IFS Solved Question Papers

2020 paper

Discuss the role of the financial system in the economic development of the country.

The financial system plays a vital role in the economic development of a country.
Here are some points that explain how:
1. Savings-Investment relationship: The financial system helps in the creation of
wealth by linking savings with investments. It gives investors the ability to
grow their wealth and assets, thus contributing to economic development12.
2. Growth of Capital Markets: The financial system helps grow the capital
markets, which benefits economic development through improving access to
capital, reducing the cost of capital and improving investment relationships3.
3. Attracting foreign capital: A dynamic capital market is capable of attracting
funds both from domestic and abroad. With more capital, investment will
expand and this will speed up the economic development of a country2.
4. Infrastructure and Growth: The financial system helps in infrastructure
development and growth2.
5. Development of Trade: The financial system helps in the development of
trade2.
6. Employment Growth: Employment growth is boosted by the financial system2.
7. Balanced growth: The financial system ensures balanced growth2.
8. Fiscal discipline and control of economy: The financial system helps in fiscal
discipline and control of economy2

Explain the need and objectives of establishing the Exim bank in India.

The Export-Import Bank of India (Exim Bank) was established in 1982 for the
purpose of financing, facilitating and promoting India’s international trade 1. Some of
the objectives of establishing Exim Bank in India are:

• To ensure an integrated and coordinated approach to resolve issues faced by Indian

exporters, with specific attention to exported capital items 2.
• To project exports, facilitate and stimulate joint ventures, exports of technical
services, international and merchant banking, and the development of new markets 2.
• To increase the amount of credit and credit lines available to customers 2.

• To provide financial assistance to exporters and importers, and function as the

principal financial institution for coordinating the working of institutions engaged in
financing export and import of goods and services with a view to promoting the
country’s international trade 3.
• To act on business principles with due regard to public interest 1.
• To facilitate Indian trade and investment, and support partner countries’ development
priorities as a financially, socially and environmentally responsible institution 1.
• To help exporters evaluate international risks and tap opportunities with the right
insight 2.
 • To provide in-depth country and sectoral studies to exporters to tackle international
business challenges and tap newer markets 2.

Discuss the structure and principal business of NBFCs.

A Non-Banking Financial Company (NBFC) is a type of financial institution that

provides certain types of banking services but does not hold a banking license.
NBFCs are incorporated under the Companies Act and are regulated by the Reserve
Bank of India (RBI) under the RBI Act.

Here are some points on the structure and principal business of NBFCs:

Structure:

1. NBFCs can be divided into different categories based on their principal

business. Some of these categories include Asset Finance Company (AFC),
Investment Company (IC), Loan Company (LC), and Infrastructure Finance
Company (IFC).
2. The RBI regulates NBFCs through a four-tier structure with a progressive
increase in intensity of regulation. The four layers are: Base Layer, Middle
Layer, Upper Layer, and Top Layer.
3. The regulatory regime for each layer is different, with the Base Layer having
the least regulatory intervention and the Top Layer having the most stringent
regulatory regime.
4. The RBI uses various tools to regulate NBFCs, including reserve ratios, open
market operations, and policy rates.
5. The RBI also has the power to take punitive action against NBFCs that do not
comply with its regulations.

Principal Business:

1. The principal business of an NBFC is determined by the RBI’s 50-50 test.

According to this test, a company is considered an NBFC if its financial assets
constitute more than 50% of its total assets and its income from financial
assets is more than 50% of its gross income.
2. The principal business of an AFC is financing physical assets such as
automobiles, tractors, and generators.
3. The principal business of an IC is the acquisition of securities.
4. The principal business of an LC is providing finance.
5. The principal business of an IFC is providing infrastructure finance.

What are financial markets? Explain the broad categories of financial markets.

Financial markets refer broadly to any marketplace where the trading of securities
occurs 1. They play a vital role in facilitating the smooth operation of capitalist
economies by allocating resources and creating liquidity for businesses and
entrepreneurs 1.
There are many kinds of financial markets, including (but not limited to) 1:
 • Stock/capital Markets: These are venues where companies list their shares and they
are bought and sold by traders and investors 1.
• Money Markets: Money markets deal with short-term borrowing and lending 3.

• Bond Markets: The bond market offers opportunities for companies and the
government to secure money to finance a project or investment 2.
• Commodities Markets: The commodities market is where traders and investors buy
and sell natural resources or commodities such as corn, oil, meat, and gold 2.
• Derivatives Markets: Such a market involves derivatives or contracts whose value is
based on the market value of the asset being traded 2.
• Forex Markets: Forex markets deal with the trading of currencies 1.

Analyze the advantages of Credit Rating?

Credit rating is an assessment of the creditworthiness of a borrower. It is an opinion

expressed by a credit rating agency about the ability of a borrower to repay its debt.
Credit ratings are used by investors, lenders, and other market participants to assess
the risk associated with lending money or investing in a particular security.

Here are some advantages of credit rating:

1. Helps in Investment Decision: Credit ratings provide investors with an
independent assessment of the creditworthiness of a borrower, which can
help them make informed investment decisions1.
2. Freedom of Investment Decisions: Credit ratings provide investors with the
freedom to make their own investment decisions based on their risk appetite
and investment objectives1.
3. Assurance of safety: Credit ratings provide investors with an assurance of
safety as they are based on a thorough analysis of the borrower’s financial
position and ability to repay its debt1.
4. Choice of Instruments: Credit ratings provide investors with a choice of
instruments as they can choose to invest in securities with different credit
ratings based on their risk appetite and investment objectives1.
5. Dependency on Rating: Credit ratings reduce the dependency on brokers and
other intermediaries as investors can rely on the independent assessment
provided by credit rating agencies1.
6. Continuous Monitoring: Credit rating agencies continuously monitor the
financial position of borrowers and update their credit ratings accordingly,
which provides investors with up-to-date information about the
creditworthiness of borrowers1.
7. Easy to Raise Fund: Companies with high credit ratings find it easier to raise
funds from the market as investors are more willing to invest in their
securities1.
8. Good Corporate Image: Companies with high credit ratings enjoy a good
corporate image as it reflects their strong financial position and ability to
repay their debt1.
9. Lower the Cost of Public Issue: Companies with high credit ratings can lower
the cost of public issue as they can attract more investors and raise funds at
a lower cost1.
10. Easy and Lowers Cost of Borrowing: Companies with high credit ratings can
borrow money at a lower cost as lenders are more willing to lend money to
them at a lower interest rate due to their strong creditworthiness1.

Explain the structure of insurance industry in India.

1. The Indian insurance industry is divided into two basic sectors – Life
Insurance and Non-life Insurance (also called General Insurance) .
2. The industry is governed by the Insurance Regulatory and Development
Authority of India (IRDAI) .
3. As of 31 March 2019, the Indian insurance market had 70 operators, divided
into :
o 27 non-life insurance companies
o 24 life insurance companies
o 7 Stand-Alone Health Insurers (SAHI): insurance companies
specialized in health business
o A national reinsurer (GIC Re)
o 11 foreign reinsurance subsidiaries
4. Among the life insurers, Life Insurance Corporation (LIC) is the sole public
sector company .
5. There are six public sector insurers in the non-life insurance segment .
6. Other stakeholders in the Indian Insurance market include agents (individual
and corporate), brokers, surveyors and third-party administrators servicing
health insurance claims .
7. The growth of the insurance market is being supported by important
government initiatives, strong democratic factors, conducive regulatory
environment, increased partnerships, product innovations, and vibrant
distribution channels .
8. The insurance industry has undergone numerous transformations in terms of
new developments, modified regulations, proposals for amendments and
growth.
9. These developments have opened new avenues of growth for the industry
while ensuring that insurers stay relevant with changing times and the latest
digital disruptions.
10. The Insurance Regulatory and Development Authority India (IRDA) is vigilant
and progressive and is determined to achieve its mission of ‘Insurance for all
by 2047’, with aggressive plans to address the industry’s challenges.
11. Insurance Industry was largely dominated by offline channels like corporate
agents, offline brokers or banks. Today, rapid digitization, product innovation
and progressive regulation policies have made it possible for consumers to
buy insurance through multiple distribution channels with the click of a
button.
 Discuss the market participants of secondary market.

The secondary market is a financial market where previously issued securities such
as stocks, bonds, and other financial instruments are bought and sold. It is also
known as the “stock market” or “aftermarket”.

Here are some of the market participants of the secondary market:

1. Stockbrokers: Stockbrokers are members of the stock exchange who
facilitate the buying and selling of securities on behalf of their clients1.
2. Issuers: Issuers are companies that list their securities on the stock exchange
after meeting the listing criteria and signing a listing agreement with the
exchange2.
3. Financial Intermediaries: Financial intermediaries such as banks, mutual
funds, and insurance companies participate in the secondary market by
buying and selling securities on behalf of their clients1.
4. Investors: Investors participate in the secondary market by buying and selling
securities either directly or through financial intermediaries1.
5. Fund Managers: Fund managers participate in the secondary market by
managing investment portfolios on behalf of their clients1.
6. Speculators and Arbitrageurs: Speculators and arbitrageurs participate in the
secondary market by buying and selling securities with the aim of making a
profit from short-term price movements1.
7. Stock Exchange: The stock exchange provides a platform for investors to
trade securities with each other in an organized and regulated manner3.

What are the objectives of money markets? Explain the sub-markets operating in a
typical money market.

