the acquisition or creation or transfer of a right to acquire any asset outside India by any person. FEMA permits dealing in foreign exchange through authorized person for current account transaction. Any person may sell or draw foreign exchange to or from an authorized person for capital account transaction permitted by RBI in consultation with RBI.

67. What do you mean by Sterilization Policy?

Ans. When there is more and more FII inflows in the country, there is risk of domestic currency appreciation with respect to foreign currency. If domestic currency appreciates beyond a certain level, exporter has to suffer a huge loss. RBI intervenes in the foreign exchange market through purchasing of foreign exchange say dollar and selling of home currency that is rupee; As a result, liquidity is injected into the system. Conversely when FIIs are withdrawing their funds from domestic capital market, there is risk of depreciation of home currency. If home currency depreciates beyond a certain level, importers have to suffer a huge loss. RBI intervenes in the foreign exchange market by selling foreign exchanges say dollar and buying the home currency that is rupee; this is a process by which liquidity is absorbed from the domestic economy.

Neutralizing part or whole of the impact of foreign inflows and outflows by the process of injection and absorption by RBI are known as sterilization process.

68. What do you mean by Market Stabilization Scheme (MSS)?

Ans. The Government can issue Treasury Bills or dated securities under Market Stabilization Scheme (MSS) for absorbing liquidity from the economy. The Treasury bills or dated securities under MSS have all the attributes of existing T bills and dated securities. The Government in consultation with RBI will fix an annual aggregate ceiling for T bills or dated securities under MSS.

MSS are issued by the auctions to be conducted by RBI. The amounts will be held in a separate identifiable cash account titled MSS account to be maintained and operated by RBI. The T bills and dated securities issued for MSS would be matched by an equivalent amount of cash balance held by the Government with RBI. As a result, there is very marginal impact on market interest.

69. What do you mean by held to maturity?

Ans. The securities acquired by the banks with the intention to hold them till the maturity period will be classified as held to maturity. The investments included under held to maturity should not exceed 25% of bank's total investment. Investments carried out under held to maturity are not marked to market and will be carried at acquisition cost unless it is more than the face value, in which case premium will be amortized over the period remaining to maturity.

70. Define PD, LGD, EAD, Expected loss and Unexpected loss.

Ans. Probability of Default (PD): PD is the likelihood of a borrower defaulting on a contractual obligation. To calculate the PD, the time horizon must be long enough to be meaningful and short enough to be feasible given the data available. Several sequential steps are to be followed such as establishing the time horizon, determining the measurement approach using the quantitative data such as financial statements, ratios as well as qualitative information such as borrowers' reputation, equity prices, critically reviewing the available information, analyzing the published default studies/secondary data as well as successful use and implementation of transition matrices to look at the way PDs change over time.

Loss Given Default (LGD): Loss Given Default is the estimated percentage of an outstanding claim that cannot be recovered in the event of a default. Recovery rate and Loss given default are mutually exhaustive with each other as (LGD = 1 - Recovery Rate). Usually, collaterals reduce the risk of an exposure and hence collateralized loans carry lower risk weights than un-collateralized loans. Cash on deposit, Gold, securities by sovereigns and public sector entities carrying a minimum rate of BB-, banks and corporate securities rated minimum at BBB-, Equities listed in major stock indices such as Dow Jones, Nikkei, Sensex etc. are considered as eligible collaterals. However, the value of the collateral C is adjusted by applying so called Hair Cut (H).

CA = C/(1 + H). Where CA = Collateral Adjusted.

The value of H will depend on the value of collateral. It varies from 0% (cash), 4% (sovereign securities), 15% (gold) and 30% (eligible corporate securities).

Exposure at Default (EAD): Exposure at Default is the maximum amount that a bank can lose in the event of a default.

Expected Loss (EL): Expected Loss is the amount that a bank can expect to lose on average in the event of a default. Expected Loss is the product of probability of default. Loss given default, exposure at default.

EL = PD x LGD x EAD

Unexpected Loss (UL): Unexpected Loss or Unanticipated Loss is computed by subtracting expected loss from actual loss.

UL = Actual loss - Expected loss.

71. What is factoring?

Ans. The arrangement in which receivables created out of sales of goods or services are sold to an agency, is called factoring. The factor performs the functions of such as purchase of receivables, marinating the sales or receivables ledgers, submitting sales account to creditors, collection of debt on due dates, after collection to return the reserve money to the seller and provide consultancy services to the customers in respect of marketing, finance and production.

72. What is Para Banking activity?

Ans. The main activity of the commercial bank is accepting deposits and credit creation in the economy. Apart from that, banks undertake financial services such as credit card business, insurance business, underwriting, equipment leasing, hire purchase business, factoring services etc. These are called Para Banking activities which can be taken up departmentally or by setting up subsidiaries.

73. What is NPA and what is the function of Debt Reconstruction Company?

Ans. When debtor defaults one Equated Monthly Installment (EMI), it can be shown as 30 days DPD that is Days Passed Deal. A person who has defaulted two EMI can be treated as 60 days DPD that is Days Passed Deal. After default of 2nd EMI, calling exercise should be done with a default script. A person who has defaulted consecutive three EMI can be shown as 90 days DPD. It becomes an NPA (Non-Performing Asset).

Bank usually takes the help of Debt Reconstruction Company (DRC) when they have accumulated excessive NPA due to non-recovery of loan. Debt Reconstruction company is a trust. They purchase the NPA of the banks by paying certain amount of cash which is much lesser than the value of NPA. As the bank is selling their NPA to the DRC, banks will be able to transfer the collection hazard from their shoulder to the DRC. Debt Reconstruction Company has to undergo a market research to analyze the extent of NPA, it will be able to realize by applying different standard conventional techniques and tactics. Depending on that they sell certain amount of 'Security Receipts' to the bank. Security receipt acts almost like Collateral Debt Security where for the bank, these 'Security receipts' are considered as contingent liability. Banks will be able to get the money against these security receipts provided the Debt Reconstruction Company is able to realize the receivables from NPA. The way Debt Reconstruction Company is exercising pressure on the nerve of debtors that raises lots of dispute from the moral and ethical perspectives.

74. What do you mean by credit scoring model?

Ans. Banking Sector has to use credit scoring model from 1998 onwards. As it is a known fact that prevention is always better than cure, banks are using credit scoring models to reduce the probability of piling up of bad debt or non-performing assets. Usually as a common thumb rule, total risk faced by a bank can be decomposed into three different categories - credit risk 63%, operation risk 25-26% and market risk is 11-12%. Reasons for using the scoring models are as follows -

• Determination of probability of default and expected loss.
• Ensures that good loan proposals are accepted and bad loan proposals are rejected.
• Helps in pricing the loan according to the risk.

Credit score is nothing but numerical forecast of repayment of future loan. There are different credit scoring methodologies such as FICO, ONICRA (Onida + Icra), Z Altman's score etc.

According to FICO Scoring method, FICO score ranges from 300 to 850. Higher the score, loan will be available at a lower rate. For credit scoring certain factors are taken into account -

Payment history - 35%
Amounts owed - 30%
Length of history - 15%
New credit - 10%
Account Mix (nature of loan) - 10%

Change of job frequently may lower score if no history of late payments - bank specific. Change of residence to negative area may lower score-bank specific. Use of credit counseling services if reported by creditors may lower the credit score. Inquiring for more credit may lower credit score.

Aatman Z Score Model:

T1 = Working Capital/Total Assets
T2 = Retained Earnings/Total Assets
T3 = Earnings Before Interest and Taxes/Total Assets
T4 = Market Value of Equity/Total Liabilities
T5 = Sales/Total Assets

Z Score Bankruptcy Model:

Z = 1.2T1 + 1.4T2 + 3.3T3 + 0.6T4 + .999T5

Zones of Discrimination:

Z > 2.99 - 'Safe' Zone
1.8 < Z < 2.99 - 'Grey' Zone
Z < 1.80 - 'Distress' Zone

75. What is the difference between hypothecation and pledge?

Ans. Hypothecation is an equitable charge where the borrower keeps the possession of the security on behalf of the creditor. If the borrower fails to return the advance against the hypothecation of the securities, the bank can take the possession of the securities; the bank can take the possession of the securities with the consent of the borrower and becomes a pledge.

Pledge is bailment or delivery of goods as security for payment of a debt or performance of a promise. Pledge may retain the goods until the payment of debt or performance of the promise is fulfilled. Pledge can sell the goods by giving a due notice to pledger in case pledger fails to make the payment of debt.

76. What is Base Rate?

Ans. In a move to increase transparency in credit pricing, the Reserve Bank of India has stipulated banks to migrate to base rate system for determining lending rates from the current Benchmark Prime Lending Rate (BPLR) system from April 1, 2010. BPLR, the rate at which banks lend to prime borrowers, was earlier formulated to be the base rate. The move is expected to reduce the proportion of sub-PLR loans. As of September 2009, the share of sub-BPLR lending to total loans stood at 70.4 per cent, clearly suggesting that the PLR rate is no longer relevant as a reference rate. The move to discontinue BPLR came in the light of predatory pricing done by banks to gain market share (especially the teaser loans to housing sector). The RBI's working committee had worked out to determine the base rate. All new loans and old loans that come for renewal are expected to be priced with reference to the base rate. The banks are given free hand on deciding the base rate, margin pressures are expected as banks would be unable to lend below sub-base rate coupled with the fact that the rates charged for 'other borrowers' such as SME lending agriculture and retail lending would see a decline as a result of this move.

In the banking space, public sector banks and banks with high proportion of low-cost deposits may be less affected as they have low cost of funds (an important input in determining the base). The base rate is 9.1%-10.4% as on 14th March, 2025.

77. What is Marginal Cost of Fund-based Lending Rate (MCLR)?

Ans. The RBI introduced base rate system in 2010. The base rate is the minimum interest rate that is fixed by all banks. The base rate ensures that banks don't lend below a certain benchmark. The RBI also wanted to make sure that any change in interest rate policy was passed on to the borrower. The transmission of interest rate was not effective in the base rate system. Even if RBI cut the repo rate, banks did not always follow the same. They did not pass on the full benefit to the customer. So, concept of MCLR came in April, 2016. The base rate did not take into account REPO rate in calculation. On the other hand, MCLR depends on marginal cost of funds to a large extent. REPO rate is a big factor to calculate marginal cost of fund. As per the guidelines of the RBI, banks have to prepare marginal cost of funds based on lending rate which will be internal benchmark lending rate. Interest rate for different customers will be fixed according to their riskiness. The MCLR will be revised monthly considering REPO rate and other borrowing rates. Banks have to set five benchmark rates (ranging from overnight to one year). The new methodology uses the marginal cost or latest cost patterns reflected in the interest rate given by banks for attracting funds (from depositors and while borrowing from RBI). This means interest rate given by bank for deposit and REPO rate are decisive factors for MCLR.

MCLR is based on four components such as marginal cost of funds, negative carry on account of cash reserve ratio, operating cost and tenure premium. Marginal cost of fund is based on the marginal cost of borrowing and return on net worth. Negative carry on account of CRR is the amount of earning opportunity lost due to the fact that bank has to deposit CRR with the RBI. Every bank has an overhead of operation. While banks tried to cover operational cost through service charge, there is much other cost such as insurance. Tenure premium incorporates cost of risk of default. Longer the tenure, higher is the risk.

78. What is Teaser Rate?

Ans. An adjustable-rate mortgage loan is a special type of loan in which the borrower pays a very low initial interest rate, which increases after a few years. Teaser loans try to entice borrowers by offering an artificially low rate and small down payments, claiming that borrowers should be able to refinance before the increases occur. Teaser loans are considered an aspect of subprime lending, as they are usually offered to low-income home buyers. Unfortunately, when these borrowers try to refinance the loan before the rate increases, most will not qualify for standard mortgages. This leaves borrowers with increased monthly payments, which many cannot afford. This method of loaning is considered risky, as default rates are high.

79. What is an Open Market Operation?

Ans. Often RBI buys and sells their securities to Commercial bank in their own initiative. During the inflationary time, RBI sells their securities to Commercial banks as a result credit creating capacity of the commercial banks go down. In recession time, RBI buys the securities from commercial banks to enhance the liquidity in the market.

80. What is a phantom stock option? How it is different from ESOP?

Ans. A phantom stock option or phantom equity plan is performance-based plan that provides the employee with a ghost or simulated ownership. The employee is given notional shares at bench mark price with a right to exit at a future price which could be the market or traded price or a price determined on the basis of a pre decided valuation criteria. Therefore, the company does not have to dilute its equity. Companies that go for phantom stock option are either unlisted one or listed companies that have pressure on equity dilution or promoter driven companies which are averse to sharing equity. DLF, Birla Sun Life, Bajaj Alliance are examples of such companies who offer phantom stock option. ESOP is employee stock option plan. The difference can be explained with the help of an example - A stock option is given at Rs. 120 with a vesting period of 1 year. At the end of one year if market price becomes Rs. 300 per share, the option will have a value of Rs. 180. However, if stock price becomes Rs. 100 per share, there is no value in the stock option. But if a phantom stock option is given (phantom is usually given out at no or negligible cost), it would have made Rs. 100 per share for employee in the scenario of market fall. Since the employee would have made some cash instead of nothing, phantom seems to be a better option.

81. What do you mean by treasury stock?

Ans. Treasury stock arises when accompany merges a subsidiary into itself. For instance, Reliance Industries limited, through four of its subsidiaries, held 46% stake in IPCL. When IPCL merged into RIL, all IPCL shareholders got RIL shares. RIL, being a shareholder through its subsidiaries, got its own shares. In most developed markets like the USA and UK, companies extinguish their treasury stock on allotment itself. This has the effect of reducing company's equity, thus boosting its earnings per share. But several Indian companies have chosen to hold treasury stock. Promoters might want greater control over their stock or might feel that their stocks are undervalued. Or they might want to sell treasury stock, boost their profit figure and use it for payment of dividend or fund expansion. For examples - Reliance Industries Limited, M&M, BPCL, Jaypee Associate & United Spirits are holding huge amount of treasury stock.

