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Worksheet - Building Concepts for RBI For Alternate Sources of Finance
RBI Grade B 2018
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Purpose of Worksheet The purpose of the worksheet worksheet is to help hel p you build and apply concepts. concepts. It is very important important to apply what you have learned because RBI is putting up twe aked questions rather rather than direct questions. questi ons. Work Work sheet consists of 1. Fill in i n the blanks 2. True True /False 3. MCQs 4. Ma Match tch the column column Many of these you would be able to solve with the hel p of the document document you have read before this worksheet. But many many of them will give ne w dimensions di mensions to your learning and and will wi ll test how much much you can apply. But rest assured assured after doi ng this this worksheet worksheet you wil l feel fee l more confident confident and that is all al l what matters matters The answers along with expl anation anation (wherever required) are are given at the end of the worksheet
1. Fill in the blan bl anks ks 1. ______ _________ _________ ______ is a short term lease period. The The asset is returned returned to the le ssor after the lease le ase period period comes comes to an e nd 2. ______ _________ ______________ ___________ is long term lease le ase period. For example e xample,, lease le ase for 100 100 years. During During the lease period the ownership remains with the l essor but but t he ownership is transferred transferred to to the lessee l essee after the lease period. 3. ______ _________ _______is ____is the process through which a service provider wil l give give you the money on invoi ces that have been bee n bille bil led d out, which you then pay back once the customer has settled the the bill 4. Factoring Factoring Regulations Re gulations Act, 2011 2011 specifie specif iess that that any entity enti ty conducting conducting the factoring factoring business busine ss would need to be registe red with the RBI as _____ ________ _____ ________ ______ 5. ______ _________ ____ _ is simi lar to factoring factoring which allows exporters to obtain cash cash by selli ng their thei r receivables from the forei gn countr country y at some discount discount 6. As per RBI regulati on P2P platform pl atform companies must have minimum mi nimum capital capital of ______ _________ _______ ____ 7. ______ _________ ____ _ are generall y group of indivi duals or an indivi dual itself itse lf who inve st their thei r own money and invest i nvest in the early (concept) Stages of the company and in re turn take a share in the company company 8. ______ _________ _____ __ is a lease under which which the l essee esse e sell s an an asset asset for cash to a prospective prospective leaser and then leases back back the same asset, making fixed periodic payments payments for its use 9. ______ ________ __ This type of l ease is used to acquire acquire the high l evel capital cost cost of assets and equipment’s funding in which entrepreneurs 10. 10. ______ _________ _____ __ is a type of crowd funding entrepre neurs presell presel l a product or service servi ce to launch a business busine ss concept concept without wi thout incurring debt or sacrifi sacrifi cing equi ty/shares. This kind of funding is used when the project project is a long gestation gestation period research research project
11. 11. ______ _________ _________ ______ generally gene rally refers to a method of funding a proje ct or venture through small amounts amounts of money raised from a large number of people, typi cally cally through a portal acting as an intermediary 12. 12. ______ _______in _in this type of crowdfundi crowdfunding ng the backer recei ves shares shares of a company, usually in its early stages, stages, in e xchange xchange for the money pledged
13. 13. While crowd crowd funding - equity, debt based and and fund basedbased- would fall under the purview purview of ______ _________ ___,, P2P l ending endi ng would fall within wi thin the domain domain of _____ _______ __ companiess often foll ow a ____ ______ ____ ____ ___ _ in which the le nders bid for a borrower’s 14. 14. P2P companie loan proposal and the borrower has the free dom to either eithe r accept accept or rej ect the offer off er