Money markets are markets where short-term financial assets are traded 1. The
objectives of money markets include:

• Providing short-term funds at reasonable prices to individual investors, government,

etc 2.
• Enabling lenders to turn their idle funds into a productive investment, benefitting both
the lender and the borrower 2.
• Helping organizations that are short on working capital requirements 2.
• Regulating the levels of liquidity in the economy as the Reserve Bank of India
regulates the money market 2.
• Providing necessary funds to organizations that are short on working capital
requirements 1.
• As the Reserve Bank of India regulates the money market, it in turn helps in
regulating the levels of liquidity in the economy 1.

There are various sub-markets operating in a typical money market such as 13:

• Call Money Market: A market for overnight borrowing and lending of funds.
• Bill Market: A market for short-term debt securities such as treasury bills and
commercial paper.
 • Certificate of Deposit (CD) Market: A market for trading certificates of
deposit issued by banks and financial institutions.
• Commercial Paper (CP) Market: A market for trading commercial paper
issued by corporations to raise short-term funds.
• Repurchase Agreement (Repo) Market: A market for short-term borrowing
and lending of funds using government securities as collateral.
• Treasury Bill (T-Bill) Market: A market for trading short-term government
debt securities.

Give a detailed account of various types of mutual funds available in Indian market.

There are various types of mutual funds available in the Indian market. Some of
them include:

1. Equity Funds: These funds primarily invest in stocks and aim to generate high returns
over the long term 1.
2. Debt Funds: These funds invest in fixed-income securities such as bonds, securities
and treasury bills and aim to provide stable returns with minimal risks 1.
3. Money Market Funds: These funds invest in highly liquid money market instruments
such as treasury bills, commercial paper and certificates of deposit 1.
4. Hybrid Funds: These funds invest in a mix of equity and debt instruments and aim to
provide a balance of growth and income 1.
5. Index Funds: These funds aim to replicate the performance of a particular stock
market index by investing in the same stocks as the index 2.
6. Income Funds: These funds invest in a mix of bonds, dividend-paying stocks and
other income-generating securities 2.
7. Fund of Funds: These funds invest in other mutual funds rather than directly
investing in stocks, bonds or other securities 3.
8. Balanced Funds: These funds invest in a mix of equity and debt instruments
and aim to provide a balance of growth and income.
9. Growth Funds: These funds invest in stocks of companies that are expected
to grow at a faster rate than the overall market.
10. Liquid Funds: These funds invest in highly liquid money market instruments
such as treasury bills, commercial paper and certificates of deposit.
11. Tax-Saving Funds: These funds offer tax benefits to investors under Section
80C of the Income Tax Act.
12. Aggressive Growth Funds: These funds invest in stocks of companies that
have high growth potential but also carry a higher level of risk.

Describe the features and constituents of IFS

Features of the Indian Financial System

 • Encourages savings and investment: The Indian Financial System plays a
vital role in the economic development of the country as it encourages both
savings and investment .
• Mobilizes and allocates savings: It helps in mobilizing and allocating one’s
savings .
• Facilitates expansion of financial institutions and markets: It facilitates the
expansion of financial institutions and markets .
• Plays a key role in capital formation: It plays a key role in capital formation .
• Forms a link between the investor and the saver: It helps form a link between
the investor and the one saving .

The Indian Financial System is composed of various components. Here are five
constituents of the Indian Financial System

• Financial Institutions: These act as a mediator between the investor and the
borrower . Examples include banks, insurance companies, NBFCs, mutual
funds etc.
• Financial Assets: These are assets that have value based on a contractual
claim, such as stocks, bonds, bank deposits etc.
• Financial Services: These are services provided by financial institutions such
as banks, insurance companies, pensions, funds etc.
• Financial Markets: These are markets where financial assets are traded.
• Regulatory Bodies: These are organizations that oversee and regulate the
financial system. Examples include the Reserve Bank of India (RBI), Securities
and Exchange Board of India (SEBI), Insurance Regulatory and Development
Authority of India (IRDAI) etc.

Discuss the regulatory framework of stock exchanges in India.

The regulatory framework of stock exchanges in India is governed by the Securities

and Exchange Board of India (SEBI), which was established in 1992 1. Here are five
points that explain the regulatory framework of stock exchanges in India:

1. SEBI Act: The Securities and Exchange Board of India Act, 1992 (SEBI Act)
empowers SEBI to regulate the securities market in India 2.
2. SCRA: The Securities Contracts (Regulation) Act, 1956 (SCRA) empowers SEBI to
recognize and regulate stock exchanges and later commodity exchanges in India 3.
3. Depositories Act: The Depositories Act, 1996 provides for the regulation of
depositories in securities and matters connected therewith or incidental thereto 2.
4. Companies Act: The Companies Act, 2013 also plays a role in regulating the
securities market in India 2.
5. SEBI Regulations: SEBI has framed various regulations to govern different aspects of
the securities market such as the SEBI (Stock Brokers) Regulations, 1992 1.
6. SEBI’s role: SEBI plays a crucial role in regulating the securities market in
India. It sets the legal framework and regulates all entities interested in
operating in the market .
7. Investor protection: SEBI’s primary objective is to protect the interests of
investors in securities and to promote the development of, and to regulate the
securities market .
8. Market intermediaries: SEBI also regulates market intermediaries such as
stockbrokers, sub-brokers, share transfer agents, bankers to an issue,
trustees of trust deeds, registrars to an issue, merchant bankers, underwriters,
portfolio managers, investment advisers and such other intermediaries who
may be associated with securities markets in any manner .
 2019 paper

Repeated (features of IFS)

Explain the objectives and functions of Industrial Finance Corporation of India.

The Industrial Finance Corporation of India (IFCI) was set up in July 1948 under a
special Act as the first financial institution in India with the main objective of
providing medium and long-term credit to industrial needs 1. Here are five objectives
of the Industrial Finance Corporation of India:

1. To provide medium and long-term loans and advances to industrial and

manufacturing concerns 1.
2. To issue short-term yet effective or long-term financial support and assistance to
projects or plans regarding the industrial and manufacturing section, which
contributes to the development of the country economically 2.
3. To subscribe to the shares and debentures floated by industrial concerns 3.
4. To provide financial assistance for the establishment, expansion, modernization or
renovation of industrial concerns 1.
5. To encourage the growth of new entrepreneurs and the decentralization of industry 1.

Here are five functions of the Industrial Finance Corporation of India:

1. The corporation grants loans and advances to industrial concerns 1.

2. It grants loans both in rupees and foreign currencies 1.
3. The corporation underwrites the issue of stocks, bonds, shares etc 1.
4. It provides guarantees on loans raised by industrial concerns from other sources 1.
5. It provides consultancy and merchant banking services to industrial concerns 1.

Explain the role of NBFC’s in the development of an economy.

Non-Banking Financial Companies (NBFCs) play a critical role in the development of

an economy by providing a fillip to transportation, employment generation, wealth
creation, bank credit in rural segments and supporting financially weaker sections of
society 1. Here are seven roles of NBFCs in the development of an economy:

1. Mobilization of Resources: NBFCs convert savings into investments 1.

2. Capital Formation: NBFCs aid in increasing the capital stock of a company 1.
3. Provision of Long-term Credit and specialized Credit: NBFCs provide long-term
credit and specialized credit to businesses and individuals 1.
4. Aid in Employment Generation: NBFCs help generate employment by providing credit
to businesses 1.
5. Help in development of Financial Markets: NBFCs help develop financial markets by
providing a variety of financial products and services 1.
6. Helps in Attracting Foreign Grants: NBFCs help attract foreign grants by providing a
stable and well-regulated financial system 1.
 7. Helps in Breaking Vicious Circle of Poverty: NBFCs serve as the government’s
instrument in breaking the vicious circle of poverty by providing credit to financially
weaker sections of society 1.

List and differentiate between fund based and non-fund based financial services.

Fund-based and non-fund based financial services are two types of financial services provided by
financial institutions. Here is a table that lists and differentiates between the two:

Fund-based Financial Services Non-fund based Financial Services

Involves direct deployment of funds Does not involve direct deployment of funds

Generates interest income for the financial

institution Generates fee-based income for the financial institution

Involves higher risk for the financial institution Involves lower risk for the financial institution

Examples include loans, advances, investments Examples include letters of credit, guarantees,
etc. underwriting etc.

The financial institution is directly exposed to The financial institution is indirectly exposed to credit
credit risk risk

The financial institution’s balance sheet is

affected The financial institution’s balance sheet is not affected

Explain the different types of leasing.

Leasing is a contract in which the property owner allows another party to use the
property (or asset) in exchange for something1. There are numerous different types
of leasing options that are available to the users. Here are six common types of
leases:

1. Financial Lease: Also referred to as a capital lease, is a lease contract that spreads
over a longer period of time. The lessee ends up paying a higher amount for
purchasing the asset because it expands over a significant amount of time and also
includes lease charge (and interest charge)1.
2. Operating Lease: The lessee procures the asset that is supposed to be used for a
specific time period. At the end of the lease period, the ownership of the leased asset
 is not transferred to the owner, and therefore, the lessor is supposed to bear the
expenses of maintenance of the asset1.
3. Leveraged and Non-Leveraged Lease: These types of lease contracts are mostly
used in cases where the underlying value of the asset is considered to be quite
significant, so much so that it is almost impossible for one investor to fully finance
the asset. Therefore, leveraged lease contracts might involve a combination of
investors who club their funds together in order to finance the asset1.
4. Conveyance Type Lease: A conveyance Type Lease is quite similar to a capital lease
because it mainly involves the transfer of ownership at the end period of the
contract1.
5. Sale and Leaseback: A company owning the asset sells it to the lessor. The lessor
pays immediately for the asset but leases the asset to the seller. Thus, the seller of
the asset becomes the lessee2.
6. Full and Non Pay-out Lease: A full pay-out lease is one in which the lessor recovers
the full value of the leased asset by way of leasing. In case of a non pay-out lease,
the lessor leases out the same asset over and over again2.