82. What do you mean by accounting cycle?

Ans. Accounting involves recording of transactions and events in a manner that facilitates preparation a presentation of financial statements. Accounting cycle refers to the cycle starting with recording of opening entries (balance carried forward from the previous reporting period) in the general ledger and ends with the preparation of financial statements. Following steps are required in the preparation of financial statements -

• Recording of opening entries in the general ledger
• Recording transactions and events in the journal (journalisation)
• Posting journal entries in appropriate accounts in the general ledger
• Balancing the account of general ledger
• Preparing the trial balance
• Recording the adjustment entries
• Preparing the adjusted trial balance
• Recording closing entries to prepare financial statements

83. What is Adjusted Present Value Method?

Ans. Adjusted Present Value is a capital budgeting method used for levered firm. This method takes into account the tax shield value associated with tax deduction for interest expense. It can be expressed as

APV = Sum total of Present Value of future cash inflow + Present Value of tax shield on depreciation + Present Value of tax shield on capital loss + Present Value of salvage - initial cash outflow

84. What is Appraisal Ratio?

Ans. Appraisal Ratio is the ratio of alpha value of the asset to residual standard deviation. This ratio measures risk free rate of return of risky asset per unit of diversifiable risk.

85. What is Balloon Payment and Balloon Loan?

Ans. Balloon Loan is a loan that requires small payments that are inefficient to pay off the entire loan so that a large final payment is necessary at termination.

Balloon Payment is large final payment as when a loan is repaid in installments. Most high-quality bond issues establish payments to the sinking fund that are not sufficient to redeem the entire issue. As a consequence, there is a possibility of a large balloon payment at maturity. If a lease has a schedule of payments that is very high at the start of the lease term and thereafter very low then these early balloon payments would be the evidence that the lease was being used to avoid taxes and not for a legitimate business purpose.

86. What is Barrier Option?

Ans. An option that has a payoff depending upon whether at some point during the life of the option, the price of the underlying asset has moved pass a reference price.

Examples are knock-in and knock-out option. Knock-in option is an option in which there can only be a final payoff if during a specified period of time, the price of the underlying asset has reached a specified level. This is one of the barrier options and it is attractive to some market participants because they are less expensive than regular option.

Knock-out option is an option in which there can only be a final off if during a specified period of time, the price has not reached a specified level. This is one of the barrier options and it is attractive to some market participants because they are less expensive than regular option.

87. What is Bill of Lading?

Ans. The Bill of Lading is a shipping document that governs transportation of the shipper. Essentially it is a shipping document that governs transportation of the exporter's goods to the importers. The seller submits the invoices and the bill of lading to the correspondent bank. The bank in turn verifies the paperwork and pays the seller. The correspondent bank then sends the paperwork to the buyers bank which pays the correspondent bank and sends the document to the buyer who makes the payment.

88. What do you mean by CAMELS?

Ans. It refers to the regulatory rating system for bank performance.

C = Capital Adequacy Ratio,
A = Asset Quality,
M = Management Quality,
E = Earning Quality or Net Interest Margin,
L = Liquidity,
S = Sensitivity to Market Risk.

89. What is Green Shoe Option?

Ans. Green Shoe Option is post issue price stabilizing mechanism in case of issue becomes oversubscribed. Merchant bankers are issue managers for the company who is willing raise the fund from capital market. One of the merchant bankers is allotted the responsibility to act as Stabilizing Agent (SA). If issue becomes oversubscribed, the stabilizing agent will borrow at most 15% shares from the promoter of the company or shareholders who at least hold 5% of the total shares. After that Stabilizing agent will sell those borrowed shares in the market and kept the realized proceed in green shoe saving account. After that, with the help of that proceed, SA will purchase the shares from the open market and Keep it in green shoe demat account. Then borrowed shares will be retuned back to the promoters and deducting fee of stabilizing agent if anything remains in Green shoe saving account that will go the SEBI's shareholder protection fund. After that both green shoes saving and demat account will be closed.

90. What do you mean by Filter Rule?

Ans. Filter Rule is a technical analysis technique stated as a rule for buying or selling stock according to past price movement. The filter rule is usually stated in the following way:

Purchase the stock when it rises by x% from the previous low and hold it declines by y% from the subsequent high. At this point, sell the stock short. Filter rule is a timing strategy. They show the investors when they should long in a security and when they should sell short.

91. What do you mean by Float Creation?

Ans. Bankers define float as cash obligations that are in the process of collection. Another way of computing the float is the difference between the balance shown in a firm's account or an individual's cheque book and the balance on the bank's books. It is assumed that on average a firm writes Rs. 10000 worth of cheques each day. If it takes five days for these cheques to clear and be deducted from the bank's account, the firm's own checking record will show a daily balance of Rs. 50000 lower than bank's records. Conversely if the firm on average receives Rs. 10000 worth of cheques each day but deposits and clears these cheques in only 3 days the firm's book will show a balance of Rs. 30000 higher than the balance on bank's records. The difference between Rs. 50000 negative float and Rs. 30000 positive float is equal to Rs. 20000 negative float which is called firm's net float.

Float management is an integral component of the cash management system. There are five different types of floats -

Invoicing Float is the time it takes for a firm to bill receivables. The efficiency of the company's internal accounting and billing procedures affect this type of float.

Mail Float is the time the firm's bill spends in the mail on its way to the customer and the time the consumer's cheque spends in the mail on its way to the firm.

Processing Float is the time between a firm's receipt of payment and its deposit of cheque for collection.

Collection Float is the time from when the bank accepts a cheque for deposit to when it makes the funds available in the firm's checking account.

Disbursing Dloat is the time between when a firm writes a cheque on available bank account funds and when the bank deducts the corresponding amount from the firm's bank balance.

The first four components of float hinder the firm's ability to turn collection items into cash - these are examples of negative float. The fifth component disbursing float is the positive float because it increases the amount of cash the firm has to use.

92. What do you mean by Real Option?

Ans. Real Option are those strategic elements in investments that help creating flexibility of operations or that have the potential of generating profitable opportunities in the future for the firm. Real Option provides discretion to the mangers to take certain investment decision without any obligation at a given price. Real Options are not confined to real assets only. Patents, R&D and Brands etc. are examples of assets that they have a value to the owner. An investment in real option consists of two values: i) the value of cash flows from the project assets plus ii) the value of any future opportunity (option) arising from holding the asset.

93. What do you mean by Pension Fund?

Ans. Pension Fund Regulatory and Development Authority (PFRDA) looks after the social security contribution for the citizen. All Central and State Government Employees are enjoying pension as the statutory benefit. Private organizations are providing contributory provident fund to their employees which will be handed over to them at the time of retirement. Private organization is offering pension benefit apart from Contributory Provident fund to attract the high-profile employees such as executive directors, Chief Executive Officers of the company. In that case management of the organization has to deposit certain amount of fund in the pension account of the employee and with that amount, they will purchase pension for the employee. PSUs are offering only general provident Fund to the employee and instead of giving Contributory provident fund, they purchase the pension for the employee with the money that employer has deposited in the pension account of the person.

LICI is offering deferred annuity scheme like Jeevan Suraksha, Jeevan Dhara and Immediate annuity scheme like Jeevan Akshay to all section of people independent of the fact whether they are service holder, business man or carrying out independent profession. The pension fund investor has the multiple choices before him such as Pension for life, 5 years certain payment and for rest of the life so long he survives, 10 years certain payment and for rest of the life so long he survives, 15 years certain payment and for rest of the life so long he survives, 20 years certain payment and for rest of the life so long he survives, family pension, commutation of certain amount of accumulated balance and return of purchase price of pension. Depending on taste preference and risk appetite of the investor, they can choose for any of the option which is exclusively discretion of the pensioner. In the year 2010, Government of India has designed new Pension scheme where anybody between the age of 25 to 60 years can opt for it. When the age of the individual will be less than 35 years, collected amount will be invested 50% in share, 30% in corporate debt and 20% of Government debt. In other extreme, when the age of the individual is 60, 10% of the collected amount will go for share market, 10% to corporate debt and 80% will go for Government security. If anybody prefers to exit NPS before the age of 60, the person will get 20% of the consolidated balance in hand and remaining 80% will be used to purchase the annuity scheme. Anybody who prefers to exit between the age of 60 and 70 years he will be able to get 60% of the accumulated balance in hand and remaining 40% will be used to purchase the annuity scheme.

The NPS is superior than other pension schemes because it is aiming to coverage the all workers of unorganized sector also and this is the first-time pension fund will have equity exposure to a significant way. The minimum contribution per annum for subscribing NPS is Rs. 6000 which is affordable for poorer section of the society.

94. What do you mean by the Greeks of the option?

Ans. Delta refers to the amount by which price of an option changes due to change in one unit of price in the underlying asset.

Gamma represents the amount by which delta value of an option changes would move in response to a unit change in the underlying asset price.

Theta is calculated by considering the time value of option when all other parameters of pricing remain constant. It is always negative as the time to maturity approaches; option becomes less valuable.

Rho measures the change in the value of option with respect to a unit change in interest rate.

Vega measures the rate of change of value of an option with respect to the volatility of the underlying asset.

95. What is sweat equity share?

Ans. The companies (amendment act, 1999) have introduced a provision allowing issue of sweat equity shares by a company to its directors or employees. Sweat equity share means equity share issued by the company to employees or directors at a discount for consideration other than cash for providing an innovative know how or value additions to the organization. The company may issue sweat equity shares of a class of shares already issued if the following conditions are fulfilled. The issue of sweat equity shares is authorized by a special resolution passed by the company in its general meeting. The resolution specifies the number of shares, current market price, consideration, if any and class or classes of directors or employees to whom such equity shares will be issued.

96. What is Asset Liability Management (ALM) of Banks?

Ans. ALM is a comprehensive and dynamic framework for managing market risk of a bank. It is the management of structure of balance sheet (liabilities and asset) in such a way that the net earnings from interest are maximized within the overall risk preference (present and future) of the institutions. Residual maturity is time period which a particular asset or liability will still take to mature that is become due for payment (once at a time, say in case of a term deposit or installments say in case of term loan).

Maturity buckets are different time intervals (namely 1-14 days, 15-28 days, 29-90 days, 91-180 days, 181-365 days, 1-3 years, 3-5 years and more than 5 years), in which the value of a particular asset or liability is placed depending upon its residual maturity.

When a particular maturity bucket, the amount of liabilities or assets does not match, such position is called mismatch position which creates liquidity surplus or liquidity crunch position and depending on the interest rate movement, such situation may be risky for banks.

The mismatches for cash flows for 1-14 days and 15-28 days buckets are to be kept to the minimum (not to exceed 20% of each of cash outflows from these buckets).

If net asset liability position of the bank is negative, bank will lose if interest rate goes up. Bank will gain if interest rate goes down. On the other hand, if net asset liability position of a bank is positive, bank will gain if interest rate goes up and will lose if interest rate goes down.

97. What is reinsurance?

Ans. Reinsurance is a form of an insurance cover for the insurance where several insurance companies come together to issue one single risk. One entity (Re-insurer) takes all or part of the risk cover under a policy issued by an insurance company in consideration of a premium payment. It is similar to under writing where insurance companies go in for reinsurance so that they could protect themselves from the potential loss.

98. What is the difference between Universal Banking and Narrow Banking?

Ans. Universal Banking allows financial institutions and banks to undertake all type of activities of banking or development financing or activity associated with that subject to compliance of statutory and other requirements prescribed by RBI, Government and related legal acts. These activities may include accepting deposits, granting loans, investing in securities, credit card, project finance, remittances, payment systems, project counseling, merchant banking, foreign exchange operations and insurance.

Narrow Bank can be interpreted as the system of banking under which a bank places its funds in risk free assets with maturity period matching liability maturity profile so that there is no problem relating to asset liability mismatch and the quality of assets remaining intact without leading to emergence of substandard assets. The objective is reducing NPA as minimum as possible.

99. What is Financial Stability and Development Council (FSDC)?

Ans. The Government will soon form Financial Stability and Development Council (FSDC) to ensure better coordination, integration among the different regulatory bodies. The purpose is to generate a common consensus among all regulators in different policy prescription so that there will be no scope for conflict of interest. But similarly, FSDC will ensure under any circumstances regulators' autonomy of operation will be fully protected. The Government of India does not want to repeat the same type (what happened between SEBI and IRDA over ULIP) of dispute among the regulatory bodies as this may give a wrong signal in the mind of investors. FSDC will provide the regulators a common platform to settle the disputed issues. The RBI will chair a subcommittee of FSDC. The subcommittee will have all regulators and senior Finance Ministry Officials as members and Governor of RBI will act as the chair person, a structure which is very familiar with High Level Coordination Committee on Financial Markets.

100. What is the fund based and fee-based business of a commercial bank?

Ans. Fund based business of a commercial bank is mainly that business for which commercial banks have to incur some expenditure. Example of fund-based income is accepting the deposit from the household and corporate, offering cash credit, bank overdraft and bill discounting facility as well as granting working capital loan.

Fee based business of a commercial bank is mainly that business for which bank does not need to incur any expense but they are earning some fee income. For example - Letter of credit, bank guarantee are the examples of fee-based business.

101. What do you mean by Letter of Credit?

Ans. A Documentary Credit, also known as a Letter of Credit (LC), is a written undertaking by a bank on behalf of a buyer/importer to pay the seller an amount of money within a specified time provided the seller presents documents strictly in accordance with the terms laid down in the LC. The LC includes an expiry date and a latest date for shipment to prompt the seller to dispatch both goods and documents expeditiously. The buyer's bank, known as the issuing or opening bank, issues the LC to a bank in the exporter's country; this will generally be the exporter's own bank and is known as the advising bank. The advising bank informs the exporter about all the terms and documents required and authenticate the genuineness of the LC. The exporter/supplier, who is also known as the beneficiary of the LC, is informed by the advising/confirming bank that an LC has been opened in his/her favour with all the terms and documents required in order to receive payment. Once the exporter has shipped the goods, he/she submits the documents to the advising/confirming bank, or occasionally to a bank known as a nominated bank which has agreed to negotiate the LC on his/her behalf, to receive payment. The bank checks the documents received very carefully to ensure that they are exactly as stipulated in the LC. Typically the documents requested in a Letter of Credit are the following: Commercial invoice, Transport document such as a Bill of lading or Airway bill, Insurance document, Inspection Certificate, Certificate of Origin. If the documents are found to be in order, the exporter will be able to obtain payment. The advising/confirming or nominated bank then forwards the documents to the issuing bank and receives payment either at sight (immediate payment) or term (if a credit period is granted), providing documents are found to be in order by the issuing bank.

