Class 12 Banking Chapter 4 Non Bank Financial Institutions

By Dev Kirtonia / Class 12 Banking

Class 12 Banking Chapter 4 Non Bank Financial Institutions Question answer to each chapter is provided in the list so that you can easily browse through different chapters HS 2nd Year Banking Chapter 4 Non Bank Financial Institutions Notes and select needs one.

SCERT Class 12 Banking Chapter 4 Non Bank Financial InstitutionsFinancial Markets

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Table of Contents

Also, you can read the SCERT book online in these sections Solutions by Expert Teachers as per SCERT (CBSE) Book guidelines. These solutions are part of SCERT All Subject Solutions. Here we have given Class 12 Banking Chapter 4 Non Bank Financial Institutions Solutions for All Subjects, You can practice these here.

Non Bank Financial Institutions

Chapter: 4

Answer Questions

Q.1. Expand the following :

IFCI, IDBI, SFCs, NABARD, SIDCs, UTI, LICI, GICI, MMMFs, IBRD, IMF, IDA, IFC, ADB

Ans :- The expandation of the following they are :

IFCI :- Industrial Finance Corporation of India.

IDBI :- Industrial Development Bank of India.

SFCs :- State Financial Corporations.

NABARD :- National Bank for Agriculture and Rural Development.

SIDCs :- State Industrial Development Corporations.

UTI :- Unit Trust of India.

LICI :- Life Insurance Corporation of India.

GICI :- General Insurance Corporation of India.

MMMs :- Money Market Mutual Funds.

IBRD :- International Bank for Reconstruction and Development.

IMF :- International Monetary Fund.

IDA :- International Development Association.

IFC :- International Finance Corporation.

ADB :- Asian Development Bank.

Q.2. In which year following institutions are established ?

IFCI, IDBI, SFCs, NABARD, First SIDC, UTI, LICI, GICI, MMMF scheme, IBRD, IMF, IDA, IFC, ADB.

Ans :- IFCI :- July 1948.

IDBI :- 1st July 1964.

SFCs :- August 1952.

NABARD :- 12 July 1982.

First SIDC :- 1960.

UTI :- 1st February 1964.

LICI :- January 1956.

GICI :- November 1972.

MMMF Scheme :- April 1992.

IBRD :- December 1945.

IMF :- December 1945.

IDA :- November 1960.

IFC :- July 1956.

ADB :- December 1966.

Q.3. Which is the first Development Bank established in India ?

Ans :- In India, the first Development Bank was the Industrial Finance Corporation of India (IFCI), which was established in 1948.

Q.4. In which year the IMF came into existence ?

Ans :- The IMF came into existence in December 1945 and stared functioning in March 1947.

B. Short answer questions : Type-I

Q.5. What do you mean by Development Banks ?

Ans :- The meaning of Development Bank are : Development Bank means such financial institutions, which provide finance to Industrial and financial institutions. They meet all financial requirements and provide technical and practical advice and consultation to these institutions.

Thus, Development Banks Comprise all such institutions, which provide finance, for industrial development on large and medium scale along with other industrial services.

Q.6. Define Development Banks.

Ans :- Developments Banks are those Financial Institutions, which provide term finance, promote entrepreneurship, enhance, organisational effectiveness and upgrade knowledge and know how.

The following are some of the definitions given by different experts.

1. According to K.V. Pravakar :- “A Development Bank is a Multipurpose institution which shares entrepreneurial risk, charges is approach in tune with the industrial climate and encourages new industrial Projects to bring about speedier economic growth”.

2. According to Boskey :- “A Development Bank is a financial intermediary supplying medium and long-term funds to bankable economic development projects and providing related services.”

Q.7. What is Money Market ?

Ans :- The term of Money Market is, Money Market is a market for dealing with financial assets and securities which have a maturity period of up to one year. In other words, it is a market for purely short term funds.

According to the Reserve Bank of India, the Money Market is the centre of dealing in monetary assets of a short term character. In the Money Market, borrowers bid the short-term surplus investible funds, which are at the disposal of financial and other institutions and individuals. Thus, money market meets short-term requirements of borrowers and provides liquidity to lenders.

Q.8. What is Capital Market ?