What is capital market? Explain different instruments of capital market.

Capital markets are where savings and investments are channeled between
suppliers and those in need. Suppliers are people or institutions with capital to lend
or invest and typically include banks and investors. Those who seek capital in this
market are businesses, governments, and individuals1. Capital markets are used to
sell different financial instruments, including equities and debt securities1. Here are
six common types of capital market instruments:

1. Stocks: Stocks are sold and bought over a stock exchange. They represent
ownership in the company and the buyer of the share is referred to as the
shareholder2.
2. Bonds: The debt securities which are traded in the capital market are known as
bonds. Companies issue bonds to raise capital for the expansion of the business and
growth2.
3. Debentures: A debenture is a type of debt instrument that is not secured by physical
assets or collateral3.
4. Debt Instruments: Debt instruments are assets that require a fixed payment to the
holder, usually with interest3.
5. Exchange-Traded Funds (ETFs): An ETF is a type of investment fund and exchange-
traded product, i.e., they are traded on stock exchanges3.
6. Shares: A share is a unit of ownership in a company or financial asset3.

What is listing? Explain different steps in listing?

Listing refers to the process of a company registering its securities on a stock

exchange for trading in the stock market1. The listing of shares by a company is a
lengthy process and a number of advisors are involved in the process2. Here are
some steps involved in listing:

1. Appointment of professional advisors: The company appoints professional advisors

to help with the listing process2.
 2. Time frame for a listing: The company decides on a time frame for the listing
process2.
3. Offering securities to the public: To list its securities on a stock exchange, the
company has to offer its securities to the public for subscription1.
4. Fulfilling conditions mentioned in Companies Act: The company has to fulfill the
conditions mentioned in Companies Act1.
5. Minimum equity capital: A company must have minimum equity capital of Rs. 5
crores and 60% of this amount are offered to the public, for Shares Listing on the
stock exchange1.
6. Conditions for Shares Listing: According to Regulation 4 (2) of SEBI (Issue of Capital
and Disclosure Requirements) Regulations 2009, no issuer shall make a public issue
or rights issue of securities unless they make an application to one or more
recognized stock exchanges and have chosen one of them as a designated stock
exchange1.

What is merchant banking? explain the functions of them.

Merchant banking is a financial institution that provides banking and financial

solutions to High Net-worth Individuals (HNIs) and large corporations1. They provide
services like underwriting, fundraising, issue management, loan syndication, portfolio
management, and financial advice1. Here are six common functions of merchant
banks:

1. Portfolio Management: Merchant banks offer portfolio management and advisory

services to help investors make better decisions2.
2. Raising funds for clients: Merchant banks assist clients in raising funds from the
domestic and international market by buying securities3.
3. Promotional activities: The merchant bank also helps in the promotion of the
business institute in its initial stages3.
4. Loan Syndication: Merchant banks help clients obtain loans from multiple lenders3.
5. Leasing Services: Merchant banks provide leasing services to their clients3.
6. Underwriting: Merchant banks underwrite securities for their clients1.
7. Issue Management: Merchant banks help their clients manage the issuance
of securities.
8. Financial Advice: Merchant banks provide financial advice to their clients to
help them make better investment decisions.
9. Venture Capital Financing: Merchant banks provide venture capital financing
to their clients.
10. International Financing: Merchant banks traditionally perform international
financing and underwriting including real estate, trade finance, and foreign
investment.

Discuss the role and functions of stock exchange.

A stock exchange is a market operating to sell and purchase securities and bonds
that are issued by government bodies as well as public and municipal bodies. There
are predefined rules and regulations that play an active role in the purchases and
selling of such products1. Here are six common roles of stock exchanges:
 1. Economic Barometer: Stock exchange serves as an economic barometer that is
indicative of the state of the economy2.
2. Valuation of Securities: Stock market helps in the valuation of securities based on
the factors of supply and demand2.
3. Transactional Safety: Transactional safety is ensured as the securities that are
traded in the stock exchange are listed, and the listing of securities is done after
verifying the company’s position2.
4. Contributor to Economic Growth: Stock exchange offers a platform for trading of
securities of the various companies. This process of trading involves continuous
disinvestment and reinvestment, which offers opportunities for capital formation and
subsequently, growth of the economy2.
5. Making the public aware of equity investment: Stock exchange helps in providing
information about investing in equity markets and by rolling out new issues to
encourage people to invest in securities2.
6. Offers scope for speculation: By permitting healthy speculation of the traded
securities, the stock exchange ensures demand and supply of securities and
liquidity2.

Here are six common functions of stock exchanges:

1. Securities Market: It is the capital market that deals with the sales and purchase of
securities of the government, government organizations, and corporate companies1.
2. Regulatory Body: The stock exchange can enforce rules and regulation on the
brokers and firms that are enrolled with them1.
3. Dealings: The stock exchange has to deal with only the organizations or companies
that are listed under its ambit1.
4. Mode of Operation: The members of the stock exchange or even the brokers are to
be authorized in order to carry out the trading activities1.
5. Measuring Tool: Among the functions of the stock exchange, the trading activities
directly impact the growth of an organization or business. Therefore, it acts as a
measuring tool for businesses in terms of assessing their overall growth1.
6. Obligatory: The functioning of all stock exchanges is regulated by SEBI or the
Securities and Exchange Board of India. Therefore, every stock exchange is meant to
oblige and abide by the pre-fixed rules and regulations of SEBI1.

Repeated (Money market instruments)

Repeated (structure of Insurance sector in India)

 2018 paper

Explain in brief the overview of Indian Financial System.

The Indian Financial System is one of the most important aspects of the economic
development of our country. This system manages the flow of funds between the
people (household savings) of the country and the ones who may invest it wisely
(investors/businessmen) for the betterment of both the parties1. The services that
are provided to a person by the various Financial Institutions including banks,
insurance companies, pensions, funds, etc. constitute the financial system1.
Here is a brief overview of the Indian Financial System:

• It plays a vital role in the economic development of the country as it encourages both
savings and investment1.
• It helps in mobilising and allocating one’s savings1.
• It facilitates the expansion of financial institutions and markets1.
• Plays a key role in capital formation1.
• It helps form a link between the investor and the one saving1.
• It is also concerned with the Provision of funds1
• The Indian financial system is a network of financial institutions, markets, and
instruments that facilitate the flow of savings from individuals and
businesses to investments in the economy.
• The financial system of a country mainly aims at managing and governing the
mechanism of production, distribution, exchange and holding of financial
assets or instruments of all kinds.
• The Indian Financial System plays a crucial role in the economic development
of the country. It manages the flow of funds between the people and the
investors and thus contributes to capital formation in the country.

Explain the objectives and functions of ICICI.

ICICI (Industrial Credit and Investment Corporation of India) is an Indian financial

institution that was incorporated in the year 1955 to finance small scale and medium
industries in the private sector1. The major objective of ICICI was to meet the needs
of the industry for permanent and long term funds in the private sector1.
Here are five common objectives of ICICI:

1. To assist in creation, growth and modernization of business enterprises in the non-

public sector1.
2. To encourage and promote the involvement of internal and external capital sources,
in such enterprises1.
3. To motivate private ownership of industrial investment and to promote and assist in
the expansion of markets1.
4. To provide equipment finance1.
5. To provide finance for rehabilitation of industrial units1.
Here are five common functions of ICICI:

1. Providing finance in the form of long-term or medium term loans or equity

participation1.
2. Sponsoring and underwriting new issues of shares and other securities 1.
3. Guaranteeing loans from other private investment sources1.
4. Making funds available for reinvestment by revolving investment as rapidly as
possible1.
5. Providing project advisory services i.e. offering advice – to private sector companies
in the pre-investment stages on Government policies and procedures, feasibility
studies and joint venture search, and to Central and State Governments on specific
policy related issues1.

Repeated (Structure of Insurance Sector in India)

Repeated (Role of NBFC’s)

Repeated (Constituents of financial markets)

Briefly discuss the different types of financial services.

Financial services can be broadly categorized into two main types: fund-based services and fee-
based services.

1. Fund-based Services: Fund-based services involve the management and handling of funds on
behalf of clients. These services typically involve the transfer, investment, and borrowing of
funds. Here are some examples:

a. Banking Services: Banks provide a range of fund-based services, including deposit accounts, loans,
mortgages, and credit cards. They facilitate the transfer and storage of funds, provide lending
options, and offer various financial products.

b. Investment Management: Investment firms and asset management companies offer fund-based
services by managing investment portfolios on behalf of clients. They make investment decisions
and allocate funds across different assets, such as stocks, bonds, mutual funds, and alternative
investments.

c. Insurance Services: Insurance companies offer fund-based services by pooling premiums from
policyholders to create funds that can be used to pay claims. They manage these funds and invest
them to generate returns.

d. Pension Funds: Pension funds manage funds contributed by employers and employees to provide
retirement benefits. These funds are invested and managed to grow over time and provide income
to retirees.