102. What do you mean by Bank Guarantee?

Ans. A Bank Guarantee is a commercial instrument in the nature of a contract, intended between two parties, to secure compliance with the contract. It is an off-shoot of the main contract between two parties. Bank guarantee is of two types - Financial Guarantee and Performance Guarantee. Like Letter of Credit, Bank Guarantee is also applicable for both domestic and international trade.

A Bank Guarantee is a guarantee made by a bank on behalf of a customer (usually an established corporate customer) should it fail to deliver the payment, essentially making the bank a co-signer for one of its customer's purchases. When the company knows that it has to perform import or transaction in a repeated way, usually they will prefer to go for bank guarantee. Bank Guarantee is provided by the bank provided client has a huge amount of fixed deposit with bank. If the client is unable to pay, bank will make lien over the company's account and pay to its creditors. The Bank Guarantee is one such innovative financial instrument whereby, if the beneficiary perceives that there has been a breach of contract by the other party, he can exercise the guarantee and avail of the amount immediately, without having to undergo the hassles of litigation. The Bank Guarantee is not a settlement tool but a security for performing certain obligations under the contract and this is the main feature which differs guarantee from letter of credit. The bank will pay only if Principal has failed to perform its contractual obligations.

In case of performance guarantee, the objective of Bank Guarantee is to ensure the counterparty about the performance of its clients. Usually, banks are issuing performance bond to provide the service of performance Bank Guarantee. A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.

For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor is constructing a building. If the contractor fails to construct the building according to the specifications laid out by the contract (most often due to the bankruptcy of the contractor), the client is guaranteed compensation for any monetary loss up to the amount of the performance bond.

103. What is the fund based and fee based business of an investment bank?

Ans. Fund based business of an investment is mainly that business for which investment banks have to incur some expenditure. Example of fund-based business of an investment bank is underwriting, market making, bought out deal, investment and trading in bond, equity and derivative, asset management service in Mutual Funds, portfolio management, Venture Capital Funds, Private Equity funds, secondary market services (for example securities business such as brooking, sales and distribution, equity research, investment advisory) and support services (such as registrars and share transfer agents).

Fee based business of an investment bank is mainly that business for which bank does not need to incur any expense but they are earning some fee income. For example - merchant banking services such as managing public issue of debt and equities, right issues, open offer under takeover code, buyback offer, delisting offer and advisory and transaction services (for example project financing, loan syndication, structured finance, Venture Capital, qualified institutional placements, financial restructuring), corporate reorganizations (such as demergers, divestitures, acquisition, Government disinvestment and asset recovery agency services) are the example of fee based business of investment banks.

104. What is the difference between Equity Share and Mutual Fund?

Ans. Equity Share is an instrument by which company raise the fund from the market. Equity shareholders are owners of the company.

Mutual Fund is a trust and a trust neither has its own body nor has its own soul. Trust is run by trustee. Trustee appoints the Asset Management Company and the Asset Management Company should have a certificate from SEBI to act as a Portfolio Manager. Asset Management Company collects the fund from the investor and it invests indifferent scheme such as equity fund, hybrid fund, debt fund as per the risk appetite and desire of the investors.

The difference between Equity and Mutual Fund is given below -

• An investor cannot buy or sell shares directly from the stock exchanges. Investors can buy or sell shares through broker.

• The investor can opt to buy the Mutual Fund from the Asset Management Company without taking the assistance of any brokers.

• When investor sells its equity shares, he has to sell it in the secondary market unless and until company is offering a buyback option.

• When investor sells mutual fund, the Asset Management Company repurchases it.

• Share is traded in the secondary market. During the trading hour share prices are changing continuously due to the continuous buying and selling pressure.

• In case of Mutual Fund, Net Asset Value (NAV) of the fund is given at the end of each trading day.

• When company raises the fund from the market by issuing equity shares for the first time, it is known as Initial Public Offer (IPO). In IPO, issue price is becoming much higher than face value as the company is charging a significantly higher amount of share premium.

• When the Asset Management Company raises the fund from market by issuing a new fund, it is known a New Fund offer (NFO). In NFO, usually issue price is always at par with the face value.

• If the investor holds the share for more than one year and sells it, it is known as long term capital gain. Long term capital gain for equity share is tax free as the SEBI regulation.

• Long term capital gain is tax free only in case of equity funds. In case of debt fund, long term capital gain is taxable.

105. What are the different ways for a company to raise the fund for long term?

Ans. The different ways by which company can raise the fund for long term.

• Initial Public Offer (IPO): IPO of debt or equity, when the company raises the fund from the market by issuing the shares and debentures for the first time.

• Follow on Public Offer (FPO): FPO implies when the company is willing to raise the fund by issuing additional fresh equity shares from the market but shares of the company are already listed in the secondary market.

• Right Issue: When company raises the fund by issuing equity shares to the existing shareholders usually at a discount to market price.

• Preferential Allotment: When company prefers to raise the fund by issuing the shares to the Qualified Institutional Buyers.

• Depository Receipts: When a company is willing to raise the fund from foreign market but they want to escape the stringent norms for listing their shares in foreign stock exchanges, they can issue depository receipt. For example - by issuing American Depository Receipts, they are able to raise the funds from USA though their shares are not listed in 'New York Stock Exchange'.

106. What is Red Herring Prospectus?

Ans. A company going for IPO or FPO has to file a draft prospectus with SEBI, 21 days prior filing the red herring prospectus in case company is going for 100% book building issue. Shares Company is going to offer; size of Net Public Offer by the company is mentioned. But price band of the issue that is floor and cap price is also not disclosed. Issue price of the share is also not disclosed. Name of the merchant bankers managing issue is given and the issuer company's name, registered office address, website, fax number is also provided.

107. What do you mean by Depository?

Ans. In national level there are two depositories - one is NSDL (National Securities Depositary Limited) and another is CDSL (Central Depository Services Limited). All the depository participants (brokerage houses) are registered with them. Once an investor prefers to convert its physical certificate in electronic format, It will make an application to the depository participant. Depository participant will forward the application to the NSDL or CDSL wherever they are registered. After getting the instruction from the central depository level, registrar of the company will destroy the physical certificate of the shareholder and shares will be kept in the dematerialized account of the client in electronic format. Each share will be provided a unique International Securities Identification Number (ISIN).

108. What is a Contract Note?

Ans. It is a confirmation of trades done on a particular day on behalf of the client by a trading member. It imposes a legally enforceable relationship between the client and the trading member with respect to purchase/sale and settlement of trades. It is prerequisite for filing a complaint or arbitration proceeding against the trading member in case of a dispute. A valid Contract Note should be in the prescribed format, contain the details of trade, stamped with the requisite values and duly signed by authorized signatory. Contract Notes are made duplicate, the trading member and client should keep one copy each. After verifying the detailed content, client keeps one copy and returns the second copy to the trading member.

109. What is Maturity Gap?

Ans. Maturity Gap is defined by the maturity of asset over and above maturity of liability of a bank. If maturity gap is positive and interest goes up, bank will incur loss but if interest goes down, it is favorable for the bank. If maturity gap is negative and interest rate goes up it is good for a bank but if interest rate goes down when maturity gap is negative, bank will incur loss.

110. What is Duration Gap?

Ans. Duration is measure of the weighted average life of the bond which considers the size and timing of cash flow. The weight assigned to each period is the present value of the cash flow paid at that time as a proportion of the price of the bond. Duration Gap can be measured as by the following formula -

Duration Gap = Duration of the asset - Duration of the liability x (Liability/Asset)

Change in Net Worth/Asset = - Duration Gap x {Change in Interest Rate/(I + Interest Rate)}

If interest rate goes up, bank will incur loss if duration gap is positive.

111. What do you mean by Underwriting?

Ans. Underwriting is not fundamental obligation in Indian perspective. Therefore, underwriting can be shown as fee-based income if issue goes on successfully. Underwriting becomes contingent obligation if the issue becomes undersubscribed. Then the underwriter has the obligation to buy the unsubscribed portion of the issue.

In USA there are two types of underwriting - Firm Underwriting and Best Effort Underwriting. In Firm Underwriting issuer company is assured to provide a certain amount of proceed by the underwriter firm against which underwriter will purchase the entire shares of the issuer company and will sell it after certain period of time at a higher price after doing the marketing of the issue so that they can enjoy a significant amount of underwriter's spread.

In Best Effort Underwriting, underwriter is doing marketing for the issue but it will not have any obligation to purchase the unsubscribed portion of the issue if issue goes undersubscribed.

112. Explain the concept of BASEL III.

Ans. The Macro Economic Assessment Group was established in February, 2010 by the chairs of the financial stability board and Basel Committee on Banking Supervision to coordinate an assessment of macro-Economic implications. Basel III emphasized on tier I capital. The important element of BASEL III is an increase of the minimum common equity requirement from the current 2% level to 4.5%. Additional tier I capital will be 1.5%. BASEL III will require banks to hold a capital conversion buffer comprising 2.5% of common equity. The countercyclical buffer would be as large as 0- 2.5% position of risk weighted assets. Tier II capital should be not more than 2%. Therefore, for successful implementation of BASEL III, banks have to maintain at least 10.5% capital adequacy ratio out of which 8.5% has to be maintained mandatorily in the form of tier 1 capital. RBI has instructed all Indian banks to maintain a minimum capital adequacy ratio of 11.5%. Implementation of Basel III will be treated as a common platform on common level playing field for all banking players in the international level in future. Basel III does not take into account the tier II capital. Basel III focuses on Liquidity Coverage Ratio and net stable funding ratio. LCR ratio aims to ensure that a bank maintains an adequate level of high-quality assets that can be converted into cash to meets its liquidity needs for a 30 days' time horizon under an acute liquidity stress scenario. Net stable funding ratio is defined as available stable funding divided by required stable funding. The major focus of Basel III is to reduce the liquidity risk.

113. What is the difference between Banks and NBFCs?

Ans. Banks are accepting the deposit from household and corporate and lend the fund to the borrower. The difference of the rate of interest earned by the bank from the borrower of fund over and above the rate of interest paid to the depositors is Net Interest Margin for bank.

Non-Banking Financial Companies (NBFCs) cannot accept the deposit from house hold and corporate. After two years of operation, NBFCs can collect fixed deposit from the household and corporate with prior approval of RBI. Usually NBFCs borrow the fund from the bank at a lower rate and lend it to the corporate borrower at a higher rate for some specific purpose such financing the housing or financing the infrastructure or lease. Example of NBFC is SREI, Magma, LIC Housing, HDFC etc.

Banks can issue the cheque and make as well as receive payment from it. NBFC cannot issue cheque. From 31st March, 2012, minimum capital adequacy ratio of the NBFCs has increased to 15% by RBI. Minimum Capital adequacy ratio of Indian banks as per Basel II norms is 9%.

Banks have to maintain Cash Reserve Ratio and Statutory Liquidity Ratio as per the instruction of RBI which is not applicable for NBFCs.

114. What is the difference between Balance Sheet of a Company and Balance Sheet of a Bank?

Ans. Balance Sheet of a company is prepared as per the Companies' Act of 1956. Balance Sheet of bank is prepared as per the Banking Act of 1949. In order to prepare financial statement of a company, at first manufacturing account has to be prepared. In manufacturing account, mainly manufacturing expense incurred by the company is stated. Income can be generated in manufacturing account only by selling the scrap. After manufacturing account is prepared, trading account will be created. Here company is earning revenue from sales and associated cost of production such as purchase of material; wages to labour are shown as expenditure. Gross Profit earned by the company is calculated from trading account only. After Trading Account, Profit and Loss Account is created by the company. In Profit and Loss Account, office and administrative overheads are shown as expenditure. From Profit and Loss Account, Net Profit earned by the company is calculated. The adjusted Net Profit and Loss Account is created after creating provision (provision for bad debt, provision for depreciation) and reserve (general reserve, capital redemption reserve). After making the adjusted Net Profit and Loss Account for the company, Balance Sheet of the company prepared.

In case of bank, there will be no manufacturing account and trading account.

115. What is Gold Exchange Traded Fund?

Ans. Gold Exchange Traded Fund is a Mutual Fund where underlying asset is gold. Asset Management Company collects fund from investors and buy the gold virtually from the gold seller. Actually, Asset Management Company is not purchasing the gold physically. When investor is willing redeem the fund, Asset Management Company virtually sells the gold in the market price though there is no physical gold is being sold. Thereafter the proceeds from sale is transferred to investor of the Gold Exchange Traded Fund. This is most hassle-free way of investing in gold. If investor purchases gold physically, there is risk of robbery, impurity etc. Demand for Gold Exchange Traded Fund is usually high as investment in gold is an effective hedging strategy against inflation and market risk.

116. How working capital requirement for a company is judged by banks?

Ans. There are different methods of measurement of working capital requirement of the company. The turnover method of working capital assessment has been proposed by the Nayak Committee and it is mainly used for the assessment of the working capital needs of the small trading companies. This method is not useful for manufacturing and large-scale trading firms. Under this method the working capital needs is computed as below:

Working Capital Requirement = 25% of Turnover
Promoter Contribution (Margin) = 5% of Turnover
Bank Finance = 20% of Turnover

Tandon Committee on Working Capital Financing has recommended the following 3 methods:

Method I: Borrowers to bring 25% of the net working capital (Current Assets - Current Liabilities).
Method II: Borrowers to bring 25% of the Current Assets.
Method III: Borrowers to bring 100% of Hard-core Assets + 25% of other Current Assets.

Under Method I the promoter has to bring minimum margin whereas the margin to be brought in under method is maximum.

Core Committee has discarded Method III and recommended Method II.

Method II is also known as Maximum Permissible Bank Finance (MPBF). Banks mainly use this method for assessment of Working Capital.

