MA0043 - CORPORATE BANKING

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ASSIGNMENT

DRIVE	SUMMER 2015
PROGRAM	MBADS (SEM 4/SEM 6)MBAFLEX/ MBA (SEM 4) PGDBMN (SEM 2)
SUBJECT CODE & NAME	MA0043 CORPORATE BANKING
BK ID	B1817
CREDITS	4
MARKS	60

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

Q. 1 “A commercial bank follows certain sound principles to ensure safety and security of its funds invested as corporate advance while planning a reasonable return also” In the light of above explain the uniformly accepted principles of lending. “Uniformly accepted principles of lending to corporate sector”

Answer:Lending is one the primary function of a bank. The banks accept deposits from people and then lend that money to the needy people in the form of loans, advances, cash credit and overdraft. Interest received from these lending is the main source of income for the bank. So a bank should examine the security offered against loan, credit worthiness of the borrower and the purpose of the loan. Therefore a bank uses these following principle for smooth running of the business.

·         Liquidity - Liquidity is an important principle of bank lending. Banks lend money for short periods only because they lend public money (money accept as deposits from people) which can be withdrawn at any time by depositors. They, therefore, advance loans on the security of such assets which can be easily converted into cash

Q. 2 “Two important sources of working capital fiancé for a commercial firm are:  Consortium finance and Loan syndication”. Elaborate. (Explain consortium finance, Explain loan syndication)

Answer:A consortium financing solution usually entails several banks or financial institutions joining hands to finance high value/ large projects by a single borrower through a common appraisal, common documentation and joint supervision. Similarly, a CEDB consortium financing solutions involve offering advisory and larger investment services together with our long-standing partner banks within the framework of a consortium.

Like a loan syndication, consortium financing occurs for

Q. 3 “Factoring and Forfeiting are still nascent in India”  Do you agree ?  Substantiate if you agree or disagree. How will you differentiate between Factoring and Forfeiting?

Answer:A factor, i.e. a commercial bank or a specialized financial firm, can assist an exporter with financing through the purchase of invoices or accounts receivable. Export factoring is offered under an agreement between the factor and the exporter, in which the factor purchases the exporter’s short-term foreign accounts receivable for cash at a discount from the face value, normally without recourse, and assumes the risk on the ability of the foreign buyer to pay, and handles collections on the receivables. Thus, by virtually eliminating the risk

Q. 4 Describe the loan pricing mechanism as per the RBI guidelines. Loan pricing mechanism of RBI.

Answer:Banks should refrain from offering low / zero percent interest rates on consumer durable advances to borrowers through adjustment of discount available from manufacturers / dealers of consumer goods, since such loan schemes lack transparency in operations and distort pricing mechanism of loan products. These products do not

Q. 5 How do you perceive the Basel Committee accords on risk management? Do you think Basel –III accord is an improvement over Basel-II ? What are the impediments of Indian banks, if any, to migrate to Basel-III? (Basel Committee accord on risk management Basel-II and Basel-III, Problems faced by Indian Banks to implement, Basel-III norms).

Answer:A set of agreements set by the Basel Committee on Bank Supervision (BCBS), which provides recommendations on banking regulations in regards to capital risk, market risk and operational risk. The purpose of the accords is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. 

Q. 6 Explain the hedging strategies adopted by the firms through use of derivatives to minimize the risk of foreign exchange volatility. (Hedging strategies via derivatives)

Answer:If you are considering a stock investment and you read that the company uses derivatives to hedge some risk, should you be concerned or reassured? Warren Buffett's stand is famous: he has attacked all derivatives, saying he and his company "view them as time bombs, both for the parties that deal in them and the economic system" (2003 Berkshire Hathaway Annual Report). On the other hand, the trading volume of derivatives has escalated rapidly, and non-financial companies continue to purchase and trade them in ever-

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