15. 15. P2P Platform Pl atform would woul d be registered regi stered as _______ ________ _ 16. 16. ______ _________ ________________ _____________ is the type of factoring factoring in i n which clie nt wil l carry carry the credit risk in i n respect respect of debt sold to f actor. actor... 17. 17. ______ _________ _____________is __________is the type of factoring factoring in whi ch the customer is intimated about the assignme nt of debt to a factor, al so directed to make payme nts to the factor i nstead of to the firm 18. 18. ______ _________ ______________ ___________ is the type of factoring factoring in which the supplie r/factor arrang arrangement ement i s not declared to the customer customer unless or until there is a breach breach of the agreement agreement on the part part of the clie nt, or ex ceptionally, ceptionally, where the factor factor considers considers himself to be at risk. 19. 19. ______ _________ _____________in __________in this type of factoring The The client cli ent creates a floating fl oating charge charge on the fac f actoring toring reserves in favour of banks and borrow against against these reserves 20. 20. A______ A_________ _____ __ is a franchisi franchising ng agreement where manufacturers manufacturers allow al low retailers to distribute distri bute products products and use names and trademarks 21. 21. A _____ ________ ______________is ___________is a franchising arrangement arrangement where the franchisor franchisor provides provide s the franchisee franchisee with an established busine ss, including name name and trademar trademark, k, for the franchisee franchisee to run independently 22. 22. ______ _________ ____It _It is type of franchise franchise in which The franchise franchisee e provide provide s the management expertise, format and/or procedure for conducting the business 23. 23. ______ _________ ________ _____ In this method of crowd crowd funding fu nding your contributi contributions ons simply simpl y go towards towards a charitable charitable cause cause you’d l ike to support with the only return being the positive vibes you get from doing a good deed. deed. 24. 24. ______ _________ _____ __In In this method of crowd crowd fundi ng inve stors are essenti e ssentiall ally y lending le nding money under the premise that that they will be recei ve a return return on thei r investment over a certain time interval and at a certain inte rest rate.
2. True/False 1. In P2P lending funds must move from from lender l ender to P2P platform (intermediary) and and then to the borrower 2. P2P platforms can’t can’t assure returns to lende l enders rs 3. Fund based Crowd Funding Funding is a raising of f unds for pooling pooling under an Alternative Investment Fund (AIF) through a crowd funding platform platform 4. ICICI Ventur Ve nture e Capital Capital is the first f irst Venture Venture Capital Capital Financing Financing in Indi a 5. Factoring Factoring is nothing but bil l discounting discounting or bill fi nance nance 6. Vaghul Committee Committee report on money market market reforms ref orms has confirmed the the need for factoring factoring services to be deve loped in India as as part of the money market market instr i nstruments uments
3. MCQs ‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐ refers financial investment investment in a highly risky and growth growth oriented orie nted 1. The term ‐‐‐ ‐‐‐‐‐‐‐‐‐ venture with the objective objective of earning a high rate rate of return. return.
a) b) c) d)
Venture Capital Capital Merchant Banking Leasing None of of these
2. ‐‐‐‐‐‐‐‐ product in the initial stages. ‐‐‐‐ ‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐ ‐‐ is needed for developing a product a) seed capital capital b) Start up Capital c) second round financing fi nancing d) none of these these 3. The fi rst nationalize nationalized d bank bank in India to start a VCF(Ve nture nture Capital Capital Funding) ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ a) b) c) d)
Canara Bank SBI Bank of India ICICI
4. Who is i s the the chairman of high powe red committe committee e constituted constituted by the R B I under factoring services
a) b) c) d)
UK Singh Pranab Mukharjee CS Kalyan Sundaram Sundaram None of of these
5. Which of the following foll owing is not a charac characteristic teristic feature of venture capital fi rm a) b) c) d)
Funding just one or small number number of firms Holding equity in the the fi rms that are funded Having Ha ving a long term term investment horizon providing providi ng advice and assistance assistance to the firms fi rms that are funded