Ans :- Capital Market :- Capital Market is the market for financial assets, which have a long or indefinite maturity. Generally, it deals with long-term securities, which have a maturity of above one year. According to Herbert E. Dougall, Capital Market are complex of institutions and mechanisms whereby intermediate term funds (loans up to 10 years maturity) and long-term funds (longer maturity loans) are pooled and made available to business, government and individuals and where instruments that are already outstanding are transferred.

Q.9. What is mutual fund ?

Ans :- Meaning of Mutual fund :- A mutual fund is an investment vehicle for investors who pool their funds for investing in diversified portfolio of securities. These savings are managed in such a way that risk is minimised and a steady return is ensured.

Thus, a mutual fund is an investment company which channelises savings of a large number of people to corporate securities in such a way that investors get steady return, Capital appreciation and low risk.

Q.10. Which was the first Development bank and when was it established ?

Ans :- Industrial Development Bank of Japan was the first development bank and it was established in 1902.

Q.11. State any two differences between Commercial Bank and Development Bank.

Ans :- The difference between development bank and commercial bank are :

SI. No. (i)

Basis of difference :- Function

Development Bank :- They provide medium and long-term finance to private entrepreneurs.

Commercial Bank :- Commercial banks are mobilise the savings of people.

SI No. (ii)

Basis of difference :- Development

Development Bank :- They perform Various promotional roles conducive to economic development.

Commercial Bank :- They lead to balanced regional development by mobilising funds from surplus areas to deficit areas, thus economic development.

C. Short answer questions Type-II

Q.12. What are the basic features of development banks ?

Ans :- Following are the main characteristic features of a Development Bank :

1. It is a specialised financial institutions.

2. It provides medium and long-term finance to business units.

3. Unlike commercial banks, it does not accept deposits from the public.

4. It is not just a term-lending institution. It is a multipurpose financial institution.

5. It aims at promoting the saving and investment habit in the community.

6. It creates productive assets for more Production of goods and services.

Q.13. Mention any three objectives of development banks.

Ans :- (i) To serve as an agent of development in various sectors; industry, agriculture and international trade.

(ii) To acclemle the growth of the economy.

(iii) To foster rapid industrialisation particularly in the private sector, to provide imployment opportunities as well as higher production.

Q.14. State three objectives of International Development Association.

Ans :- The main objectives of the International Development Association are as follows :

1. To provide development finance to the less developed countries on easy and flexible terms.

2. To promote economic development, increase productivity, and thus, raise the standard of living in the less developed countries.

3. To supplement the objectives and activities of the World Bank.

Q.15. What are the objectives of World Bank ?

Ans :- The International Bank for reconstruction and Development (IBRD), generally known as the world bank.

It was create with the following objectives :

1. To facilitate international investment of Capital for productive purpose in under developed countries and elsewhere.

2. To help reconstruction work in countries damaged by war. The money required for the purpose is too large for the countries concerned and therefore international assistance is necessary.

3. To develop the resources and the productive capacity of backward or under developed regions.

4. To promote balanced growth of international trade so that in the long run no country suffers from disequilibrium in the balance of payments.

Q.16. What are the main objectives of the International Monetary Fund ?

Ans :- The Major objectives of the International Monetary Fund are as follows :

a. To promote international monetary cooperation through a permanent institution.

b. To facilitate the expansion and balanced growth of international trade and to contribute there by to the promotion and maintenance of high levels of employment and real income.

c. To promote exchange stability and to maintain orderly exchange arrangements among members.

D. Long answer questions : Type-I

Q.17. Discuss the main features of Indian Money Market.

Ans :- The money market is the collective name given to the various firms and institutions that deals in various grades of near money.

The following five are the general features of money market :

(i) Market for short-term funds or financial assets :- It is a market purely for short-term funds or financial assets called near money. It deals with financial assets having a maturity period up to one year only.

(ii) Absence of Formal place :- Generally transactions are take place through phone i.e., oral communication. Relevant documents and written communications can be exchanged subsequently.

(iii) Heterogeneous Market :- It is not a single homogeneous market. It comprise of several sub market each specialising in a particular type of financing e.g., call money market. Acceptance market and so on.