2. Fee-based Services: Fee-based services are financial services where clients pay a fee for
specific services rendered. These services are not directly tied to the management or
transfer of funds. Here are a few examples:
a. Financial Planning: Financial planners or advisors offer fee-based services to help individuals and
businesses develop comprehensive financial plans. They provide guidance on budgeting, investment
strategies, retirement planning, tax planning, and estate planning.

b. Tax Preparation and Accounting Services: Professionals such as tax accountants provide fee-based
services to assist individuals and businesses with tax preparation, filing, and planning. They help
ensure compliance with tax regulations and identify potential tax-saving opportunities.

c. Legal and Estate Planning: Lawyers and estate planners provide fee-based services related to legal
and estate matters. They assist clients with drafting wills, trusts, power of attorney documents, and
handling legal matters such as estate administration and asset protection.

d. Financial Consulting: Financial consultants offer fee-based services to businesses and

organizations, providing expertise in areas such as financial management, risk assessment, mergers
and acquisitions, and strategic financial planning.

Explain the steps in trading in stock exchange.

Trading in the stock exchange involves several steps. Here is a simplified explanation of the typical
process:

1. Opening a Trading Account: To participate in stock trading, an individual or entity needs to open a
trading account with a registered stockbroker or brokerage firm. This involves completing the
necessary documentation and meeting any requirements set by the broker.

2. Research and Analysis: Before making any trading decisions, it's important to conduct research
and analysis to evaluate potential investments. This includes studying company financials, market
trends, news, and other relevant information to make informed trading decisions.

3. Placing an Order: Once the research is done and a decision is made to buy or sell a particular
stock, the trader needs to place an order with their broker. Orders can be placed through various
channels such as online trading platforms, phone calls, or in-person visits to the broker's office.

4. Order Types: Traders can choose from different types of orders to specify how they want their
trades to be executed. Common order types include market orders (buy or sell at the current market
price), limit orders (buy or sell at a specified price or better), stop orders (triggered when the price
reaches a specific level), and more.
5. Order Execution: Once the order is placed, it is sent to the stock exchange for execution. The stock
exchange matches buy and sell orders based on price and time priority. The execution can happen
almost instantly, depending on the liquidity and trading volume of the particular stock.

6. Confirmation and Settlement: After the order is executed, the trader receives a confirmation from
the broker, which includes details such as the price, quantity, and transaction fees. Settlement refers
to the process of transferring ownership of the stocks and funds between the buyer and seller.
Settlement periods may vary depending on the stock exchange and market regulations.

7. Monitoring and Managing the Investment: Traders need to monitor their investments, keeping an
eye on market fluctuations and any relevant news or events that may impact the stock's
performance. They may choose to hold onto the stocks for the long term or implement trading
strategies such as selling at a specific price target or implementing stop-loss orders to manage risk.

It's important to note that stock trading involves risks, and individuals should consider their risk
tolerance, investment goals, and seek professional advice if needed. Additionally, the specific steps
and processes may vary depending on the stock exchange, country, and trading regulations in place.

Repeated (functions of merchant banking)

Explain the various methods adopted by the corporate entities for marketing the
securities in the New Issue Market.

Corporate entities utilize various methods to market securities in the New Issue Market, also known
as the primary market. These methods are employed to attract investors and raise capital. Here are
some common methods adopted for marketing securities:

1. Initial Public Offering (IPO): An IPO is the process by which a company offers its shares to the
public for the first time. The company hires investment banks as underwriters to help with the
issuance. The underwriters assist in determining the offering price, structuring the offering, and
promoting the IPO to potential investors through roadshows, presentations, and marketing
materials.

2. Rights Issue: In a rights issue, existing shareholders are given the opportunity to purchase
additional shares of the company at a discounted price. The company announces the rights issue and
provides details to shareholders, who can then exercise their rights by subscribing to the new shares.
This method allows companies to raise capital from existing shareholders while giving them a
priority to maintain their ownership.

3. Private Placement: Private placement involves offering securities to a select group of investors,
such as institutional investors, private equity firms, or accredited individuals. This method is typically
used when the company wants to raise capital without going through the public offering process.
Private placements are subject to regulatory requirements and are often conducted through direct
negotiations between the company and potential investors.

4. Preferential Allotment: Preferential allotment involves offering securities to a specific group of

investors at a predetermined price. These investors may include strategic partners, promoters, or
institutional investors. Preferential allotment allows the company to raise capital quickly by targeting
specific investors who are interested in the company's growth prospects.

5. Book Building Process: Book building is a method used to determine the price at which securities
should be offered in an IPO or Follow-on Public Offering (FPO). The company and its underwriters
invite bids from investors within a specified price range. The demand for shares is collected, and the
final price is determined based on the bids received. This method helps gauge investor interest and
ensures the offering price reflects market demand.

6. Auction Method: In some cases, securities are marketed through an auction process. Potential
investors bid for the securities, and the price is determined based on the highest bids received. This
method allows for price discovery and ensures efficient allocation of securities to investors willing to
pay the highest price.

7. Electronic Platforms: With advancements in technology, electronic platforms have emerged as a

popular method for marketing securities. Online platforms and stock exchanges provide a
convenient and transparent way for companies to list and market their securities. These platforms
offer a wide reach to potential investors and facilitate the trading and settlement of securities.

It's important to note that the specific methods adopted by corporate entities for marketing
securities may vary depending on factors such as the type of security, regulatory requirements,
market conditions, and the company's objectives. Companies often engage the services of
investment banks, underwriters, and other financial intermediaries to assist with the marketing and
issuance process.
 Repeated (role and function of stock exchange)

Discuss the various schemes of mutual funds in India.

Mutual funds in India offer various schemes to cater to the diverse investment needs and risk
profiles of investors. These schemes can be broadly categorized as follows:

1. Equity Funds: Equity funds primarily invest in stocks/shares of companies. They aim for long-term
capital appreciation by investing in a diversified portfolio of equity securities. Equity funds are
further categorized based on their investment focus, such as large-cap funds, mid-cap funds, small-
cap funds, sector-specific funds, or thematic funds.

2. Debt Funds: Debt funds invest in fixed-income securities like government bonds, corporate bonds,
debentures, and money market instruments. They aim to generate income for investors while
minimizing risk. Debt funds can be classified based on the duration of the underlying securities, such
as liquid funds, short-term funds, medium-term funds, or long-term funds.

3. Hybrid Funds: Hybrid funds, also known as balanced funds, invest in a mix of equity and debt
securities. They aim for a balance between capital appreciation and income generation. Hybrid funds
can be classified into aggressive hybrid funds (with higher equity allocation) or conservative hybrid
funds (with higher debt allocation).

4. Index Funds: Index funds aim to replicate the performance of a specific stock market index, such
as the Nifty 50 or the Sensex. They invest in the same proportion of securities as the underlying
index. The objective of index funds is to provide returns that closely match the performance of the
chosen index.

5. Exchange-Traded Funds (ETFs): ETFs are open-ended funds that trade on stock exchanges like
individual stocks. They aim to track the performance of a specific index, sector, commodity, or asset
class. ETFs offer the flexibility of trading throughout the day at market prices and can be bought or
sold like stocks.

6. Fund-of-Funds (FoFs): FoFs invest in other mutual funds instead of directly investing in stocks or
bonds. They provide diversification across different mutual fund schemes, asset classes, or
geographic regions. FoFs allow investors to access multiple funds through a single investment.
7. Solution-Oriented Funds: These funds are designed to meet specific financial goals or solutions,
such as retirement funds, children's education funds, or tax-saving funds (Equity Linked Saving
Schemes - ELSS). They have a lock-in period and may offer tax benefits.

8. Sectoral Funds: Sectoral funds focus on specific sectors of the economy, such as banking,
technology, healthcare, or energy. These funds aim to capitalize on the growth potential of
particular industries or sectors.

9. Debt-Oriented Hybrid Funds: Debt-oriented hybrid funds primarily invest in debt instruments but
also allocate a portion of their portfolio to equity. They aim to generate income through debt
investments while providing potential capital appreciation through equity exposure.

It's important for investors to carefully consider their investment objectives, risk tolerance, and time
horizon before selecting a mutual fund scheme. They should review the scheme's investment
strategy, historical performance, fund manager expertise, expense ratios, and other relevant factors.
Investors may consult with financial advisors or conduct thorough research to make informed
investment decisions.
 2017 paper

Financial system and its components

The Indian Financial System is one of the most important aspects of the economic
development of India. It manages the flow of funds between the people (household savings)
of the country and the ones who may invest it wisely (investors/businessmen) for the
betterment of both parties1.

1. Financial Institutions: These institutions act as intermediaries between

investors and borrowers. They mobilize the savings of investors either directly
or indirectly via financial markets by making use of different financial
instruments and in the process using the services of numerous financial
service providers. Some examples of financial institutions include banks,
insurance companies, non-banking financial companies (NBFCs), and mutual
funds.
2. Financial Assets: These are products that are traded in financial markets.
They represent a claim on future cash flows or other forms of value. Some
examples of financial assets include stocks, bonds, and derivatives.
3. Financial Services: These are services provided by various financial
institutions to facilitate economic transactions. They include services such as
payment processing, investment management, insurance, and lending.
4. Financial Markets: These are markets where financial assets are traded. They
provide a platform for buyers and sellers to exchange financial assets at
market-determined prices. Some examples of financial markets include stock
markets, bond markets, and foreign exchange markets.