117. What is structure of Indian Banking Sector?

Ans. Indian Banking sector players can be broadly categorized into two groups - Scheduled Banks and Non-scheduled Banks.

Scheduled Banks are of two types - Scheduled Commercial Banks and Scheduled Co-operative Banks.

Scheduled Commercial Banks are classified into four major heads - The Public Sector Undertaking Banks, The Private Sector Banks, The Foreign Banks and The Regional Rural Banks.

The Private Sector Banks are classified into Old Generation Private Sector Banks and New Generation Private Sector Banks.

Scheduled Co-operative Banks are mainly categorized into Scheduled Urban Co-operative Banks and Scheduled State Co-operative Banks.

The examples of PSU banks are State Bank of India, Bank of Baroda, Punjab National Bank, Bank of India, Union Bank of India, Canara Bank, Bank of Maharashtra, Central Bank of India, Indian Overseas Bank, Indian Bank, UCO bank as well as Punjab and Sind Bank.

The instances of Old Generation Private Banks are as follows - Catholic Syrian Bank, City Union Bank, Dhanlaxmi Bank, Federal Bank, ING Vysya Bank, Jammu & Kashmir Bank, Karnataka Bank, Karur Vysya Bank, Lakshmi Vilas Bank, Nainital Bank, Ratnakar Bank, South Indian Bank and Tamilnad Mercantile Bank.

The examples of New Generation Private Banks are Axis Bank, Development Credit Bank, HDFC Bank, ICICI Bank, IndusInd Bank, Kotak Mahindra Bank and Yes Bank.

The examples of Foreign Banks include AB Bank, Abu Dhabi Commercial Bank, American Express Banking Corp, Antwerp Diamond Bank, Australia and New Zealand Banking Group, Bank International Indonesia, Bank of America, Bank of Bahrain & Kuwait, Bank of Ceylon, Bank of Nova Scotia, Bank of Tokyo-Mitsubishi UFJ, Barclays Bank, BNP Paribas, China Trust Commercial Bank, Citi Bank, Commonwealth Bank of Australia, Credit Agricole, Credit Suisse AG, DBS Bank, FirstRand Bank, Hongkong Shanghai Banking Corporation (HSBC), Industrial and Commercial Bank of China, JPMorgan Chase Bank, JSC VTB Bank, Krung Thai Bank, Mashreq Bank, Mizuho Corporate Bank, National Australia Bank, Oman International Bank, Rabobank International, Royal Bank of Scotland, Sberbank, Shinhan Bank, Societe Generale, Sonali Bank, Standard Chartered Bank, State Bank of Mauritius, UBS AG, United Overseas Bank and Woori Bank.

The examples of Regional Rural Banks consist of Andhra Pragathi Grameena Bank, Andhra Pradesh Grameena Vikas Bank, Chaitanya Godavari Grameena Bank, Deccan Grameena Bank, Saptagiri Grameena Bank, Arunachal Pradesh Rural Bank, Langpi Dehangi Rural Bank, Assam Gramin Vikash Bank, Uttar Bihar Gramin Bank, Madhya Bihar Gramin Bank, SamastipurKshetriya Gramin Bank, Bihar Kshetriya Gramin Bank, Surguja Kshetriya Gramin Bank, Durg Rajnandgaon Gramin Bank, Chhattisgarh Gramin Bank, Baroda Gujarat Gramin Bank, Dena Gujarat Gramin Bank, Saurashtra Gramin Bank, Haryana Gramin Bank, Gurgaon Gramin Bank, Himachal Gramin Bank, Parvatiya Gramin Bank Chamba, EllaquaiDehati Bank, J&K Grameen Bank, Jharkhand Gramin Bank, Vananchal Gramin Bank, Pragathi Gramin Bank, Chikmagalur Kodagu Grameena Bank, Krishna Grameena Bank, Cauvery Kalpatharu Grameena Bank, Karnataka Vikas Grameena Bank, Visveshvaraya Grameena Bank, South Malabar Gramin Bank, North Malabar Gramin Bank, Jhabua-Dhar Kshetriya Gramin Bank, Madhya Bharath Gramin Bank, Mahakaushal Kshetriya Gramin Bank, Narmada-Malwa Gramin Bank, Rewa-Sidhi Gramin Bank, Satpura Narmada Kshetriya Gramin Bank, Sharda Gramin Bank, Vidisha-Bhopal Kshetriya Gramin Bank, Maharashtra Gramin Bank, Vidarbha Kshetriya Gramin Bank, Wainganga Krishna Gramin Bank, Manipur Rural Bank, Meghalaya Rural Bank, Mizoram Rural Bank, Nagaland Rural Bank, Baitarani Gramya Bank, Kalinga Gramya Bank, Neelachal Gramya Bank, Rushikulya Gramya Bank, Utkal Gramya Bank, Puduvai Bharathiar Gramya Bank, Sutlej Gramin Bank, Malwa Gramin Bank, Punjab Gramin Bank, Baroda Rajasthan Gramin Bank, Hadoti Kshetriya Gramin Bank, Jaipur Thar Gramin Bank, Mewar Anch Gramin Bank, Mgb Gramin Bank, Rajasthan Gramin Bank, Pallavan Grama Bank, Pandyan Gramin Bank, Tripura Gramin Bank, Aryavart Gramin Bank, Ballia-Etawah Gramin Bank, Baroda Up Gramin Bank, Kashi Gomti Samyut Gramin Bank, Kshetriya Kisan Gramin Bank, Lucknow Kshetriya Gramin Bank, Prathama Bank, Purvanchal Gramin Bank, Sarva Up Gramin Bank, Shreyas Gramin Bank, Triveni Kshetriya Gramin Bank, Nainital-Almora Kshetriya Gramin Bank, Uttaranchal Gramin Bank, Uttarbanga Kshetriya Gramin Bank, Bangiya Gramin Vikash Bank and Paschim Banga Gramin Bank.

The examples of Co-operative Banks are Abhyudaya Co-op. Bank Ltd., Amanath Co-op. Bank Ltd., Apna Sahakari Bank Ltd., Bassein Catholic Co-op. Bank Ltd., Bombay Mercantile Co-op. Bank, Citizen Credit Co-op. Bank Ltd., Dombivli Nagari Sahakari Bank, Jalgaon Janata Sahakari Bank Ltd., Janakalyan Sahakari Bank Ltd., Janata Sahakari Bank Ltd., Mahesh Sahakari Bank Ltd., Nagpur Nagarik Sahakari Bank Ltd., New India Co-op. Bank Ltd., Nutan Nagarik Sahakari Bank Ltd., Punjab & Maharashtra Co-op. Bank Ltd., Rajkot Nagarik Sahakari Bank Ltd., The A. P. Mahesh Co-op. Urban Bank Ltd., The Bharat Co-op. Bank (Mumbai) Ltd., The Chitanavispura Sahakari Bank Ltd., The Cosmos Co-op. Bank Ltd., The Deccan Merchants Co-op. Bank Ltd., The Greater Bombay Co-op. Bank, The Jalgaon People's Co-op. Bank Ltd., The Kalupur Commercial Co-op. Bank Limited, The Kapol Co-op. Bank Ltd., The Karad Urban Co-op. Bank Ltd., The Mahanagar Co-op. Bank Ltd., The Municipal Co-op. Bank Ltd., The North Kanara GSB Co-op. Bank Ltd., The Saraswat Co-op. Bank Ltd., The Shamrao Vithal Co-op. Bank, The Surat People's Co-op. Bank, The Urban Co-op. Bank Ltd.,The Zoroastrian Co-operative Bank Limited, TJSB Sahakari Bank Ltd. and Abhyudaya Co-op. Bank Ltd.

118. Discuss about the Banking Reform Bill 2012.

Ans. On December, 2012 both the houses of the Parliament in India passed the much-awaited banking amendment bill. According to this bill, nonbanking business players are also entitled to apply for the banking license from the RBI. It also recommended for raising the cap on voting rights in public sector banks from 1% to 10%. It has restricted foreign shareholding in any form to 49%. Private Banks in India can have up to 74% foreign shareholding today. It enabled the nationalized banks to raise capital by issuing of preference shares or rights issue. It would also enable them to increase or decrease the authorized capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crores. The bill allowed any person to acquire 5% or more shares or voting rights in a banking company subject to RBI's approval. For private banks, the cap on voting right has been increased to 26%. This Bill has strengthened the regulatory powers of Reserve Bank of India (RBI). The bill empowered RBI to supersede the board of directors of a banking company for a period of six months if its modus operandi is detrimental to the interest of the depositors.

The apex body of the money market of India has received 26 application from different Government as well as private business houses which includes the L&T Finance, the Tata Group, Reliance Capital, Aditya Birla Nuvo, Bajaj Finserv, Videocon, IDFC, Muthoot Finance, India Bulls, Bandhan, Bangalore based Janalakshmi Microfinance, Noida based little known Smart Global Ventures, Gurgaon based advisory services firm INMACS Management, UAE Exchange of India: a remittance and foreign exchange service firm, India Infoline, LIC Housing Finance, Religare, Edelweiss, Magma Finance, SREI Infrastructure Finance Corporation, IFCI, The Department of Post (Government of India), Tourism Finance Corporation of India, Suryamani Financing (part of Kolkata based Pawan Kumar Ruia Group), JM Financial, Shriram Finance. The new banking bill, 2012 can be viewed as a masterstroke by the Central Government to eradicate the curse of the financial exclusion. Only Bandhan and IDFC have obtained in principle approval of banking.

119. What is General Anti Avoidance Rule (GAAR)?

Ans. GAAR abbreviation stands for General Anti Avoidance Rules and it has been introduced in India due to 'Vodafone' case ruling in favour of this company by the Supreme Court. The new rules will come into effect from 1 April, 2013. Indian Government is trying to give powers to Income Tax Authorities as implementation of GAAR provides tremendous powers to deny tax benefit to an entity if a transaction has been carried with the sole intention of tax avoidance. Under the Code, GAAR will be invoked if the following conditions are satisfied:

a) The taxpayer should have entered into an arrangement.
b) The main purpose of the arrangement should be to obtain a tax benefit and the arrangement:

i) has been entered into, or carried out, in a manner not normally employed for bona fide business Purposes;
ii) has been created rights and obligations which would not normally be created between persons dealing at arm's length;
iii) results, directly or indirectly, in the misuse or abuse of the provisions of this code or
iv) lacks commercial substance, in whole or in part.

An 'arrangement' will mean any transaction, conduct, event, trust, grant, operation, scheme, covenant, disposition, agreement or understanding, including all steps therein or parts thereof, whether enforceable or not. Therefore, if the motive behind individual steps is to obtain a tax benefit, but the overall scheme is not so, the individual steps will nevertheless be treated as an arrangement and the GAAR may be invoked. An arrangement will also include any interposition of an entity or transaction where the substance of such entity or transaction differs from the form given to it.

The lack of commercial substance, in the context of an arrangement, shall be determined, but not limited to, by the following indicators:

i) The arrangement results in a significant tax benefit for a party but does not have a significant effect upon either the business risks or the net cash flows of that party other than the effect attributable to the tax benefit.

ii) The substance or effect of the arrangement as a whole differs from the legal form of its individual steps.

iii) The arrangement includes or involves: a) round trip financing;
b) an 'accommodating party', as defined;
c) elements that have the effect of offsetting or cancelling each other;
d) a transaction which is conducted through one or more persons and disguises the nature, location, source, ownership or control of funds; or
e) an expectation of pre-tax profit which is insignificant in comparison to the amount of the expected tax benefit.

120. What do you mean by ICDR?

Ans. ICDR implies Issue of Capital and Disclosure Requirement, a norm designed by SEBI. According to this norm, if company prefers to go for public issue, it has to offer at least 35% to the Retail Investors, 15% to the High Net worth Individuals and 50% to the Qualified Institutional Buyers when company is going for 100% book building process. Initially ICDR instructs to all the issuer companies to make minimum application size in such a way so that minimum application value will fall in between Rs. 5000 - Rs. 7000. In the year 2012, ICDR has been revised where minimum application value has been increased from Rs. 10000 to Rs. 15000. The share allotment system in IPOs will be modified to ensure that every retail applicant, irrespective of the application size, gets allotted a minimum bid lot, subject to availability of shares in aggregate. Investors will soon be able to apply for shares offered in a public issue online through their stock broker. Electronic issuance of initial public offerings, or e-IPOs as the name suggests, can be done online to save time and reduce the paperwork involved. It has extended the facility of ASBA (application supported by blocked amount) through this mode. Suitable incentive structure to issuers/brokers/banks will be put in place to encourage use of ASBA by retail individual investors. The regulator has also increased the QIB participation of 75% against the existing 50% in case of compulsory book-building route if the issuer does not have more than Rs. 15 crores average pre-tax operating profit. For companies coming out with IPOs, they would now have to disclose the price band at least five working days before the opening of the bidding, as against the current norm of two days. According to ICDR Guideline, 2014, 60% of QIB offer has to be mandatorily allotted to the anchor investor.

121. What is the difference between the FDI and FII?

Ans. Foreign Direct Investment (FDI) implies investment by the foreign companies in domestic company where the intention is to retain the control over the management. FDI is possible by three routes - cross border merger and acquisition, joint venture and opening subsidiary. For example - Tata Steel has acquired the Chorus; Tata Motors have acquired Land Rover and Jaguar. On the other hand, Enron made a huge FDI by creating Dabhol Power Plant in Maharashtra and Hyundai Motors made a huge FDI in Tamil Nadu.

Foreign Institutional Investor (FII) implies investment by foreign companies in domestic asset for maximizing the short-term profit. For example - J P Morgan, Morgan Stanley and Goldman Sachs etc. are the example of FII.

122. What is the difference between CRR and SLR?

Ans. Cash Reserve Ratio (CRR) implies certain fraction of total demand deposits and time deposits maintained by the commercial banks with RBI in terms of cash. Current CRR is 4% as on 14th March, 2025.

Statutory Liquidity Ratio (SLR) implies certain fraction of total demand deposits and time deposits maintained by the commercial banks with RBI either in terms of cash or gold or eligible Government securities. Current SLR is 18% as on 14th March, 2025.