6. Which of the followi ng is false a) Venture Capital Capital consists consists of high risk and high return return based financing b) Venture Capital Capital fi nancing nancing is equity and and quasi equity financing instruments c) Venture Capital Capital reduces reduces the financial financial burden burden of the business concer concern n at the initial i nitial stage. d) Venture Capital Capital is i s not suitable for risky risky oriented orie nted and and high technology technology based industry industry
Answers: 1. Fill in the blan bl anks ks 1) Operational Lease 2) Financial Financial lease le ase 3) Factoring For example, if you se ll a car to the customer customer then you generate an an invoice. The payment for that car might come after afte r 6 months (this type of payment payme nt which comes in future for already sold thing is calle calle d receivable receivables) s) but car car seller sell er can can use the invoice to take the money upfront from the party party who is l ending the money. money. The The l ender will make sure than when the invoice amount amount comes comes the due amount amount is given to the lender 4) NBFCs 5) Forfeiting For example if exporter of cycles cycles would get Rs 2 lakh after 6 months months from a firm in Germany then the exporter e xporter can can get ge t some money right now at some discount from a lender in India. The l ender in this this case case may give money after applying applying 10% 10% discount discount i.e. i.e . Rs 1, 60,00 60,000. 0. Lender in India wil l get all amount of 2 lakh after afte r 6 months from the fi rm in Germany. The Indian company company lending money in this e xample would be called called forfei te r. Norma Normally lly it’s a special ized ize d firm or a bank who acts as a forfe iter. ite r. Forfeiters only work wi th exporters unlike unlike in factoring factoring where transac transaction tion can take place with any any entity
6) 2 Crore 7) Angel Investor 8) Sale and lease back It is i s a lease l ease under which the leasee sel ls an asset for cash cash to a prospective prospective leaser and then le ases back back the same asset, making making fi xed periodic payments payments for its use. use. It may be i n the firm f irm of operating leasing or financial leasing. It is one of the convenient methods of leasing which facili facili tates the fi nancial nancial li quidity of the company. company. 9) Leveraged Leveraged Lease This type of l ease is used to acquire acquire the high l evel capital cost cost of assets and equipments. Under Under this lease, there are three parties parties involve d; the the leaser, the l ender and and the le ssee. Under Under the leverage lev erage lease, the leaser acts acts as equity participant participant supplyi supplying ng a fraction fraction of the total total cost of the assets while the l ender supplies the major major part. 10) 10) Rewards crowdfunding Usually, the prototype is launched and peopl e are asked to contribute towards deve lopment lopme nt of the product product to prebook prebo ok the product product at a l ower price. price. It I t is a risky proposition propositi on as as many a times, time s, these prototypes are never neve r converted into a real product and the entire money put by the custom customer er goes into waste. This method is also used for production of movi es, art and and other high risk ris k products 11) 11) Crowdfunding There are nume rous forms of crowd funding: fundi ng: some are are charitable charitable donations that provide intangible benef its but no financial financial returns; others, such as equity crowd funding would fall within the domain domain of financial markets markets 12) 12) Equity crowdfunding This kind ki nd of fundi ng occurs occurs when an entrepreneur entre preneur tries to crowdfund crowdfund money from his friends and family. It may extend further to general audience audience as we ll through crowdfunding platform which takes a commission commi ssion on the fu nd raised. 13) 13) SEBI; RBI 14) 14) reverse auction auction model 15) 15) NBFC it is proposed proposed to bring the P2P lending platforms platforms under the purview of Reserve Bank’s Bank’s regulation by defi ning P2P P2P platforms platforms as NBFCs NBFCs under section 45I(f)(ii 45I(f)(ii i) of the RBI Act by issuing a notifi cation cation in consultation consultation with the the Government Government of Indi a. Once notifi ed as NBFCs, RBI can i ssue regulations under sections 45JA 45JA and 45L 45L 16) 16) With recourse Under recourse arrangements, arrangements, the clie nt wil l carry carry the credit risk in respect of debts de bts sold to the factor. In I n without recourse factoring, the bad debts are are borne by the factor. 