(iv) Components of the Market :- The components of the money market are the Central Bank, Commercial Banks, Non-banking Financial Companies, Discount Houses and Acceptance Houses. Commercial Banks generally play a dominant role in this Market.

(v) Absence of Brokers :- Non-existent of brokers is another feature of money market. Transactions have to be conducted without the help of brokers under this market.

Q.18. What are the differences between Money Market and Capital Market ?

Ans : The differences between Money Market and Capital Market are as follows :

Money Market :

1. It is a market for short-term loanable funds for a period of not exceeding one year.

2. This market supplies funds for financing current business operation, working capital requirement of industries and short period requirements of the Government.

3. The instrument that are dealt in a market are bill of exchange, treasury bill, commercial papers, certificate of deposit etc.

4. The central bank and commercial banks are the major institution in the money market.

5. Transactions have to be conducted without the help of brokers.

Capital Market :

1. It is a market for long-term loanable funds exceedings a period of one year.

2. This market supplies funds for financing the fixed capital requirement of trade and commerce as well as the long term requirement of the Government.

3. This market deals in instrument like shares, debentures, government bonds etc.

4. Development banks and Insurance companies play a dominant role in the capital market.

5. Transactions have to be conducted only through authorised dealers.

Q.19. Discuss about the institutions participating in the Indian Money Market.

Ans :- The money market is the collective name given to the various firms and institutions that deals in various grades of near money. The institutions which participating in the Money Market they are :

(a) Market for short-term funds or financial assets :- It is a market purely for short-terms funds or financial assets called near money. It deals with financial assets having a maturity period upto one year only.

(b) Absence of Formal place :- Generally transaction are take place through phone i.e. oral communication. Relevant documents and written communications can be exchanged subsequently.

(c) Heterogeneous Market :- It is not a single homogeneous market. It comprises of several sub markets each specialising in a particular type of financing e.g., call money market, Acceptance market.

(d) Components of the Market :- The components of the money market are the Central Bank, Commercial Bank, Non-banking financial Companies, Discount Houses and Acceptance Houses. Commercial Banks generally play a dominant role in this market.

(e) Absence of brokers :- Non-existent of brokers is another feature of money market. Transactions have to be conducted without the help of brokers under this market.

Q.20. Discuss the features of Non-Bank Financial Institutions of India.

Ans :- The following are the main features of Non-Bank Financial Institutions :

(i) Financial position of NBFIs :- They are provided a wide range of financial services such as leasing and merchant banking. Financial services sector is terming with over 40,000 NBFCs and their number continues to grow by about 4000 per year. During 1994-95, aggregate deposits of NBFCs totalled upto Rs. 2,23,390 crores. Large financial companies, around 2,150 accounted for 66% of deposits and smaller companies accounted for the balance.

(ii) Provide Liquidity :- NBFIs provide liquidity when they convert an assets into cash easily and quickly without loss of value in terms of money. When NBFIs issue claims against themselves and supply funds they, especially banks, always try to maintain their liquidity. This they do by following two rules; first they make short-term loans and finance them by issuing claims against themselves for longer periods; and second, they diversify loans among different types of borrowers.

(iii) It provides helps in the business Sector :- NBFIs also help the non-financial business sector by financing it through loans, mortgages, purchase of bonds, share etc. Thus they facilitate investment in plant equipment and inventories.

(iv) Low Interest Rates benefit both Savers and Investors :- When interest rates decline, both savers and investors benefit. First the real costs of lending to borrowers are reduced. These, in turn, tend to reduce costs and prices of goods and services. With reduction in interest rates, the return on time deposits is also reduced which induces savers to deposits their funds with NBFIs even though the latter pay lower interest rates. Still the savers benefit because NBFIs provide greater safely, convenience and other related services to them thereby increasing the savers, real return and income.

(v) It reduces the risks :- When the non-bank financial institution convert debt into credit, they reduce the risk to the ultimate lender. First, they create liabilities on themselves by selling indirect securities to the lenders. Then they buy primary securities from borrowers of funds. So by acting as intermediaries between the lenders and borrowers of funds, NBFIs take the risk on themselves and reduce it on the ultimate lenders. Moreover, by holding varied types of financial assets they decrease their own risks. Low returns on same assets can be offset by high returns on others.