(Repeated) Objectives and functions of IFCI

Discuss the changing trends in Life Insurance in India.

Life insurance in India has witnessed several changing trends in recent years. Here are some
significant shifts that have been observed:

1. Increasing Awareness and Penetration: There has been a growing awareness about the
importance of life insurance among the Indian population. People are recognizing the need for
financial protection and are more willing to purchase life insurance policies. This has led to an
increase in the penetration of life insurance in India, with a larger segment of the population now
covered by life insurance policies.
2. Shift towards Protection-oriented Policies: Traditionally, life insurance in India was dominated by
investment-oriented policies that combined insurance and savings components. However, there has
been a shift towards protection-oriented policies, such as term insurance plans. These plans offer
higher coverage at lower premiums and focus primarily on providing financial security to the
policyholder's beneficiaries in the event of the insured's death.

3. Online Distribution Channels: The emergence of digital technology and online platforms has
transformed the distribution landscape for life insurance products. Insurers are increasingly
leveraging online channels to reach customers directly and offer a seamless and convenient buying
experience. Online platforms provide easy access to information, comparison tools, and quick policy
issuance, appealing to tech-savvy customers.

4. Customized and Flexible Products: Insurers have introduced more customized and flexible life
insurance products to cater to the specific needs of individuals. Customers now have the option to
choose from a wide range of policy variants and riders, allowing them to tailor the coverage and
benefits based on their requirements. This trend reflects the growing demand for personalized
solutions.

5. Emphasis on Health and Wellness: Insurers are placing greater emphasis on health and wellness-
related initiatives. Many life insurance companies are integrating health and wellness programs into
their offerings. These programs may include wellness rewards, discounted premiums for healthy
lifestyles, and access to healthcare services. Insurers are encouraging policyholders to adopt
healthier habits, leading to improved customer well-being and potentially lower claims.

6. Adoption of Digital Technologies: Insurers are embracing digital technologies such as artificial
intelligence (AI), machine learning, and data analytics to enhance various aspects of life insurance
operations. These technologies help streamline processes, improve underwriting efficiency, enhance
customer experience, and enable more accurate risk assessments.

7. Focus on Customer-centricity: There is a growing emphasis on customer-centricity in the life

insurance sector. Insurers are striving to enhance customer engagement, simplify policy
administration, and provide prompt and efficient claim settlement. Efforts are being made to
improve communication, transparency, and responsiveness to customer needs, resulting in a more
customer-centric approach across the industry.

8. Regulatory Reforms: Regulatory authorities in India, such as the Insurance Regulatory and
Development Authority of India (IRDAI), have introduced reforms to enhance consumer protection,
transparency, and efficiency in the life insurance sector. These reforms aim to foster a competitive
and customer-friendly environment, benefitting policyholders and driving positive changes in the
industry.

The changing trends in life insurance in India reflect the evolving needs and preferences of
customers, advancements in technology, regulatory developments, and a shift towards greater focus
on protection and customer-centricity. These trends contribute to the overall growth and
development of the life insurance sector in the country.

(Repeated) Principal business of NBFC

Discuss the role and function of financial markets.

1. Create liquidity: Financial markets allow businesses to grow and

entrepreneurs to raise money for their ventures by providing a platform for the
exchange of financial assets.
2. Reduce risk: By having information readily available to investors and traders,
financial markets help reduce the risk associated with investing.
3. Smooth economies: Financial markets help smooth economies by creating
investor confidence. When investors are confident in the market, they are
more likely to invest, which can help stimulate economic growth.
4. Stabilize economies: Similar to smoothing economies, financial markets help
stabilize economies by creating investor confidence. When investors are
confident in the market, they are less likely to panic and sell off their assets
during times of economic uncertainty.
5. Facilitate saving: Financial markets offer a secure place for businesses and
households to store their money and earn interest, thus facilitating saving.
6. Lend to businesses and individuals: Financial markets provide an
intermediary between savers and borrowers, allowing businesses and
individuals to access the funds they need.
7. Allocate funds to productive uses: Financial markets allocate capital to where
the risk-adjusted rate of return is highest, thus directing funds towards
productive uses.

What is book building? Explain the steps in book building?

Book building is a process used in capital markets to determine the price at which securities, such as
shares in an initial public offering (IPO), will be offered to investors. It involves collecting and
compiling investor demand or bids for the securities being issued. The goal of book building is to find
the optimal price that balances the interests of the issuing company and the investors.
The steps involved in the book building process are as follows:

1. Appointment of Book Running Lead Managers (BRLMs): The issuing company appoints one or
more BRLMs, usually investment banks, to manage the book building process. BRLMs play a crucial
role in determining the price and managing investor participation.

2. Price Band Determination: The issuing company and BRLMs decide on a price band within which
the securities can be offered. The price band includes a lower price limit (floor price) and an upper
price limit (cap price). This range reflects the potential price at which investors can bid for the
securities.

3. Publicizing the Issue: The issuing company and BRLMs promote the offering and publicize it
through various channels, including advertisements, roadshows, presentations, and media coverage.
They provide information about the company, industry prospects, financial performance, and
investment highlights to attract potential investors.

4. Bid Collection: Qualified Institutional Buyers (QIBs), Non-Institutional Investors (NIIs), and Retail
Individual Investors (RIIs) are invited to participate in the book building process. Bids are collected
from interested investors within the price band. Investors specify the quantity of securities they wish
to subscribe to and the price at which they are willing to buy.

5. Book Building Period: The book building process is conducted over a specific period, typically
several days, during which investors can submit their bids. Bids may be revised or modified within
this period. BRLMs monitor the demand and update the order book with the bids received.

6. Demand Aggregation and Price Discovery: BRLMs aggregate the bids received from investors and
assess the demand at various price levels. They analyze the bid-to-cover ratio (the total demand for
securities divided by the securities offered) and investor sentiment to determine the price at which
maximum demand exists. The process aims to discover the price that results in an optimal allocation
of securities.

7. Allotment and Final Pricing: Based on the analysis of bids, the final price for the securities is
determined. BRLMs, in consultation with the issuing company, decide the final issue price within the
price band. The allotment of securities to investors is then carried out at the final price.
8. Listing and Trading: After the allotment is finalized, the securities are listed on the stock exchange,
and trading begins. Investors who are allotted the securities can trade them on the exchange, buying
or selling based on market conditions.

The book building process allows issuers to gauge investor demand and determine the most
appropriate price for the securities being offered. It ensures efficient price discovery and helps in
allocating securities to investors at a fair and reasonable price.

(Repeated) Types of capital market instruments.

(Repeated) Types of Mutual fund schemes

What are the services provided by a stock exchange? Discuss the distinctive features
of stock markets in India.

Stock exchanges provide various services to facilitate trading and investment activities. The services
offered by a stock exchange include:

1. Listing of Securities: Stock exchanges provide a platform for companies to list their securities, such
as stocks or bonds, for trading. Listing on a stock exchange enhances the visibility and credibility of
the company, allowing it to raise capital from the public.

2. Trading Platform: Stock exchanges serve as a marketplace where buyers and sellers can come
together to trade securities. They provide a transparent and regulated platform for executing buy
and sell orders, ensuring fair and efficient trading.

3. Price Discovery: Stock exchanges play a crucial role in price discovery. Through the interaction of
buy and sell orders, the market forces of supply and demand determine the prices at which
securities are traded. Stock exchanges provide real-time price information, enabling investors to
make informed investment decisions.

4. Liquidity: Stock exchanges offer liquidity to investors by providing a ready market for buying and
selling securities. Investors can easily convert their investments into cash by selling securities on the
exchange, ensuring liquidity and reducing the risk of illiquidity.
5. Clearing and Settlement: Stock exchanges facilitate the clearing and settlement of trades. They
have clearinghouses or clearing corporations that act as intermediaries to ensure smooth and secure
transfer of securities and funds between buyers and sellers.

6. Market Surveillance and Regulation: Stock exchanges enforce regulations and maintain market
integrity. They have surveillance mechanisms in place to monitor trading activities and detect any
irregularities, market manipulations, or insider trading. Stock exchanges work in collaboration with
regulatory bodies to enforce compliance and protect investor interests.

7. Market Indices: Stock exchanges calculate and maintain market indices that represent the overall
performance of the stock market. These indices, such as the Nifty 50 or the Sensex in India, serve as
benchmarks and indicators of the market's performance.

Distinctive Features of Stock Markets in India:

1. Regulatory Framework: Stock markets in India operate under the regulatory oversight of the
Securities and Exchange Board of India (SEBI). SEBI formulates rules and regulations to ensure
investor protection, market integrity, and fair practices.

2. Multiple Stock Exchanges: India has multiple stock exchanges, with the National Stock Exchange
(NSE) and the Bombay Stock Exchange (BSE) being the prominent ones. These exchanges provide a
platform for companies to list their securities and for investors to trade.

3. Equity and Derivatives Trading: Indian stock markets offer both equity trading (stocks) and
derivatives trading (such as futures and options). The availability of derivative instruments provides
opportunities for hedging, speculation, and risk management.

4. Dematerialization of Securities: India has undergone a significant shift towards dematerialized

trading. Most securities are held and traded in electronic form, reducing paperwork, facilitating
faster settlement, and enhancing market efficiency.