123. What is IFRS?

Ans. International Financial Reporting Standards (IFRS) has evolved into widely accepted financial reporting language in 100 countries and growing. It will accelerate Foreign Investment in specialized sectors through Foreign Direct Investment imperative to harmonize with global financial reporting standards. ICAI released a concept paper on convergence in 2007 and active follow-up on clarifications. The MCA roadmap on IFRS was released in January, 2010. MCA roadmap for Banking and Insurance Companies released in March, 2010. SEBI amended the listing agreement to permit voluntary early adoption of IFRS (as issued by IASB) by listed companies. In Jan 2010 a version of Indian Accounting Standards converged with IFRS released. Highlights of the MCA Roadmap can be shown as below as emphasis is provided on phased approach to convergence.

- Companies (except Banking & Insurance) - 2011 to 2014.
- Banking & Insurance Companies - 2012 to 2014.

Early adoption of IFRS converge standards permitted. Clarification on implementation matters issued by MCA is given as under.

Lists of Companies	Listed (only in India)
Companies in Nifty or Sensex	Phase I
Net worth > Rs. 1,000 Cr.	Phase I
Net Worth > Rs. 500 Cr. Upto Rs. 1,000 Cr.	Phase II
Net worth upto Rs. 500 Cr.	Phase III

Phases	Opening Balance sheet Date	First year end (without IFRS Comparatives)
Phase I	1 April, 2011	31 March, 2012
Phase II	1 April, 2012	31 March, 2014
Phase III	1 April, 2013	31 March, 2011

124. What is XBRL?

Ans. In computer world, XBRL (eXtensible Business Reporting Language) is a markup language (and not a programming language), which has been developed to revolutionize online financial and business reporting. It is an extension of XML. From the stakeholders' point of view, a conventional report is static, non-interactive and less informative, and has become outdated. On the other hand XBRL reporting is not just replacement of the existing reporting system. It is a paradigm shift from 'readable information' to 'usable information'. When reports are prepared and filed in XBRL format, not only the summarized information reported in the financial statements but also all the detail information leading to the summarized information, are available to the users of the report. In other words, every piece of information, reported on the face of the financial statements, will be linked to explanatory information, which can be retrieved by the users with the help of XBRL tags or labels. XBRL data are called 'interactive data' because users can interact with the online report and get information according to their needs. It is fast becoming a universal language.

125. What do you mean by Euro Zone Crisis?

Ans. The European sovereign debt crisis resulted from a combination of complex factors, including the globalization of finance; easy credit conditions during the 2002-2008 period that encouraged high-risk lending and borrowing practices; the 2007-2012 global financial crisis; international trade imbalances; real-estate bubbles that have since burst; the 2008-2012 global recession; fiscal policy choices related to Government revenues and expenses; and approaches used by nations to bail out troubled banking industries and private bondholders, assuming private debt burdens or socializing losses.One narrative describing the causes of the crisis begins with the significant increase in savings available for investment during the period 2000-2007 when the global pool of fixed-income securities increased from approximately $36 trillion in 2000 to $70 trillion by 2007. This 'Giant Pool of Money' increased as savings from high-growth developing nations entered global capital markets. Investors searching for higher yields than those offered by U.S. Treasury bonds sought alternatives globally.

The temptation offered by such readily available savings overwhelmed the policy and regulatory control mechanisms in country after country, as lenders and borrowers put these savings to use, generating bubble after bubble across the globe. While these bubbles have burst, causing asset prices (e.g., housing and commercial property) to decline, the liabilities owed to global investors remain at full price, generating questions regarding the solvency of governments and their banking systems.

How each European country involved in this crisis borrowed and invested the money varies. For example, Ireland's banks lent the money to property developers, generating a massive property bubble. When the bubble burst, Ireland's Government and taxpayers assumed private debts. In Greece, the Government increased its commitments to public workers in the form of extremely generous wage and pension benefits, with the former doubling in real terms over 10 years. Iceland's banking system grew enormously, creating debts to global investors (external debts) several times GDP.

The interconnection in the global financial system means that if one nation defaults on its sovereign debt or enters into recession putting some of the external private debt at risk, the banking systems of creditor nations face losses. For example, in October 2011, Italian borrowers owed French banks $366 billion (net). Should Italy be unable to finance itself, the French banking system and economy could come under significant pressure, which in turn would affect France's creditors and so on. This is referred to as financial contagion. Another factor contributing to interconnection is the concept of debt protection. Institutions entered into contracts called credit default swaps (CDS) that result in payment should default occur on a particular debt instrument (including government issued bonds). But, since multiple CDSs can be purchased on the same security, it is unclear what exposure each country's banking system now has to CDS.

Greece hid its growing debt and deceived EU officials with the help of derivatives designed by major banks. Although some financial institutions clearly profited from the growing Greek government debt in the short run, there was a long lead-up to the crisis.

126. Discuss the Greece Crisis and its impact on Indian capital market.

Ans. Greece made last-minute overtures to its international creditors for financial aid on 30th June, 2015, Tuesday, but it was not enough to save the country from becoming the first developed economy to default on a loan with the International Monetary Fund. The left-wing Greek Government had asked European partners for a two-year aid package to cover its financing needs. Later on the same day, Greece's Finance Minister Yanis Varoufakis indicated on a call with European counterparts that Athens might scrap a controversial July 5th referendum if a deal was reached, according to euro zone sources. The flurry of diplomacy was an attempt to bring creditors back into talks after five months of inconclusive negotiations brought Greece close to leaving the euro currency bloc. It came as tens of thousands of people descended on Athens' central Syntagma square over the past 24 hours in two different rallies - one to support the government and the other to push for Greece to remain in the euro. Greece, as expected, was not able to repay 1.6 billion Euros it owed to the International Monetary Fund, in what was the largest missed payment in the Fund's history. Since there was huge selling pressure of Greek bonds, Two-year Greek Government bonds were trading at 31.20%, up 11 percentage points. The five-year is trading up 3.92 percentage points at 19%, and the ten-year is up 3.33 percentage points at 13.87%.

Indian capital market is mainly depending on FII inflows. FIIs are coming into India to enjoy the interest rate arbitrage. Indian capital market became volatile due to Greece Crisis as few FIIs were withdrawing their funds from India.

127. Explain the Crisis in China and discuss its impact on Indian capital market.

Ans. Panicswept the global markets after the first tremor were felt when China unexpectedly devalued the yuan. Indian stocks tumbled, crashing by the most in more than seven years, amid a tsunami of sell orders that started in Asia, flooded across Europe and then slammed into the US. In China itself, stocks plunged by a level last seen in 2007, crude oil fell further and commodities plummeted to a 16-year low. Indian capital market suffered direct shock as devaluation of Yuan would make Chinese exporters more competitive which could be a matter of concern for India. Rupee value went down to Rs. 66 per dollar. According to the Governor of RBI, Mr. Raghuram Rajan, due to strong fundamental of Indian economy, Indian economy will not have to face adverse consequences in the long run.

• GDP growth is estimated at 8% at 2015-16.
• Index of Industrial Production (IIP) is 3.8% in June 2015 with respect to 2.5% in May, 2015.
• Improved tax collection led by indirect tax growth of 37.6% during April-July 2015. Subsidy bill has gone down due to fall in oil price.
• Both the retail and wholesale inflations are under control. Retail inflation is 3.8% in July 2015 where WPI inflation is -4.1% in the same month.
• Better than expected Monsoon increases expectation of rise in agricultural output.
• Lower trade deficit due to fall in import bill.
• Current account deficit has gone down at 1.3% of GDP in 2014-15.
• Foreign exchange reserve of India is $355 billion which is large enough to combat against any form of volatility.
• Healthy increase in consumption demand is also considered as a good sign for the economy.

128. What is the prospect of Life Insurance sector in India?

Ans. After Dutch banking and Insurance Group ING and New York life, Aviva pulled out its Indian Insurance Joint venture valued at more than $500 million, a British Insurer retreats from the less profitable markets where it has struggled to expand. Aviva is hiring corporate advisory for its 26% stake including selling its stake to Dabur group. Life insurance penetration in India is about 3.4% of GDP in terms of total premiums underwritten in a year which is much lower than 8.8% in Japan, 8.7% in Britain (Data as on 6th August, 2013). Indian laws initially used to limit foreign ownership in domestic insurers to 26% which the incumbent coalition Government UPA II approved to enhance up to 49% which was severely opposed by several political parties. In the Union Budget 2021-22, FDI in Insurance has been hiked from 49% to 74%.

129. Discuss the key features of the Companies Act 2013.

Ans. Some of the salient and unique features of the Companies Act 2013 are as follows -

New definitions are introduced in the Act, some of which are accounting standards, auditing standards, associate company, CEO, CFO, control, deposit, employee stock option, financial statement, global depository receipt, Indian depository receipt, independent director, interested director, key managerial personnel, promoter, one person company, small company, turnover, voting right etc. The financial year of a company can end only on 31st March and only exception for companies, which are holding/subsidiary of foreign entity requiring consolidation outside in India, can have a different financial year with the approval of a private tribunal. All financial companies need to align their financial year within two years from the commencement of the act. The maximum number of members in case of private company is increased from 50 to 200. Private company which is a subsidiary of a public company shall be deemed to be a public company. A company is considered to be an associate company of the other, if the other company has significant influence over such company (not being a subsidiary) or is a joint venture company. Significant influence means control of at least 20 per cent of total share capital of a company or of business decisions under an agreement. Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar for obtaining the status of a dormant company. Expert includes an engineer, a valuer, a Chartered Accountant, a Company Secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force. Foreign company means any company or body of corporate incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode; and conducts any business activity in India in any other manner.

Key Managerial Personnel (KMP), in relation to a company, means

(i) Chief Executive Officer or Managing Director or Manager;
(ii) Company Secretary;
(iii) Whole-time Director;
(iv) Chief Financial Officer; and
(v) such other officers as may be prescribed.

Officer who is in default means any of the following officers of a company, namely

(i) Whole-time Director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such Director or Directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the Directors, if no Director is so specified;
(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorizes, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;
(vi) every Director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;
(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer. Bill defines the term 'promoter' to mean a person

(a) who has been named as such in a prospectus or is identified by the company in the annual return or
(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, Director or otherwise or
(c) in accordance with whose advice, directions or instructions the Board of Directors is accustomed to act.

130. What do you mean by Pension Bill?

Ans. The Lok Sabha passed the Pension Fund Regulatory and Development Authority Bill 2011, on 4th September, 2013 which aims to create a regulator for the pension sector and extend the coverage of pension benefits to more people. The Pension Fund Regulatory and Development Authority Bill 2011 will give statutory powers Pension Fund Regulatory and Development Authority (PFRDA) which was established in August 2003 as a regulator for the pension sector. The passage of the bill could see pure pension products coming into the market. At present most of the pure pension products available in the market are linked with insurance coverage. The Pension Fund Regulatory and Development Authority Bill 2011 seek to promote the pension sector by establishing a regulator as India does not have a universal social security system. The Bill allows 26 per cent Foreign Direct Investment (FDI) in pension funds. In 2005, the Government had earlier introduced a pension bill but it lapsed as the Lok Sabha's term got over before the legislation could pass. The Pension Fund Regulatory and Development Authority Bill 2011 was reintroduced in the Lok Sabha in 2011 by the then Finance Minister Pranab Mukherjee and it was subsequently referred to a standing committee. PFRDA's National Pension System (NPS) was made mandatory for all new Government recruits, except armed forces, joining after January 1, 2004. The NPS was later opened up to all Indian citizens from 2009 on a voluntary basis. The NPS allows its subscribers to invest in stock markets but there is a cap on equity investment. The NPS also offers subscribers the option of selecting the fund managers of their choice. The pension bill could help channelize funds into building long-term assets for the country, including the infrastructure sector. The Government wants to ease rules for insurance and pension sectors to allow them to invest in infrastructure, where it is seeking $1 trillion investment till 2017.

131. Discuss the change which has taken place in the schedule VI of Balance Sheet.

Ans. Revised Schedule VI is applicable for the financial year commencing on or after 1 April, 2011. Revised Schedule VI is also applicable to consolidated financial statements. In case of conflict, as per the requirements of the Companies Act, 1956 or Accounting Standards shall prevail over Schedule VI. Information currently disclosed as schedules and notes to accounts now clubbed as notes to account. Revised Schedule VI prescribes a vertical format for presentation of Balance Sheet. Thus, a company will not have option to use horizontal format for presentation of financial statements. According to the revised schedule VI, losses will be reduced from equity. Assets and liabilities are classified properly as 'Current' and 'Non-current'. An asset shall be classified as current when it satisfies any of the following criteria:

• It is expected to be realized in, or is intended for sale or consumption in, the entity's normal operating cycle;
• It is held primarily for the purpose of being traded;
• It is expected to be realized within twelve months after the reporting date; or
• It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

Operating cycle is the time between the acquisition of assets for processing and their realization in cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have duration of 12 months.

A liability shall be classified as current when it satisfies any of the following criteria:

• It is expected to be settled in the entity's normal operating cycle;
• It is held primarily for the purpose of being traded;
• It is due to be settled within twelve months after the reporting date; or
• The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Notes in addition to the existing disclosures for share capital to be given:

- Reconciliation of shares outstanding at the beginning and at the end. The disclosure of the amounts is mandatory.
- Number of shares held in respect of each class by holding company or ultimate holding company including shares held by or by subsidiaries or associates of the holding company or the ultimate holding company in aggregate.
- No. of shares held by each shareholder holding more than 5% shares. The adequate disclosure should be provided for each class of shares as on balance sheet date.
- Shares reserved for issue under contracts/commitments.
- Aggregate no. and class of shares bought back (for 5 years).
- Terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order, starting from the farthest such date.

Details pertaining to aggregate number and class of shares allotted for consideration other than cash, bonus shares and shares bought back will be disclosed only if such an event has occurred during a period of 5 years immediately preceding the balance sheet date.

