Short answers - Merchant Banking

1.        What do you mean by financial system?

A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. It is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions, claims and liabilities.

2.  Give meaning the meaning of unorganized market.

In unorganized markets, there are a number of money lenders, indigenous bankers, traders, etc. who lend money to the public. Indigenous bankers also collect deposits from the public. There are also private finance companies, chit funds, etc. whose activities are not controlled by the RBI. The RBI has already taken some steps to bring unorganized sector under the organized fold.

3.  What is primary market?

Primary market also known as New Issues Market (NIM) is a market for raising fresh capital in the form of shares and debentures. Corporate enterprises, which are desirous of raising capital funds through the issue of securities, approach the primary market. Issuers exchange financial securities for long -term funds.

4.  What do you understand by financial deepening and broadening?

Financial deepening refers to an increase of financial assets as percentage of the Gross Domestic Product (GDP). Financial broadening refers to building an increasing number and a variety of participants and instruments.

5.  Who is a merchant banker?

Merchant banker means any person who is engaged in th e business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager -consultant, advisor or rendering corporate advisory services in relation to such issue management.

6.  Give the meaning of portfolio managers.

Portfolio managers are defined as persons who, in pursuance of a contract with clients, advise/direct/undertake, the management/administration of portfolio of securities/funds of clients on behalf of the latter. The term portfolio means the total holdings of securities belonging to any person.

7.  What do you mean by project counseling?

Project counseling is a part of corporate counseling and relates to project finance. It broadly covers the study of the project, offering advisory assistance on the viability and procedural steps for its implementation.

8.       Define loan syndication.

It refers to a loan arranged by a bank for a borrower who is likely to be a large company, a local authority, or a government department. So the merchant banker first finalizes the cost of the project before approaching to financial institutions for term loans.

9.       Expand SEBI and FEMA.

SEBI-Security and Exchange Board of India

FEMA - Foreign Exchange Management Act.

10. What are stock exchanges?

Stock Exchanges are a structured market place for the proper conduct of trading in company stocks and other securities. The main services of the Indian Stock Exchanges all over the country are to provide nation -wide services to investors and to facilitate the issue and redemption of securities and other financial instruments.

11.  Name two stock exchanges of India.

The two most important exchange houses of the Indian stock market are

^Ø   The National Stock Exchange and

^Ø   The Bombay Stock Exchange.

1.     Briefly explain the three tier system of stock exchange of India. 

The three-tier stock market system as follows: 

(i)    Principal Stock Exchanges comprising of five major exchanges currently functioning in the metropolitan centers of Mumbai, Delhi, Kolkata, Chennai and Ahmadabad. 

(ii) Regional Stock Exchanges comprising of exchanges established in smaller metros and urban centre, i.e., comprises of all other existing Stock Exchange. 

(iii)Additional Trading Floors (ATFs) sponsored and managed by either a principal or a Regional Stock Exchange.

2.     Describe about the SEBI Regulations on Merchant Banking. 

Following are the SEBI regulations on merchant banking: 

Ø   Registration of Merchant Bankers

Ø   Requirements for Granting of Certificate

Ø   Capital Adequacy Requirements

Ø   Procedure for Registration

Ø   Renewal of Certificate

3.     List out the important functions of merchant banking and explain it. 

Some of the most important functions of investment banking are as follows: 

Ø   Underwriter

Ø   Banker

Ø   Broker

Ø   Registrar

Ø   Debenture Trustee

Ø   Portfolio Manager

4.     Give the meaning and definition of financial system. What are the functions of it? 

A good financial system serves in the following ways: 

Ø   Link between Savers and Investors

Ø   Helps in Projects Selection

Ø   Allocation of Risk

Ø   Information Available

Ø   Minimizes Situations of Asymmetric Information

Ø   Reduce Cost of Transaction and Borrowing

Ø   Promotion of Liquidity

Ø   Financial Deepening and Broadening

5.     Write about the institutional structure of merchant banking and explain its elements.

The main elements of the re -organization of the institutional structure are briefly outlined 

below:

Ø   Development/Public Financial Institutions (DFIs/PFIs)

Ø   Commercial banks

Ø   Non-Banking Financial Companies (NBFCs)

Ø   Mutual Funds

Ø   Securities/Capital Market o Primary Market

o  Secondary Market

Ø   Money Market