5. Investor Protection Initiatives: Indian stock markets have introduced various initiatives to enhance
investor protection and education. Measures like the Investor Protection Fund, Investor Awareness
Programs, and grievance redressal mechanisms aim to safeguard investor interests and promote
investor confidence.
6. Market Participants: Stock markets in India involve various participants, including retail investors,
institutional investors, brokers, market makers, and foreign institutional investors (FIIs). This diverse
participation contributes to market liquidity and depth.

7. Market Volatility: Indian stock markets are known for their volatility, with prices experiencing
significant fluctuations. Market movements are influenced by domestic and global factors, economic
indicators, corporate earnings, and investor sentiments.

It's important to note that the distinctive features and services provided by stock exchanges may
evolve over time due to regulatory changes, technological advancements, and market dynamics.
Investors should stay informed about the specific features and regulations of the stock market they
wish to participate in.

(Repeated) Money market instruments

What is credit rating? Explain the methodology used by them while rating equities.

Credit rating is an assessment of the creditworthiness or risk associated with a borrower's ability to
meet its financial obligations. It provides an evaluation of the likelihood of default on debt
obligations, such as bonds, loans, or other forms of debt instruments. Credit rating agencies analyze
various factors and assign a rating that indicates the issuer's credit quality.

When it comes to equities, credit rating agencies do not typically assign ratings to individual stocks.
Instead, they focus on rating debt securities issued by companies, including corporate bonds and
other fixed-income instruments. However, credit rating agencies may provide ratings for certain
equity-related instruments such as preferred stocks or convertible bonds.

The methodology used by credit rating agencies while rating equities generally differs from their
approach to rating debt securities. For equities, credit rating agencies may employ various
qualitative and quantitative factors to assess the overall risk profile of the company. Here are some
key elements considered in equity rating methodologies:

1. Financial Performance and Stability: Credit rating agencies analyze the financial statements and
performance of the company, including revenue growth, profitability, cash flow generation, and
debt levels. They assess the company's ability to generate sustainable earnings and maintain
financial stability.
2. Industry and Market Position: The rating agencies evaluate the company's position within its
industry, competitive landscape, market share, and market trends. They assess the company's ability
to compete effectively and adapt to changing market conditions.

3. Management and Governance: Credit rating agencies assess the quality and experience of the
company's management team. They evaluate the effectiveness of corporate governance practices,
including board structure, transparency, and risk management frameworks.

4. Business Risk Profile: The agencies analyze the company's business model, diversification, product
or service offerings, customer base, and geographic reach. They assess factors that could impact the
company's operations and revenue generation.

5. Regulatory and Legal Environment: Credit rating agencies consider the regulatory environment in
which the company operates and assess any legal or regulatory risks that could impact its operations
or financial position.

6. Macroeconomic Factors: The overall macroeconomic conditions and economic outlook of the
country or region in which the company operates are considered. Factors such as GDP growth,
inflation, interest rates, and political stability can influence the company's performance.

7. Event Risk: Credit rating agencies also evaluate event risks, such as mergers and acquisitions,
changes in ownership structure, litigation, or regulatory changes, that could impact the company's
financial position or creditworthiness.

It's important to note that equity ratings provided by credit rating agencies are not as widely
followed or utilized compared to credit ratings for debt securities. Investors typically rely on other
sources of information, such as equity research reports, financial statements, and market analysis, to
make investment decisions regarding individual stocks.
 2016 paper

Explain the functions of EXIM bank of India.

The Export-Import Bank of India, commonly known as EXIM Bank, is a specialized financial institution
in India that promotes and facilitates India's international trade. It operates under the purview of the
Ministry of Finance, Government of India. The functions of EXIM Bank are as follows:

1. Financing Export and Import Activities: EXIM Bank provides financial assistance to Indian exporters
and importers. It offers various credit facilities such as pre-shipment and post-shipment export
credit, export working capital finance, and buyer's credit to support the export and import activities
of Indian businesses.

2. Export Promotion: EXIM Bank plays an active role in promoting Indian exports. It offers export
finance programs, export credit insurance, and advisory services to assist exporters in accessing
finance and managing export risks. It supports export-oriented industries and helps them expand
their market presence globally.

3. Project Export Finance: EXIM Bank provides financial support for overseas projects undertaken by
Indian companies. It extends project export finance through lines of credit, buyer's credit, and
supplier's credit to support Indian companies in executing projects abroad, including infrastructure
projects, turnkey contracts, and consultancy services.

4. Trade Finance and Facilitation: EXIM Bank facilitates trade by providing various trade finance
services. It offers guarantees and letters of credit to mitigate trade-related risks. It also assists Indian
companies in exploring trade opportunities, identifying potential markets, and establishing trade
partnerships with foreign entities.

5. Export Credit Insurance: EXIM Bank operates an export credit insurance program to protect Indian
exporters against non-payment risks. It provides insurance coverage for export credit, ensuring that
exporters are safeguarded against commercial and political risks associated with overseas buyers.

6. Investment Promotion: EXIM Bank promotes Indian investments abroad. It offers financial support
for Indian companies venturing into foreign markets, including funding for acquisitions, joint
ventures, and overseas subsidiaries. It helps Indian businesses expand their global footprint and
strengthen economic ties with other countries.
7. Research and Market Intelligence: EXIM Bank conducts research and provides market intelligence
to support Indian exporters. It offers information on market trends, trade opportunities, country risk
analysis, and industry-specific insights. This research helps exporters make informed decisions and
develop effective export strategies.

8. International Cooperation: EXIM Bank collaborates with international financial institutions, export
credit agencies, and development banks to facilitate trade and investment flows. It participates in
bilateral and multilateral initiatives to promote international trade cooperation and exchange best
practices.

The functions of EXIM Bank are aligned with the objective of enhancing India's export
competitiveness, supporting Indian businesses in accessing global markets, and contributing to the
growth of the Indian economy. By providing financial assistance, export promotion, and trade
facilitation services, EXIM Bank plays a crucial role in advancing India's international trade and
economic development.

Discuss the objectives and functions of IDBI.

The Industrial Development Bank of India (IDBI) is a financial institution that was established in 1964
under an Act of Parliament in India. Its primary objective is to provide financial assistance and
support the development of industries in the country. The objectives and functions of IDBI are as
follows:

Objectives of IDBI:

1. Industrial Development: IDBI aims to promote and facilitate the development of industries in
India. It provides financial assistance, resources, and expertise to support industrial projects and
initiatives across various sectors.

2. Balanced Regional Development: IDBI focuses on promoting balanced regional development by

providing financial support to industries in backward areas. It aims to reduce regional imbalances
and encourage the establishment of industries in less developed regions of the country.

3. Infrastructure Financing: IDBI plays a crucial role in financing infrastructure projects. It provides
long-term funding for infrastructure development, including sectors like power, transportation,
telecommunications, and urban infrastructure. This supports the growth and modernization of
critical infrastructure facilities in the country.

4. Capital Market Development: IDBI contributes to the development of the capital market in India.
It plays an active role in underwriting and marketing securities, promoting corporate bond market,
and supporting the growth of the securities market through various initiatives.

5. Coordinating Industrial Development Institutions: IDBI acts as a coordinating body for various
industrial development institutions in the country. It collaborates with other financial institutions,
banks, and government agencies to channelize resources and coordinate efforts towards industrial
development.

Functions of IDBI:

1. Term Lending: IDBI provides long-term financial assistance to industries for their capital
expenditure requirements. It offers term loans and project financing to support the establishment,
expansion, modernization, and diversification of industrial projects.

2. Refinancing and Rediscounting: IDBI refinances loans extended by other financial institutions, such
as commercial banks, to industries. It also rediscounts bills of exchange and promissory notes,
providing liquidity support to the banking system.

3. Investment Banking Services: IDBI offers investment banking services to support corporate
financing needs. It assists companies in raising capital through public issues, rights issues, and
private placements. It also provides advisory services for mergers, acquisitions, and corporate
restructuring.

4. Technical and Managerial Assistance: IDBI provides technical and managerial assistance to
industries. It offers consultancy services, project appraisal, and evaluation of industrial projects. It
helps in improving the operational efficiency and competitiveness of industrial units.

5. Promoting Small-Scale Industries: IDBI supports the growth and development of small-scale
industries (SSI). It offers financial assistance, refinancing, and promotional schemes specifically
designed for SSIs. It helps in the promotion and financing of small-scale enterprises.
6. International Operations: IDBI engages in international operations to facilitate trade and industrial
development. It supports export-oriented industries through export finance, trade finance, and
foreign currency financing. It also participates in international collaborations and provides financial
assistance for overseas projects undertaken by Indian companies.

Overall, IDBI plays a crucial role in supporting industrial development, promoting infrastructure
growth, and fostering economic progress in India. Through its various functions and initiatives, it
contributes to the country's economic development by providing financial assistance, coordinating
efforts, and supporting the growth of industries and infrastructure.

Explain the role of UTI?

The Unit Trust of India (UTI) is a financial institution in India that was established in 1964 as a mutual
fund. It was originally formed as a government-owned entity to promote the savings and investment
culture among individuals and channelize funds into the capital market. The role of UTI has evolved
over time, and its key functions include:

1. Mutual Fund Management: UTI functions as a mutual fund manager, offering a range of
investment schemes to individual and institutional investors. It pools funds from investors and
invests them in various asset classes such as stocks, bonds, money market instruments, and other
securities. UTI manages the investment portfolio on behalf of the investors and aims to generate
returns while managing risks.