• Disclosure of unpaid calls (by showing aggregate of value of unpaid calls by Directors and Officers of the Company as defined by the Act)
• Any debit balance in P&L account will be disclosed under the head 'Reserves and surplus'
• Share options outstanding to be disclosed under reserves and surplus

Specific disclosures are prescribed for the share application money. The application money not exceeding the capital offered for issuance and to the extent not refundable will be shown separately on the face of the balance sheet The adequate disclosure should be given about the below mentioned items.

- Terms and conditions
- No. of shares to be issued and premium, if any
- Period by which shares to be allotted
- Whether sufficient authorized capital exists
- Period for which outstanding, beyond the stipulated allotment period
- Reasons for delays in allotment
- Interest accrued on amount due for refund

• The amount in excess of subscription or if the requirements of minimum subscription are not met will be shown under 'Other current liabilities'.

In the notes to the Balance Sheet, the below mentioned aspects should be covered -

• Bonds/debentures, with interest rate/terms for each loan, including amount of installments due (in decreasing order of maturity/conversion starting from farthest redemption/conversion date)
• Period/amount of continuous defaults on Balance Sheet date in loans and interest
• Loans guaranteed by 'Directors or others' unlike the present requirement of by 'directors or managers only'
• Other Long term Liabilities - trade payable and others Amount dues under contractual obligation no longer included within trade payable

132. What do you mean by Foreign Currency Non-Resident (Bank) Account?

Ans. Foreign Currency Non-Resident (Bank) Account can only be opened in the name of NRI individuals - single/joint for Indian residents who are in employment, studying and staying permanently abroad and foreign nationals (except of Pakistan and Bangladesh) with their origin in India. Students proceeding abroad for higher studies are treated as Non-residents. Only Term Deposit with maturity of minimum 1 year and maximum 5 years is coming under purview of under FCNR (B). RBI has permitted 6 currencies such as Pound Sterling, US Dollar, Euro, Canadian Dollar and Australian Dollar and Japanese Yen in which accounts can be opened in Indian banks. These accounts can be opened as per depositor's choice, in any of the permitted currencies, out of the funds received as foreign inward remittances in convertible currency through normal banking channel. The Foreign Currency Travelers' Cheques/Notes may be accepted during temporary visits of the NRI, for credit to account. NRIs are permitted to open FCNR (B) account with their resident close relative on 'former or survivor' basis.

The maturity period of the schemes can be a) 1 year and above but < 2 years;
b) 2 years and above but < 3 years;
c) 3 years and above but < 4 years;
d) 4 years and above but < 5 years;
e) Five years only.

Interest income from FCNR (B) accounts is exempt under IT rules. Deposit held under FCNR (B) A/c's is not taxable under Wealth Tax. Funds, principal and interest are fully repatriable in foreign currencies. Interest is paid for deposits up to one year, without any compounding effect, and for deposits for over 1 year, compounding at intervals of 180 days each and thereafter for the remaining actual number of days. The loan and overdraft can be granted against FCNR (B) by RBI. Banks are at present prohibited from granting fresh loans or renewing existing loans in excess of Rupees One crore (Rs. 100 lacs) against FCNR (B) deposits.

133. Describe the structure of Balance Sheet in an insurance company.

Ans. The Balance Sheet of the insurance company can be explained in terms of sources of fund and application of fund. The sources of fund imply liabilities of the insurance company and applications of fund indicate assets of the insurance company. The sources of fund include share capital, policy liabilities, reserves and surplus, fair value change account, borrowings, funds for future appropriation. The application of funds includes investments, loans, fixed assets, net current assets, miscellaneous expenditure (to the extent not written off or adjusted), debit balance in Profit & Loss. The net current asset is excess of aggregate of cash balances, bank balances, advances and other assets over and above the current liability and provision.

134. How banking sector contributes to the growth of the nation?

Ans. Rapid industrialization is required to achieve a high growth rate of nation. In order to boost the pace of industrialization, investment is necessary. Source of investment is household and corporate savings. Household and corporate savings are being converted into productive investment through the channel of banking sector. Banks are accepting the deposit from both household and corporate and lend it to the corporate borrower at higher rate. By doing the adequate credit creation in the economy, the banking sector as a whole play a crucial role to enhance the GDP of the nation.

135. What do you mean by Sovereign Wealth Fund?

Ans. The Government of India is setting up a company - India Overseas Investment Corporation (INOIC) - under the Finance Ministry on the lines of a sovereign wealth fund to lend financial muscle for securing access to overseas natural resources. With INOIC, India will join a select group of economies such as US, Russia, China, South Korea, Singapore, Malaysia, Brunei, Qatar and UAE that have pushed overseas acquisitions and business through such funds. INOIC will not however be India's sovereign wealth fund in the conventional sense. It would be patterned like the Government's holding arm and registered with RBI as a non-banking financial institution with a paid-up capital of Rs. 10 crores. The company will raise fund through rupee bonds of 15-20 years with sovereign guarantee. State Run entities, banks and financial institutions will subscribe to those papers using their surplus fund. Sovereign guarantee will allow coupon rate to be set marginally higher than Government Securities. The papers can also be made part of SLR to help them to subscribe. INOIC will not borrow from RBI and will purchase or swap its rupee funds with foreign currency from the Central banks at market rates. This will ensure a market-oriented mechanism and avoid management of temporary surplus foreign exchange funds. The formation of the company will follow changes in the guidelines so that the state entities do not have to seek Public Investment Board's approval if quantum of the overseas investment is within INOIC's ambit. The company will act as a single window clearing and financing framework that will be faster and more responsive than the existing system involving multiple layers of approvals for overseas acquisition. Essentially it means ready cash for an entity acquiring asset abroad. In a nutshell, INOIC is established out of surplus profit of PSUs and its prime objective is to have access to critical natural resources including oil, gas, coal, fertilizers etc. It can be said that security of access is more important for INOIC than providing a higher rate of return.

136. What is BRICS Bank?

Ans. The BRICS (Brazil, Russia, India, China and South Africa) nations have formally announced the setting up of a $100 billion fund that will help member countries tide over a current account deficit crisis at their fifth summit in Brazil in 2014. The grouping of BRICS countries which account for 42% of the world's population and 28% of the global GDP until now has been nothing more than a political club of the largest non-Western countries not marked by any significant real deeds on global initiatives. The Sixth BRICS Summit held in Fortaleza, Brazil aims to change the situation and start forming not only a 'Non-Western Agenda' but also international economic institutions. In this context, the BRICs Development Bank (or more formally the new development bank) will coordinate the sovereign funds of BRIC Countries (including Russia's national wealth fund). The task of IMF is to distribute funds of developed countries among the emerging markets. The aim of the new bank is to keep the money invested in the territory of BRIC countries themselves. The capital for the bank will be equally split among the five participating countries. The bank will have a headquarter in Shanghai, China and the President for the bank will come from India for the first five years followed by Brazil then Russia. BRICS development bank will have $100 billion of authorized capital. Each country will contribute $2 billion to the banks fund over the next 7 years. Therefore, the total called up capital of the bank will be $50 billion ($10 billon paid up capital plus $40 billion capital paid upon request). The bank will start lending in 2016. It will primarily focus on infrastructural and project financing. The bank will open to other countries but BRICS share will never decline below 55%. The BRICS will also set up a $100 billion currency reserve fund. Brazil, Russia and India will contribute $18 billon each, South Africa will contribute $5 billion and China will contribute a lion share of $41 billion to create the fund. The emergency reserve fund - which was announced as a 'Contingency Reserve Arrangement' will help developing nations to manage short term liquidity pressures.

137. Explain the concept of differentiated banking licenses followed by RBI.

Ans. RBI-constituted 'Nachiket Mor Committee' for financial inclusion first mooted the idea of having differentiated banks in the country. The panel's suggestions include specialized payment banks, retail banks, wholesale banks, infrastructure banks etc. Recently, RBI granted universal banking license to two applicants - Bandhan and IDFC - and added that some of the nearly two dozen aspirants were more suited for differentiated banking license. The RBI kicked off the differentiated banking license regime to set up banks that will carry the Government's financial inclusion agenda. RBI has proposed for two types of banks such as small and payment banks. The two types of banks will have uniform capital requirement of Rs. 100 crore but will differ in their activities. A payment bank will be able to take deposits but could not lend. It has to invest all funds in Government securities. Small bank is allowed to lend but with the restriction on the areas in which they could operate and the banking services should be offered mainly to the farmers and small entrepreneurs. These banks will have to mandatorily have half their loans with ticket size less than Rs. 25 lakh. The primary objective of setting up a payment bank is to promote further financial inclusion by providing small saving account, payment, remittance services to migrant labour workforce, low income household and small business. RBI has provided in principle approval to Aditya Birla Nuvo Limited, Airtel M Commerce Services Limited, Cholamandalam Distribution Services Limited, Department of Posts, Fino Pay Tech Limited, National Securities Depository Limited, Reliance Industries Limited, Shri Dilip Shantilal Shanghvi, Shri Vijay Shekhar Sharma, Tech Mahindra Limited and Vodafone m-pesa Limited to set up payment banks.

138. Discuss the impact of Covid-19 pandemic on Indian Economy.

Ans. The outbreak has presented fresh challenges for the Indian economy now, causing severe disruptive impact on both demand and supply side elements which has the potential to derail India's growth story. Demand side impact incorporates the following. Tourism, Hospitality and Aviation are among the worst affected sectors that are facing the maximum brunt of the present crisis. Closing of cinema theatre halls and declining footfall in shopping complexes has affected the retail sector by impacting consumption of both essential and discretionary items. Consumption is also getting impacted due to job losses and decline in income levels of people particularly the daily wage earners due to slowing activity in several sectors including retail, construction, entertainment, etc. With widespread fear and panic now increasing among people, overall confidence level of consumers has dropped significantly, leading to postponement of their purchasing decisions. Travel restrictions have severely impacted the transport sector. Hotels are seeing large scale cancellations not only from leisure travellers but even business travellers as conferences, seminars and workshops are getting cancelled on a large-scale.

On the supply side, shutdown of factories and the resulting delay in supply of goods from China has affected many Indian manufacturing sectors which source their intermediate and final product requirements from China. Some sectors like automobiles, pharmaceuticals, electronics, chemical products etc. are facing an imminent raw material and component shortage. This is hampering business sentiment and affecting investment and production schedules of companies. Besides having a negative impact on imports of important raw materials, the slowdown in manufacturing activity in China and other markets of Asia, Europe and the US is impacting India's exports to these countries as well.

Impact on international trade is also huge. China has been a major market for many Indian products like sea food, petrochemicals, gems and jewellery etc. The outbreak of Corona Virus has adversely impacted exports of these items to China. For instance, the fisheries sector is anticipated to incur a loss of more than Rs. 1,300 crore due to fall in exports. Similarly, India exports 36% of its diamonds to China. The cancellation of four major trade events between February and April is likely to cause an estimated loss of Rs. 8,000-10,000 crore in terms of business opportunity for Jaipur alone. India also exports 34%of its petrochemicals to China. Due to exports restrictions to China, petrochemical products are expected to see a price reduction.

According to UNCTAD (United Nations Conference on Trade and Development) India's trade impact due to corona virus outbreak could be about US $348 million. India is among the top 15 countries that have been affected most as a result of manufacturing slowdown in China that is disrupting world trade. For India, the overall trade impact is estimated to be the most for the chemicals sector at 129 million dollars, textiles and apparel at 64 million dollars, automotive sector at 34 million dollars, electrical machinery at 12 million dollars, leather products at 13 million dollars, metals and metal products at 27 million dollars and wood products and furniture at 15 million dollars. As per UNCTAD estimates, exports across global value chains could decrease by US $50 billion during the year in case there is a 2% reduction in China's exports of intermediate inputs.

139. Discuss the major monetary policy stances followed by the RBI.

Ans. The major stances followed by the RBI are as follows -

• Accommodative - The RBI reduces key interest rates to stimulate growth of the nation.
• Neutral - The RBI prefers to keep the key policy rates unchanged. The aim is neither to stimulate the growth rate nor to combat against the inflation.
• Hawkish - The RBI raises key policy rates to combat against inflation.

140. What are the different accounting standards (AS) issued by ICAI (Institute of Chartered Accountant of India)?

Ans. AS-1. Disclosure of accounting policies -

An entity discloses accounting policies in one place unless disclosure of accounting policies at different places improves the presentation of financial statements. Usually it is the first item of explanatory notes. The requirement for disclosure of accounting policies aims at improving the understanding of financial statements and their comparability. Therefore, only in rare situations, disclosure of accounting policies at different places of financial statements improves the presentation as compared to the presentation in which accounting policies are disclosed in one place.

AS-2. Valuation of inventories

Inventory is most important non-monetary current asset that appears in the Balance Sheet. Inventories include finished goods, work in progress, raw materials, maintenance supplies and the consumable and loose tools.

The following are general principles of valuation of inventories -

• Finished goods should be valued at the lower cost and net realizable value.
• Work in progress should be valued at the lower of cost and net realizable value.
• Raw materials and other supplies for use and raw materials and other supplies for the production should be valued at cost.
• However an item of raw material and other supplies should be valued at replacement cost if the price of the material had declined or the decline indicates the cost of fished product will exceed net realizable value.

• The general principles of measuring inventories will not be applicable.

• Work in progress arising from construction contracts.
• Work in progress arising in the ordinary course of business of service providers.
• Shares, Debentures and other financial instruments held in stock in trade.
• Producers' inventories of livestock, agricultural and forest produce and mineral oils, ore and gases to the extent they are measurable at net realizable value in accordance with well-established practices in those industries.

AS-3. Cash flow statement

A cash flow statement presents a summary of investment, dividend and financial decisions with a focus on movements of cash and cash equivalents during the reporting period.

AS-4. Contingencies or events after Balance Sheet date

Management uses information and evidences available until the financial statements are approved by board of directors for making estimates of assets and liabilities at the Balance Sheet date. Events that occur from the Balance Sheet date to the date of approval of financial statements by Board of Directors are known as events occurring after the Balance Sheet date.

Events occur after Balance Sheet date is of two types -

• Adjusting Events
• Non Adjusting Events

Events that provide additional evidence of conditions that existed at the Balance Sheet date are Adjusting Events. An enterprise adjusts recognition and measurement of assets and liabilities at the Balance Sheet date based on evidence provided by adjusting events. They improve the estimation by confirming conditions existed at the Balance Sheet date.