17) 17) Notified Notifie d factoring factoring Here, the customer is inti mated about the assignment of debt to a factor, also di rected to make payments to the factor f actor instead inste ad of to to the firm. This is i s invariably invariabl y done by a legend and the i nvoice has has been bee n assigned assigned to or sol d to the factor. factor. 18) 18) Non-notified or confidential confidential factoring factoring 19) 19) Bank Participation Factoring 20) 20) Product Franchise Franchise A product product distribution franchise franchise model is very much much l ike a supplier -dealer relationship. relationship. Typically, Typically, the franchisee franchisee merely sel ls the fran f ranchisor chisor’s ’s products. products. However, this type of franchise franchise will wil l also include some form of integration integration of the business activiti activities es . 21) 21) Business format franchise The franchisee not only onl y distributes the franchisor’s products products and services servi ces under the
franchisor’s trade mark, but also imple i mplements ments the franchisor’s format format and procedure of conduct conducting ing the business Example Example - KFC, Dominos 22) 22) Ma Management nagement Franchise It i s a form of service agreement agreement whereby the franchisee franchisee provides the management management expertise ex pertise , format format and/or procedure procedure for f or conducting conducting the busi ness. Some examples of Management Ma nagement Franchise are Hil ton,Hyatt 23) 23) Donation-Based Crowdfunding 24) 24) Debt-Based Crowdfunding
2. True/False directl y from the lender’s account account to the borrower’s account account 1) False – Funds must move directly to prevent risk of money laundering 2) True 3) True 4) True - It was started in 198 1988 8 by the joint jo int venture of ICICI and UTI. UTI. 5) False - Factoring and bill bi ll discounting are two different diff erent products products tailored tailore d for two diffe dif ferent rent markets. markets. Factoring Factoring is meant for f or “Open account account sales” sale s” and caters caters largely largel y to to a buyer’s market. market. Bill Bil l discou di scounting nting is normally normally prevalent i n a sell er’s market. market. Factoring Factoring unlike bi ll discou di scounting nting offers a continuous continuous relationship relationship 6) True
3. MCQ 1) Venture Capital 2) Seed capital capital This i s typically typically the very first investment of money used to for market research research and deve loping lopi ng product. product. It can can come from the founder’s founde r’s personal savings savings (e.g. (e .g. from a seve rance rance package package from the founder’s founde r’s prior job) or from acquaintances (aka a “Friends & Family” or “F&F” Round). Seed capital can can be received recei ved as a loan on in e xchange for common stock. Note: Credit cards/Ameri cards/American can Express are are also al so used as as a start-up start- up fund option around around this time 3) Canara Bank 4) The Kalyanasundaram K alyanasundaram Study Group Group set up by the Reserve Bank of India Indi a in January January 1988 1988 to examine e xamine the fe asibility asibi lity and mechanics of starting starting factoring factoring organizations in the country paved the way for provisi on of domestic domesti c factoring services servi ces in India. The The Banking Regulation Regul ation Act, 1949 1949 was amended amende d to include factoring as as a form of busine ss in which the banks banks might engage 5) A i s false false 6) D i s false - Venture Capital Capital is i s suitable for risky oriented and high technology based based industry
4. Follow up - MCQs Click the next button on the bottom of your screen to attempt the Test containing Basic MCQ’s + Exam Type MCQ’s on this topic. MCQs wil l just be a warm up for you bef ore you attempt attempt exam leve l MCQ’s MCQ’s 1. Basic MCQs
2. Exam Type MCQs MCQs will wi ll consist of conceptual conceptual and case study based questions questi ons 3. The Pattern of the test is based on the Real Examinat Examination ion Pattern Pattern 4. While the basic ones will help he lp you in retention, the Exam Exam Type MCQs MCQs will help he lp you gauge gauge how much concepts you have grasped 5. You will also get to know the correct answers and related explanation at the end of the test.
So do not forget to attempt these MCQ’s. Happy Learning!!!