2. Mobilization of Savings: UTI plays a significant role in mobilizing savings from individuals and
institutions. It encourages individuals to invest in mutual fund schemes, helping them diversify their
investments and participate in the capital market. By pooling funds from investors, UTI facilitates the
efficient allocation of capital and supports economic growth.

3. Retail Investor Participation: UTI has been instrumental in promoting retail investor participation
in the capital market. It focuses on creating awareness about investment opportunities, educating
investors about financial planning, and providing accessible investment avenues for small investors.
UTI's initiatives have contributed to the democratization of the investment landscape in India.

4. Professional Fund Management: UTI employs professional fund managers who have expertise in
investment management. These managers analyze market trends, conduct research on companies
and sectors, and make informed investment decisions on behalf of the investors. The professional
fund management approach aims to optimize returns while managing risks and ensuring the security
of investors' funds.
5. Investment in Capital Market: UTI invests in various securities traded in the capital market,
including equity shares, bonds, debentures, government securities, and other financial instruments.
Its investments help channelize funds into productive sectors of the economy, support the growth of
companies, and contribute to the overall development of the capital market.

6. Financial Intermediation: UTI acts as a financial intermediary between investors and the capital
market. It provides a platform for investors to invest their savings and participate in the capital
market without directly dealing with individual securities. UTI's expertise in managing funds and its
network of distribution channels make it a convenient and reliable investment avenue for investors.

7. Investor Services and Support: UTI offers various services and support to its investors. It provides
regular updates on the performance of investment schemes, facilitates redemption and switching of
investments, and offers customer service and grievance redressal mechanisms. UTI's investor-centric
approach aims to enhance investor satisfaction and build long-term relationships.

Over the years, UTI has played a crucial role in promoting financial inclusion, investor education, and
the development of the mutual fund industry in India. It has contributed to the growth of the capital
market and provided individuals with opportunities to participate in wealth creation through
professional fund management and diversified investment options.

(Repeated) Role of financial system in economic development.

(Repeated) Steps in trading securities

(Repeated) Note on credit rating (use the answers of methods and advantages of
credit rating)

Give overview of global financial system

The global financial system refers to the network of institutions, markets, and mechanisms that
facilitate the flow of funds and financial transactions on a global scale. It encompasses various
components, including financial institutions, central banks, regulatory bodies, payment systems,
capital markets, and international financial institutions. Here's an overview of the key elements of
the global financial system:
1. Financial Institutions: These include commercial banks, investment banks, insurance companies,
pension funds, mutual funds, and other entities that provide financial services and intermediation.
They play a crucial role in mobilizing savings, providing credit, managing risks, and facilitating the
smooth functioning of the financial system.

2. Central Banks: Central banks, such as the Federal Reserve in the United States, the European
Central Bank, and the Bank of Japan, are responsible for monetary policy and maintaining financial
stability. They regulate the money supply, control interest rates, supervise banks, and act as lenders
of last resort to provide liquidity to the financial system.

3. Regulatory Bodies: Regulatory bodies and supervisory authorities oversee the functioning of
financial institutions and markets. They establish rules and regulations to ensure transparency,
fairness, and stability in the financial system. Examples include the Securities and Exchange
Commission (SEC) in the United States and the Financial Conduct Authority (FCA) in the United
Kingdom.

4. Payment Systems: Payment systems facilitate the transfer of funds and settlement of transactions
between individuals, businesses, and financial institutions. They include mechanisms such as wire
transfers, automated clearing houses (ACH), payment cards, and digital payment systems. Efficient
payment systems are essential for smooth financial transactions.

5. Capital Markets: Capital markets provide a platform for buying and selling financial instruments,
such as stocks, bonds, derivatives, and commodities. They enable companies and governments to
raise capital and investors to allocate their savings. Major capital markets include stock exchanges,
bond markets, and commodity exchanges.

6. International Financial Institutions: Institutions like the International Monetary Fund (IMF), World
Bank, and regional development banks play a significant role in providing financial assistance,
promoting economic stability, and supporting development projects across countries. They facilitate
cooperation and coordination among nations in managing global financial challenges.

7. Global Regulatory Frameworks: Various international agreements and frameworks exist to

regulate and harmonize financial activities on a global scale. Examples include the Basel Accords,
which provide guidelines for bank capital requirements and risk management, and the Financial
Stability Board (FSB), which promotes international financial stability.

8. Cross-Border Capital Flows: The global financial system facilitates the movement of capital across
borders. This includes foreign direct investment (FDI), portfolio investment, cross-border lending,
and foreign exchange transactions. Capital flows can have significant impacts on economies,
exchange rates, and financial stability.

9. Financial Market Integration: The global financial system has witnessed increased integration and
interconnectedness among financial markets worldwide. Advances in technology, communication,
and financial innovations have facilitated cross-border transactions and enabled investors to access
a broader range of financial products and markets.

10. Financial Crises and Risk Management: The global financial system is exposed to risks, including
credit risk, market risk, liquidity risk, and systemic risk. Financial crises, such as the global financial
crisis of 2008, highlight the vulnerabilities and challenges associated with the interconnectedness of
the system. Risk management and regulatory frameworks aim to mitigate these risks and safeguard
financial stability.

It's important to note that the global financial system is complex and continuously evolving. Changes
in technology, regulations, geopolitical factors, and market dynamics can significantly impact its
structure and functioning. Efforts are continually made to enhance transparency, resilience, and
cooperation among stakeholders to promote stability and sustainable economic growth in the global
financial system.

(Repeated) Role and function of stock exchange

Discuss the characteristics and broad categories of financial institutions.

Financial institutions are specialized entities that provide a range of financial services to individuals,
businesses, and governments. They play a vital role in the functioning of the financial system. Here
are the characteristics and broad categories of financial institutions:

Characteristics of Financial Institutions:

1. Intermediation: Financial institutions act as intermediaries between surplus units (those with
excess funds) and deficit units (those in need of funds). They mobilize savings from individuals and
institutions and allocate them to borrowers through various lending and investment activities.

2. Risk Management: Financial institutions manage risks associated with lending and investing
activities. They employ risk assessment and mitigation strategies to ensure the safety and soundness
of their operations. Risk management is crucial to maintain stability and protect the interests of
depositors and investors.

3. Regulatory Oversight: Financial institutions operate within a regulatory framework that

establishes rules and regulations to ensure transparency, solvency, and consumer protection.
Regulatory bodies supervise financial institutions to maintain stability, promote fair practices, and
safeguard the interests of stakeholders.

4. Financial Services: Financial institutions provide a wide range of financial services, including
deposit-taking, lending, investment management, payment processing, insurance, and advisory
services. They cater to the diverse financial needs of individuals, businesses, and governments.

Broad Categories of Financial Institutions:

1. Banks: Banks are the most well-known and widely used financial institutions. They accept deposits
from customers and provide various banking services such as checking and savings accounts, loans,
mortgages, and credit cards. Banks can be categorized as commercial banks, investment banks, retail
banks, and central banks.

2. Insurance Companies: Insurance companies offer risk management and protection against
unforeseen events. They provide insurance coverage for life, health, property, vehicles, and other
assets. Insurance companies collect premiums from policyholders and compensate them in case of
covered losses or events.

3. Investment Firms: Investment firms, including asset management companies, mutual funds,
hedge funds, and pension funds, manage investment portfolios on behalf of individuals and
institutional investors. They invest in various financial instruments such as stocks, bonds, and
derivatives to generate returns for their clients.

4. Non-Bank Financial Institutions: Non-bank financial institutions (NBFIs) are entities that provide
financial services similar to banks but are not licensed as banks. Examples include credit unions,
finance companies, leasing companies, and microfinance institutions. NBFIs often specialize in
specific areas of lending or financial services.

5. Stock Exchanges: Stock exchanges are financial institutions that facilitate the trading of securities,
such as stocks and bonds. They provide a platform for buyers and sellers to exchange securities and
ensure transparent and efficient transactions. Stock exchanges play a crucial role in capital markets
and the pricing of securities.

6. Regulatory and Supervisory Authorities: Regulatory bodies and supervisory authorities oversee
and regulate the operations of financial institutions. Examples include central banks, securities and
exchange commissions, and insurance regulatory authorities. These institutions ensure compliance
with regulations, monitor financial stability, and protect the interests of consumers.

It's important to note that financial institutions can operate within multiple categories, providing a
combination of services. They work together to create a well-functioning financial system that
supports economic growth, facilitates capital allocation, and manages financial risks.

(Repeated) Role and function of Merchant Bankers

Short note on Call Money, Commercial paper, Treasury Bills and Certificate of deposits

Call Money:

1. Call money refers to short-term borrowing and lending of funds in the money market among
banks and financial institutions.

2. It has a very short maturity period, usually ranging from overnight to a few days.

3. Interest rates on call money transactions are determined by market forces of demand and supply.

4. Call money provides liquidity to banks and allows them to meet their short-term funding
requirements.

Commercial Paper:

1. Commercial paper is an unsecured, short-term debt instrument issued by corporations and

financial institutions to raise funds.

2. It typically has a maturity period of 1 to 270 days, making it a popular choice for meeting short-
term funding needs.

3. Commercial paper is usually issued at a discount to its face value and provides an attractive
investment option for institutional investors.