Examples of Adjusting Events are -

• Insolvency of a customer, which improves the estimate of the amount realizable from the customer.
• Judgment pronounced by a court of law on an appeal pending before it, which improves the estimate of liability arising from a penalty imposed by the revenue department.
• The amount realized on sale of an item of finished goods which improves the estimate of the realizable value of the finished goods at the Balance Sheet date.

Events that are indicative of conditions that arose after the Balance Sheet date are Non Adjusting Events.

The following are examples of Non Adjusting Events which should be disclosed in Board of Director's report:

• Major business combination after the Balance Sheet date.
• Announcing a plan to discontinue an operation.
• Major purchase or disposal of assets or acquisition of major assets by Government.
• Commencement of a major restructuring.
• Major change in exchange rate.
• Major change in tax rate.
• Issuance of significant guarantee on behalf of third parties.
• Commencement of major litigation arising of events that occurred after the Balance Sheet date.

AS-5. Net profit or loss for the period

Trading account shows gross profit earned during the reporting period and profit and loss account shows net profit during the reporting period. Trading account is debited with the opening stock of finished goods, cost of goods manufactured, purchase of finished goods and all other expenses attributable to bringing the finished goods to the condition and location of sales. The trading account is credited with the amount of sales and closing stock. The profit and loss account are credited with gross profit, other operating income and extraordinary income. It is debited with operating expenses, finance charges, tax expenses and losses incurred during the period.

AS-6. Depreciation Accounting

Depreciation is the measure of wearing out, consumption or other reduction in the useful life of tangible fixed asset whether arising from use, affliction of time or obsolescence through technological and market changes.

Usually items of property, plant, equipment other than land have a limited useful life. Therefore, the depreciation amount which is the cost if applicable, the market value or current value reduced by the expected residual value at the end of useful life, should be allocated to reporting periods that are expected to benefit from use of the asset. The allocation amount is depreciation and is recognized as an expense in the profit and loss account. The carrying amount of the asset is the difference between the cost or if applicable the current value and the amount of accumulated depreciation. The carrying amount is termed as net book value.

In order to compute depreciation by straight line method, it is necessary to identify the current value of asset, estimated residual value and expected useful life of the asset. The expected useful life might be shorter than the expected economic life which in turn might be shorter than the technical life of the asset. The technical life of an asset presents the period over which it will be able to produce intended goods and services. The economic life represents the period where asset will be able to generate positive net cash flow. The useful life of the asset depends on the strategy of organization.

There is another method which is known as reducing balance method or accelerated depreciation method. Under reducing balance method, the amount of depreciation reduces over the years. Under this method a fixed percentage is applied on the reducing balance popularly known as written down value.

AS-7. Construction contract

The unique feature of construction contract is that the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction of contracts is the allocation of contract revenue and contract costs to the accounting period in which construction work is performed.

Construction contract includes -

• Contracts for the rendering of services which are directly related to the construction of asset, for example those for the services of project managers and architects.
• Contracts for destruction or restoration of assets and the restoration of environment following the demolition of assets.
• It may be fixed cost contract or cost-plus contract.

AS-8. Accounting of R & D

No asset is recognized from expenditure during the research phase. An asset may be recognized from developmental expenditure provided it can demonstrate its ability and intention to complete developmental project, its ability and intention to use the new product or new process and the economic viability of new product or new process. R & D is intangible asset and it is shown in the asset side of Balance Sheet and capitalized in a subsequent period.

AS-9. Revenue recognition

Revenue is the income that arises in the course of ordinary activity of an enterprise. It is referred to by a variety of different names including sales, fees, interest, dividend and royalties. The primary issue of revenue recognition is the timing of recognizing revenue in the profit and loss account. Revenue can be defined as the gross inflow of economic benefits during the period arising in the course of ordinary activities of an enterprise other than contribution from equity participation, which increases the equity. An entity's revenue earning activities include selling of goods, rendering of services, allowing others to use entity's resources yielding interest, royalties and dividend.

Inflow of economic benefit should not be recognized as revenue if it involves corresponding recognition of liabilities. An entity recognizes the liability when it receives economic benefit on behalf of others or when it receives economic benefit before the earning process is complete. When an entity realizes sales tax from the customer, it recognizes liability because it collects sales tax on behalf of Government. When a commission agent sells goods, it recognizes a liability for the amount payable to principal. Therefore, in agency relationship, the revenue is the amount of commission not the gross amount received by the agent.

As a general principle, an enterprise recognizes revenue when it receives cash, receivables or other consideration in its own account.

Revenue is generally realized or realizable when all the following criteria are fulfilled -

• There is a persuasive evidence that an arrangement exists.
• Delivery has occurred or services have been rendered.
• The seller's price to the buyer is fixed and determinable.
• Collectability is reasonably ensured.

AS-10. Accounting of fixed assets

Fixed assets are assets held with an intention of being used for the purpose of producing or providing gods and services and is not held for sale in normal course of business. Property, plant and equipment are example of fixed assets. Intangible assets are also included in fixed asset. Fixed assets are in nature of non-current assets.

AS-11. Effect of change in foreign exchange rate

If the functional currency of a foreign operation is different from the functional currency of the reporting enterprise, the reporting enterprise translates the result and financial position of that foreign operation into the reporting currency using the following procedure -

• The assets and liabilities both in monetary and non-monetary term should be translated using the closing rate.
• Income and expense items should be translated using exchange rates at the dates of transaction.
• The resulting exchange differences should be recognized as a separate component of equity (foreign currency translation reserve).

AS-12. Accounting of Government grant

Government grants or other types of Government assistance are usually provided to enterprises to encourage certain type of activities. No Government grant will be recognized until there is a reasonable assurance -

• The enterprise will comply with the conditions attached to them.
• The grants will be received.

The Government grant related to revenue should be recognized as income over the periods necessary to match them with the related costs which they are intended to compensate on a systematic basis. They should not be credited directly to shareholders' interest. Government grant other than those related to assets should be recognized in the profit and loss account as other income. If the grant is received for towards compensation for expenses and losses incurred or towards immediate financial support with no future related cost, it should be recognized as the income of the period in which it becomes receivable.

AS-13. Accounting of investment

Investment property is the property (land or building) held to earn rentals or for capital appreciation or both rather than for -

• Use in the production or supply of goods and services or for administrative purposes.
• Sale in ordinary course of business.

An enterprise initially recognizes an investment property at cost. Transaction costs are included in initial measurement. It may measure investment properties using either cost model or the fair value model. The fair value should reflect market conditions at the Balance Sheet date.

If an entity uses the fair value model, a gain or loss from change in the fair value is recognized in profit or loss for the period in which it arises.

AS-14. Accounting of amalgamation

The term reconstruction is used where only one company is involved and the right of shareholders and/or creditors is varied. Amalgamation is used where two or more companies join to form a new company or two or more companies merge into existing company. Accounting for amalgamation use the terms transferor and the transferee to denote acquire and acquirer respectively.

An amalgamation should be considered to be an amalgamation in the nature of merger when all the following conditions are satisfied -

• All the assets and liabilities of the combining companies become the assets and liabilities of the combined company.
• Shareholders holding not less than 90% of the face value of equity shares of the combined companies become the shareholder of the combined company.
• The purchase consideration is wholly discharged by the issue of equity shares except that cash may be paid in respect of fractional shares.
• The business of combining companies is intended to be carried on by the combined company.
• No adjustment is intended to be made to the book value of net assets of combing companies while incorporating the same in the financial statement of the combined company, except to ensure uniformity of accounting policy.

AS-15. Accounting of employees' benefit

Share based payment is one of the components of the total payment to the employee. An enterprise cannot determine the fair value of services received. Accordingly, an enterprise determines the value of service indirectly by determining the fair value of shares or options to acquire shares. Fair value of share is determined at the measurement date based on the market price if available, taking into consideration the terms and conditions upon which those equity instruments were granted.

For transactions with the employee, the measurement date is grant date. Grant date is the date at which the enterprise and employee agree to a share-based payment agreement. On the grant date, the enterprise confers on the employee the right to equity instruments or other assets provided the specified vesting conditions if they are met. Vest means to become an entitlement. On the vesting date, the equity instrument vest on employee upon satisfaction of any specified vesting conditions. The period within which all vesting conditions are to be satisfied is called vesting period. Vesting conditions include service conditions which require the employee to complete a specified period of service and performance conditions which require satisfied performance targets to be met.

An enterprise recognizes payment under an equity settled payment plan as an expense for the periods in which services are rendered. An enterprise estimates the number of shares or options to be issued ultimately at the end of vesting period and allocates total expense over the vesting period.

AS-16. Accounts for borrowing cost

Borrowing cost may include -

• Interest and commitment charges on bank borrowing and other short-term and long-term borrowings.
• Amortization of discounts or premium related to borrowings.
• Amortization of ancillary costs (such as stamp duty) incurred in connection with the arrangement of borrowing.
• Financial charges in respect of assets acquired under finance leases or under any similar arrangements.
• Exchange differences arising from foreign currency borrowing to the extent that they are regarded as an adjustment to interest cost.

Borrowing cost that is directly attributable to the acquisition, construction or production of a qualifying asset is capitalized as part of the cost of asset. Borrowing cost that is not eligible for capitalization is recognized as an expense in the period in which it is incurred.

AS-17. Account of segmental reporting

An enterprise should disclose the following for each primary reportable segment:

• Segment revenue, classified into external sales and internal sales.
• Segment result.
• Total carrying amount of segment assets.
• Total amount of segment liabilities.
• Total capital expenditure incurred during the period.
• Depreciation and amortization in respect of segment assets.
• Total amount of significant non-cash expenses other than depreciation and amortization.
• If the primary format is business segments, the enterprise should also give the following information.
• Segment revenue from external customers by geographical area based on the geographical location of its customers for each geographical segment whose revenue from sales to external customers is 10% or more of enterprise revenue.
• The total carrying amount of segment assets by geographical location of assets for each geographical segment whose segment assets are 10% or more of the total assets of all geographical segments.
• Capital expenditure by geographical location of assets for each geographical segment whose segment assets are 10% or more of the total assets of all geographical segments.

AS-18. Related party disclosures

A party is related to an entity if -

• Directly or indirectly, through one or more intermediaries (subsidiaries), the party controls or is controlled by or is under control with the reporting enterprise or has an interest in the reporting enterprise that gives it a significant influence over the reporting enterprise or has joint control over the reporting enterprise.
• The party is associate of the reporting enterprise.
• The party is in joint venture in which the reporting enterprise is a venture.
• The party is a key management personnel of the reporting enterprise or its parents.
• The party is an enterprise that is controlled or jointly controlled or significantly influenced by or for which significant voting power in such enterprises resides with, directly or indirectly.
• The party is a post-employment benefit plan for the benefits of the employee of the reporting enterprise that is related party for the reporting enterprise.
• Disclosure of related party transaction is needed. In the absence of disclosure relating to transaction of related parties, users incorrectly assume that transactions reflected in financial statements are consummated on an arm length's basis between independent parties.

AS-19. Leases

• In case of financial lease, the lessee includes direct costs incurred by it in the cost of asset recognized in its financial statements.
• In case of operating lease, the lessee recognizes direct costs as an expense in its financial statements for the period in which they are incurred.
• In case of financial lease, the lessor other than manufacturer or dealer, includes direct cost incurred by it in receivables and allocate it against finance income over the lease term. As-19 allows an option to the lessor to recognize those costs immediately as expense. Manufacturer or dealer lessor recognizes direct cost incurred by it immediately as expense.
• In case of operating lease, the lessor includes direct cost incurred by it in the carrying amount of the leased asset recognized in financial statements.

AS-20. EPS

Earnings Per Share (EPS) stipulates principles for the determination and presentation of per share earnings which is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Weighted average number of outstanding shares should be adjusted for the effect of all dilutive potential equity shares. A potential equity share is a financial instrument or other contract that entitles or may entitle its holders to equity shares. Example for potential equity share is convertible debentures, share options. These are considered dilutive because their conversion to equity shares would decrease net profit per share.

AS-21. Consolidated financial statement

Preparation and presentation of consolidated financial statement incorporates -

• Goodwill or capital reserve is determined based on investor's share in the book value of equity.
• Assets and liabilities of the subsidiaries are included in the consolidated balance sheet at their book values.
• Minority interest is calculated based on the book value of net asset of subsidiary.

AS-22. Account for taxes on income

Tax expense for a period is the total of current tax and deferred tax. Current tax is the amount of income tax determined to be payable (recoverable) in respect of taxable income (tax loss) for a period. Taxable income or tax loss is the amount of the income (loss) for a period, determined in accordance with the tax laws based upon which income tax payable (recoverable) is determined. Deferred tax liability arises because of taxable temporary differences. Deferred tax is the difference between closing net deferred tax liability and the opening net deferred tax liability. Income tax allows deduction of past losses and unabsorbed depreciation in computing taxable income. Therefore, deferred tax asset arises from carried forward losses and unabsorbed depreciation. An enterprise recognizes deferred tax asset only if it is probable that it will earn enough profit in future to take the advantage of the carried forward loss and unabsorbed depreciation.

Deferred tax liability is a measure of undiscounted amount. Therefore, liability presented in the balance sheet is higher than actual liability. Deferred tax liability is presented separately in the balance sheet. Indian GAAP requires that the deferred tax liability be presented after the head of unsecured loan. Deferred tax liability is an obligation of indefinite timing. For a growing company which continuously growing invests significant amount in depreciable assets, the liability may reverse at all because tax law allows higher depreciation in initial years. Therefore, deferred tax liability increases every subsequent year.

AS-23. Accounting for investment in associated companies

Investment in associates is termed as trade investment. Trade investments are classified as long-term investments and accordingly they are carried at cost subject to provision or diminution in value that is not temporary. A limited liability company should annex to its balance sheet a statement of investments classifying trade investments and other investments separately. The statement should show particulars of investments including the names of body corporate and the nature, extent of investment.