4. It is regulated by market authorities and credit rating agencies assess the creditworthiness of
issuers before assigning ratings to commercial paper.
Treasury Bills:

1. Treasury bills, also known as T-bills, are short-term debt instruments issued by the government to
meet its short-term funding requirements.

2. They have a maturity period of up to one year and are sold at a discount to their face value, with
the difference representing the interest earned by the investor.

3. T-bills are highly liquid and considered low-risk investments as they are backed by the
government.

4. They are actively traded in the secondary market and serve as a benchmark for short-term
interest rates.

Certificate of Deposits (CDs):

1. Certificate of deposits are negotiable money market instruments issued by banks and financial
institutions to raise funds.

2. They have a fixed maturity period, ranging from a few days to several years.

3. CDs offer higher interest rates compared to traditional savings accounts and are available in
various denominations.

4. They can be traded in the secondary market before maturity, providing liquidity to investors. The
interest rates on CDs are determined by market conditions and the creditworthiness of the issuing
institution.
 Other important questions
What are the objectives of EXIM Banks?

EXIM Bank, or Export-Import Bank, is a financial institution that aims to promote

foreign trade activities in a country. Here are seven objectives of EXIM Banks:

1. Provide financial assistance to exporters and importers and function as the

principal financial institution for coordinating the working of institutions
engaged in financing exports and import of goods and services1.
2. Act on business principles with due regard to the public interest1.
3. Ensure an integrated and coordinated approach in solving the allied problems
encountered by exporters2.
4. Pay specific attention to the exports of capital goods2.
5. Facilitate and encourage joint ventures and export of technical services and
international and merchant banking2.
6. Extend buyers’ credit and lines of credit2.
7. Tap domestic and foreign markets for resources for undertaking
development and financial activities in the export sector2.

Distinguish between Primary Market and Secondary Market.

The primary market and the secondary market are two types of markets where
securities are issued and traded. Here is a table that outlines some of the key
differences between the two:

Primary Market Secondary Market

Also known as the New Issue Market

(NIM) 1 Also known as the Aftermarket 1

A marketplace where new securities are A marketplace where existing securities

offered to the public for the first time 2 are bought and sold by investors 2

Direct purchase 1 Indirect purchase 1

Buying and selling takes place between the Buying and selling takes place between
company and the investors 1 investors 1

Provides financing to existing companies

for facilitating growth and expansion 1 Does not provide any kind of financing 1
Primary Market Secondary Market

Intermediaries involved include

underwriters 1 Intermediaries involved include brokers 1

Price levels vary with variations in

Price levels remain fixed 1 demand and supply 1

What are the promotional functions of RBI?

The Reserve Bank of India (RBI) is the central bank of India and performs various
promotional functions to support the growth and development of the Indian
economy. Here are seven promotional functions of RBI:

1. Promotion of Banking Habit: The RBI helps in mobilizing the savings of

people for investment by expanding the banking system throughout the nation
by setting up various institutions like UTI, IDBI, IRCI, NABARD etc1.
2. Providing Refinance for Exports: The RBI provides refinance for export
promotion through institutions like Export Credit and Guarantee Corporation
(ECGC) and Export Import Bank 1.
3. Providing Credit to Agriculture: The RBI makes institutional arrangements for
rural or agricultural finance by setting up special agricultural credit cells,
promoting regional rural banks with the help of commercial banks, and
promoting NABARD 1.
4. Providing Credit to Small Scale Industrial Units: The RBI encourages
commercial banks to lend loans to small-scale industrial units as per its
directives issued from time to time 1.
5. Providing Indirect Finance to Cooperative Sector: The RBI directs NABARD to
give loans to State Cooperative Banks, which in turn lend loans to cooperative
sector 1.
6. Exercising Control over Monetary and Banking System of the Country: The
RBI is vested with enormous and extensive powers regarding supervision and
control over commercial banks, cooperative banks and also non-banking
institutions receiving deposits 1.
7. Making Industrial Arrangement for Industrial Finance: The RBI makes
institutional arrangement for industrial finance 1.

What are the indicators of liquidity of a commercial bank?

There are several indicators of liquidity of a commercial bank. Some of them include:
 1. Liquidity ratio (LiqR): This measures a bank’s ability to meet its short-term
obligations1.
2. Liquidity creation (LiqC): This measures the amount of liquidity a bank
creates1.
3. Net stable funding difference (NSFD): This measures the difference between
available stable funding and required stable funding1.
4. Credit to Deposit Ratio: This measures the proportion of a bank’s loans to its
deposits2.
5. Current Assets to Total Assets: This measures the proportion of a bank’s
current assets to its total assets2.
6. Deposits in other banks on demand basis: This measures the amount of
deposits a bank has in other banks that can be withdrawn on demand3.
7. Marketable debt securities over a qualitative basis: This measures the quality
of a bank’s marketable debt securities3.

Briefly explain any six functions of the financial system

The financial system performs several important functions in an economy. Some of

these functions include:

1. Facilitating transactions: The financial system provides a way for market

participants to invest their savings, raise loans, raise equity capital, manage
their risks, purchase/sell assets and earn profit by trading on available
information1.
2. Determining rates of return: The financial system helps determine and
communicate the prevailing rates of return and cost of capital1.
3. Allocating capital: The financial system facilitates the efficient allocation of
capital to its most productive uses1.
4. Mobilizing savings: The financial system helps mobilize savings from
investors either directly or indirectly via financial markets2.
5. Managing risks: The financial system provides products and services that
help market participants manage their financial risks2.
6. Providing information: The financial system collects and distributes financial
information that allows for the most efficient allocation of economic
resources2.

Discuss any three distinctions between capital market and money market.

Here is a table that highlights three distinctions between the capital market and the
money market:
Distinction Capital Market Money Market

Capital markets are less liquid as Money markets are highly liquid as
they deal with long-term they deal with short-term
Liquidity investments1. investments1.

Capital markets deal with long-term Money markets deal with short-term
investments, usually for a period of investments, usually for a period of
Duration more than one year1. one year or less1.

Capital markets are generally Money markets are generally

considered to be riskier as they considered to be less risky as they
Risk deal with long-term investments1. deal with short-term investments1.

Bring out any three distinctions between Banking Companies and Non-Banking
Financial Companies.

Here is a table that highlights three distinctions between Banking Companies and
Non-Banking Financial Companies (NBFCs):

Non-Banking Financial
Distinction Banking Companies Companies

Banking companies are governed by NBFCs are incorporated under

Governing Act the Banking Regulation Act, 19491. the Companies Act1.

Demand NBFCs are not allowed to

Deposits Banks accept demand deposits1. accept demand deposits1.

Foreign For private sector banks, foreign For NBFCs, foreign investment
Investment investment is allowed up to 74%1. up to 100% is allowed1.

Explain any three credit control measures of RBl.

The Reserve Bank of India (RBI) uses several credit control measures to regulate the
flow of credit in the economy. Here are three such measures explained in detail:
 1. Cash Reserve Ratio (CRR): This is the minimum percentage of a bank’s total
deposits that must be kept with the RBI as a reserve. By changing the CRR, the
RBI can control the amount of money that banks have available to lend. An
increase in CRR reduces the amount of money available for lending, while a
decrease in CRR increases the amount of money available for lending.

The CRR is an important tool used by the RBI to control inflation and manage
liquidity in the economy. When there is excess liquidity in the market, the RBI may
increase the CRR to reduce the amount of money available for lending. This helps to
control inflation by reducing the amount of money in circulation. On the other hand,
when there is a liquidity crunch in the market, the RBI may reduce the CRR to
increase the amount of money available for lending. This helps to stimulate
economic activity by increasing the amount of money in circulation.

2. Statutory Liquidity Ratio (SLR): This is the minimum percentage of a bank’s

total deposits that must be kept as liquid assets with themselves. By
changing the SLR, the RBI can control the amount of money that banks have
available to lend. An increase in SLR reduces the amount of money available
for lending, while a decrease in SLR increases the amount of money available
for lending.

Like the CRR, the SLR is an important tool used by the RBI to control inflation and
manage liquidity in the economy. When there is excess liquidity in the market, the
RBI may increase the SLR to reduce the amount of money available for lending. This
helps to control inflation by reducing the amount of money in circulation. On the
other hand, when there is a liquidity crunch in the market, the RBI may reduce the
SLR to increase the amount of money available for lending. This helps to stimulate
economic activity by increasing the amount of money in circulation.

3. Bank Rate Policy: This is the rate at which the RBI lends money to commercial
banks. By changing the bank rate, the RBI can influence the cost of borrowing
for commercial banks and, in turn, influence the cost of borrowing for
businesses and consumers. An increase in bank rate makes borrowing more
expensive, while a decrease in bank rate makes borrowing less expensive.

The bank rate policy is an important tool used by RBI to control inflation and manage
economic growth. When there is high inflation in economy, RBI may increase bank
rate which makes borrowing more expensive for commercial banks and they pass on
this increased cost to their customers by increasing their lending rates which makes
borrowing more expensive for businesses and consumers and reduces demand for
credit which helps to control inflation. On other hand when there is low economic
growth or deflationary pressure on economy then RBI may decrease bank rate which
makes borrowing cheaper for commercial banks and they pass on this decreased
cost to their customers by decreasing their lending rates which makes borrowing
cheaper for businesses and consumers and increases demand for credit which
helps to stimulate economic growth.