AS-24. Discontinuing operation

A discontinuing operation is a component of an enterprise that the enterprise, in pursuant of a single plan, is disposing of substantially in its entirely or in piecemeal or through abandonment. The component represents a single major line of business or geographical area of operation and can be distinguished operationally and for financial reporting purposes. Usually an enterprise disposes of a component by demerger or spinning of ownership of the component to enterprise's shareholders or by selling assets and liabilities individually or through abandonment.

An enterprise should disclose a single amount on the face of the income statement comprising the total of -

• The post-tax profit or loss of discontinued operations.
• The post-tax gain or loss recognized on the measurement to fair value less cost to sell.
• A description of discontinuing operation.
• The business or geographical segment in which it is operated.
• The date or period in which discontinuance is expected to be complete.
• The carrying amount as of the balance sheet's date of the total assets and total liabilities to be disposed of.

AS-25. Interim financial reporting

A statute governing an enterprise or a regulator may require an enterprise to prepare and present certain information at an interim date which may be different in form and/or content as required by this Statement. In such a case, the recognition and measurement principles as laid down in this Statement are applied in respect of such information, unless otherwise specified in the statute or by the regulator.

Interim period is a financial reporting period shorter than a full financial year. Interim financial report means a financial report containing either a complete set of financial statements or a set of condensed financial statements for an interim period.

AS-26. Intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance. An asset is identifiable if it is separable from goodwill or it arises from contractual or other legal rights.

An intangible asset received free of charge by way of Government grant should be recorded as nominal value. Unless there is an active market for intangible asset acquired in an amalgamation in nature of purchase, the cost initially recognized for the intangible asset should be restricted to an amount that does not create or increase any capital reserve arising at the date of amalgamation. As-26 require that after initial recognition, an intangible asset should be carried at its cost less any accumulated amortization and any accumulated impairment losses.

AS-27. Financial reporting of interest in joint ventures

A firm is designated as associate only if the investor has the power to significantly influence its operating and financial decisions. The distinguishing feature in joint venture is that it is a contractual agreement usually in writing, in which two or more companies agree to work together and accept joint control over some economic activities. Activities that have no contractual agreement to establish joint control is not joint venture. The contractual arrangement deals with such matters as -

• The activity, duration and reporting obligation of the joint venture.
• The appointment of board of directors of the joint venture and the voting right of the ventures.
• Capital contribution by ventures.
• The sharing by the ventures of the output, income, expense or results of joint venture.

AS-28. Impairment of assets

An asset is impaired when its carrying amount exceeds recoverable amounts. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amounts. Recoverable amount is the higher of an asset's net selling price (fair value less cost to sell) and its value in use. Value is use of an asset is the present value of estimated future cash flows expected to arise from the continuing use of the asset in its present condition and from its disposal at the end of its useful life.

AS-29. Provision, contingent liability and asset

A contingent liability is -

• A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of enterprise or

• A present obligation that arises from past event but is not recognized because a) it is not probable that an outflow of resources embodying economic benefits will be required to settle the organization b) the amount of obligation cannot be measured with sufficient reliability.

The first type of contingent liability is more common. It is only in rare situations that the amount of present obligation cannot be measured with sufficient reliability.

Example of first type contingent liabilities are claims against the enterprise not acknowledged as debts, uncalled liability on shares partly paid, statutory liability under dispute and guarantees given in respect of a third party. Contingent liabilities are not recognized in the balance sheet. They are disclosed by way of notes below the Balance Sheet.

For example - the revenue department of the Government has imposed a penalty on the firm for violation of a provision of income tax law. The firm has preferred an appeal. If based on evidence and legal opinion, the management estimates that it is probable that he judgment of appellate authority will be in its favour and it is less likely that the firm will have to pay penalty, it will disclose the obligation as a contingent liability instead of recognizing provision for the same.

Just in contrary, for revenue department it will be a contingent asset. If it wins the case, they will receive an inflow from the firm as penalty.

AS-30. Financial instruments measurement and recognition

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument for another entity. A derivative is a financial instrument or other contract within the scope of this Standard with all three of the following characteristics:

a) Its value changes in response to the change in a specified interest rate, financial Instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a Non-financial variable that the variable is not specific to a party to the contract sometimes called the 'underlying'.
b) It requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and
c) It is settled at a future date.

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or un collectability.

The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.

AS-31. Financial instruments presentation

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

A financial asset is any asset that is
(a) Cash;
(b) An equity instrument of another entity;
(c) A contractual right:

(i) To receive cash or another financial asset from another entity; or
(ii) To exchange financial assets or financial liabilities with another entity under conditions that are potentially favorable to the entity; or
(d) A contract that will or may be settled in the entity's own equity instruments and is -

(i) A non-derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments; or
(ii) A derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments. For this purpose, the entity's own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity's own equity instruments.

A financial liability is any liability that is:
(a) A contractual obligation:

(i) To deliver cash or another financial asset to another entity; or
(ii) To exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or
(b) A contract that will or may be settled in the entity's own equity instruments and is -

(i) A non-derivative for which the entity is or may be obliged to deliver a variable number of the entity's own equity instruments; or
(ii) A derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments.

For this purpose, the entity's own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity's own equity instruments.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

AS-32. Financial instruments disclosure.

Transaction in financial instruments may result in an enterprise assuming or transferring to another party various type of risks. Financial risks are classified as followed

• Market risk.
• Market risk is itself incorporates currency risks, fair value interest risk, price risk.
• Credit risk.
• Liquidity risk.
• Cash flow interest risk.

AS-33. Requires adequate disclosure of risks associated with each class of financial instruments. It also requires among other information -

• Risk management policies and hedging activities.
• Terms, conditions and accounting policies for each class of financial instrument.
• Fair value of each class of financial asset and financial liabilities.

141. Explain Golden Rules of Accounting.

Ans. Accounts are classified into three broad categories -

• Personal Accounts

These accounts show transaction with customers, suppliers, money lenders, the bank and the owner.

• Real Accounts

These are accounts of assets, properties such as land, building, plant, machinery and furniture.

• Nominal Accounts

These are the accounts of incomes, expenses, gains and losses. Examples are wages paid, discount allowed or received, purchases, sales etc.

There are three golden rules -

i) Personal Account: Debit the receiver, credit the giver.
ii) Real Account: Debit what comes in, credit what goes out.
iii) Nominal Account: Debit all expense and losses and credit all incomes and gains.

142. What is the difference between Journals and Ledgers?

Ans. The Journal is used to record the transactions in chronological order.

The Ledger is the principal book of account where similar transactions relating to a particular person or thing are recorded.

The owner of business is not interested to know the effect of individual transaction on the financial statements what mainly required is accumulated effect of each of chart's accounts. For example - if anybody wants to know the total purchases in an accounting period, it is advised to see the 'Purchase Account'. It is not possible to ascertain from the journal the total amount of purchases made.

143. Discuss different sub-divisions of journals.

Ans. The different sub-divisions of journals are as follows -
a) Cash Book - to record cash transactions
b) Sales Day Book - to record credit sales
c) Purchases Day Book - to record credit purchases
d) Sales Return Day Book - to record sales returns
e) Purchase Return Day Book - to record purchases return
f) Bills Receivable Book - to record bills receivables
g) Bills Payable Book - to record bills payable
h) Journal Proper - to record residuary transactions. It is also used for rectifying errors.
i) Petty Cashbook - to record expenses which are small and little of value for example - stamps, postage, stationary, daily wages etc.

These are day to day expenses large in quantity but insignificant in value.

144. Discuss the significance of Trial and Balance.

Ans. A Trial Balance is simply a list of the names and balances of all the accounts in the ledger and listed in order in which they appear in ledger. If all the transactions are correctly recorded in the ledger accounts and if the balances of the accounts have also been struck correctly, the debit and credit column of the trial balance should agree.

Therefore a Trail Balance essentially proves the arithmetic accuracy of the books of accounts. All assets and expenses are recorded in debit side and all liabilities and gain/income are recorded in credit side.

145. Discuss Du Pont Analysis.

Ans. Du Pont Analysis is focused on Return on Equity (ROE).

ROE = PAT/Net worth
ROE = (PBIT/Sales) x (Sales/Assets) x (PBT/PBIT) x (PAT/PBT) x (Asset/Networth) = PBIT efficiency x Asset turnover x Interest burden x Tax burden x leverage

If ROE of a company is on a higher side, Du Pont ratio will be used to analyse the reason whether higher ROE is due to higher profit generation capacity, effective utilisation of asset or proper mix of debt and equity and vice versa.

Bibliography:

• Chandra, P. (2021). Financial Management Theory and Practice. Chennai: McGraw Hill.
• Foundation of Accounting Study Material.
• ICMR. (2005). Financial Management. Hyderabad: ICFAI University Press.
• Khan, M. Y. (2007). Financial Management Text Problems and Cases. New Delhi: Tata McGraw Hill Publishing Co.
• Mukharji, A., & Hanif, M. (2003). Financial Accounting (Vol. I). New Delhi: Tata McGraw Hill Publishing Co.
• Narayanswami, R. (2008). Financial Accounting: A Managerial Perspective. (3rd, Ed.) New Delhi: Prentice Hall of India.
• Ramchandran, N., & Kakani, R. K. (2007). Financial Accounting for Management. (2nd, Ed.) New Delhi: Tata McGraw Hill Publishing Co.

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Glossary

1) NPV = Net Present Value
2) IRR = Internal Rate of Return
3) CML = Capital Market Line
4) SML = Security Market Line
5) REPO = Repurchase Offer
6) SIP = Systematic Investment Plan
7) SWP = Systematic Withdrawal Plan
8) NAV = Net Asset Value
9) SEBI = Security Exchange Board of India
10) RBI = Reserve Bank of India
11) DIP = Depositor and Investor Protection Plan
12) IPO = Initial Public Offer
13) FPO = Follow on Public Offer
14) GDR = Global Depository Receipt
15) ADR = American Depository Receipt
16) IDR = Indian Depository Receipt
17) ODB = Overseas Depository Bank
18) CRISIL = Credit Rating Information Services Limited
19) ICRA = Investment Information and Credit Rating Agency
20) CARE = Credit Analysis and Research Limited
21) T Bill = Treasury Bill
22) ROE = Return on Equity
23) ROCE = Return on Capital Employed
24) PBT = Profit Before Tax
25) PBIT = Profit Before Interest and Tax
26) PAT = Profit After Tax
27) EPS = Earnings Per Share
28) DOL = Degree of Operating Leverage
29) DFL = Degree of Financial Leverage
30) RADR = Risk Adjusted Discounting Rate
31) FCFE = Free Cashflow to Equity
32) FCFF = Free Cashflow to Firm
33) CAPM = Capital Asset Pricing Model
34) RR = Retention Ratio
35) RIR = Reinvestment Rate
36) EVA = Economic Value Added
37) MVA = Market Value Added
38) NOPLAT = Net Operating Profit Less Adjusted Tax
39) WACC = Wighted Average Cost of Capital
40) QIB = Qualified Institutional Buyer
41) HNI = High Net worth Individuals
42) PVIFA = Present Value Interest Factor Annuity
43) FVIFA = Future Value Interest Factor Annuity
44) ASBA = Application Supported by Blocked Amount
45) WPI = Wholesale Price Index Number
46) CPI = Consumer Price Index Number
47) BOP = Balance of Payment
48) FDI = Foreign Direct Investment
49) FII = Foreign Institutional Investors
50) GAAP = Generally Accepted Accounting Principles
51) PPP = Purchasing Power Parity
52) IRP = Interest Rate Parity
53) FMC = Forward Market Commission
54) TDS = Tax Deducted at Source
55) TRIM = Trade Related Investment Measurements
56) TRIP = Trade Related Intellectual Property
57) WTO = World Trade Organisation
58) GATT = General Agreement on Tariff and Trade
59) FERA = Foreign Exchange Regulation Act
60) FEMA = Foreign Exchange Management Act
61) MSS = Market Stabilisation Scheme
62) HTM = Held to Maturity
63) PD = Probability of Default
64) LGD = Loss Given Default
65) EAD = Exposure at Default
66) EL = Expected Loss
67) UL = Unexpected Loss
68) EMI = Equated Monthly Instalment
69) DPD = Day Passed Deals
70) NPA = Non-Performing Assets
71) DRC = Debt Reconstruction Company
72) CDS = Collateral Debt Security
73) MCLR = Marginal Cost of Funds Based Lending Rate
74) ESOP = Employee Stock Option Plan
75) OMO = Open Market Operation
76) APV = Adjusted Present Value
77) SA = Stabilising Agent
78) PERDA = Pension Fund Regulatory and Development Authority
79) ALM = Asset Liability Management
80) FSDC = Financial Stability and Development Council
81) LC = Letter of Credit
82) RHP = Red Herring Prospectus
83) BSE = Bombay Stock Exchange
84) NSE = National Stock Exchange
85) NSDL = National Securities Depository Limited
86) CDSL = Central Depository Services Limited
87) ISIN = International Securities Identification Number
88) CAR = Capital Adequacy Ratio
89) NBFC = Non-Banking Financial Companies
90) ETF = Exchange Traded Fund
91) AMC = Asset Management Company
92) MPBF = Maximum Permissible Bank Finance
93) PSU = Public Sector Undertaking
94) RRB = Regional Rural Banks
95) GAAR = General Anti Avoidance Rule
96) CRR = Cash Reserve Ratio
97) SLR = Statutory Liquidity Ratio
98) IFRS = International Financial Reporting Standards
99) MCA = Ministry of Corporate Affairs
100) ICAI = Institute of Chartered Accountants of India
101) XBRL = eXtensible Business Reporting Language
102) NPS = National Pension Scheme
103) FCNR = Foreign Currency Non-Residential
104) INOIC = Indian Overseas Investment Corporation
105) BRICS = Brazil, Russia, India, China and South Africa
106) IMF = International Monetary Fund
107) UNCTAD = United Nations Conference on Trade and Development

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sujay@ibsindia.org

BFSI Sector Model Questions and Answers ।। Prof. (Dr). Sujoy Kumar Dhar

Primary Info.

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Preface

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Brief Profile of Prof. (Dr). Sujoy Kumar Dhar

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Acknowledgement

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Model Questions and Answers

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Glossary

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