(vi) Help to the Central Government :- Non-Bank Financial Institutions buy and sell Central government securities and thus they help the central government.

Q.21. Write a note on IFCI.

Ans :- Industrial Finance Corporation of India (IFCI) :

Establishment :- The question of establishing a development bank received the attention of our Government immediately after liberation of the country. Accordingly, Industrial Finance Corporation of India (IFCI) came into existence in 1948. The corporation commenced its operations from 1st July , 1948. Later on in 1993 it has been converted into a public limited company.

Objectives :- The principal objective of IFCI is to make medium and long term funds more readily available to industrial concern.

The following are the objectives :

(a) To provide medium term and long term financial assistance for industrial development.

(b) To promote small and medium scale industrial units providing financial assistance and guidance etc.

(d) To supplement commercial banks and private financial institutions.

(e) To perform all the functions directed over the government of India.

Q.22. State five functions of IFCI.

Ans :- The Industrial Finance Corporation of India (IFCI) performs the following functions :

1. Granting loans and advances both in Rupees and foreign currencies repayable within 25 years.

2. Guaranteeing :

(a) Rupee loans raised from scheduled banks by industrial concerns ;

(b) Foreign currency loans raised from foreign institutions ;

3. Under writing and direct subscription to the share and debentures of Public Limited Companies.

4. Working as an agent of Central Government and R.B.I.

5. Guiding and helping new and small entrepreneurs in project identification, implementation etc.

Q.23. State the objectives of IFCI.

Ans :- Objectives :- The principal objective of IFCI is to make medium and long term funds more readily available to industrial concern.

The following are the objectives :

a. To provide medium term and long term financial assistance for industrial development.

b. To promote small and medium scale industrial units providing financial assistance and guidance etc.

c. To supplement commercial banks and private financial institutions.

d. To perform all the functions directed over by the Government of India.

e. IFCI working as an agent of central Government and R.B.I.

Q.24. Write a detailed note on IDBI.

Ans :- Industrial Development Bank of India (IDBI) :

Establishment :- Industrial Development Bank of India (IDBI) was established by an Act of Parliament (IDBI Act, 1964) on July, 1964 as a wholly owned subsidiary of the Reserve Bank of India. Its ownership was transferred to the Government of India on February 16, 1976 and it was made the principal financial institution for industry. In October 1994, IDBI Act was amended to impart it greater operational flexibility and allowed it to access capital market through public issue of equity shares. In July 1995, IDBI made the first public issue of equity share which was the largest issue on the Indian Capital Market. IDBI has played a pioneering role in fulfilling its mission of promoting industrial growth in line with national plans and priorities.

The IDBI has been established, interalia, with the following objectives :

(i) The main objective of IDBI is to provide term finance and financial services for establishment of new projects as well as for expansion, diversification, modernisation and technological upgradation of existing industrial enterprises.

(ii) IDBI also under takes/supports wide ranging promotional activities to spur entrepreneurship and industrial development in the country.

(iii) IDBI also offers merchant banking, debenture trusteeship and forex services to the corporates.

(iv) Being the principal financial institution, IDBI has also been vested with the responsibility or Co-ordinating the working of the institutions engaged in financing promoting and developing industries.

Q.25. State the objectives of IDBI.

Ans :- The IDBI has the following objectives :

(i) IDBI refinances term loans given by state-level institutions or banks to medium scale units, rediscount bills of exchange and promissory notes arising out of sale or purchase of Machinery and equipment and also extends resources support to financial intermediaries.

(ii) IDBI provides assistance to industry in the form of term loans both in rupees and foreign currencies underwriting or direct subscriptions to debt instrument or equity and also offers guarantees in respect of the term obligations of industrial concerns.

(iii) IDBI provides several diversified financial products of non-project nature such as equipment finance, assets credit and equipment leasing to meet the specific needs of existing enterprises having good track record and sound financial position.

(iv) IDBI also offers merchant banking, debenture trusteeship and forex services to the corporates.

(v) IDBI also undertakes/supports wide ranging promotional activities to spur entrepreneurship and industrial development in the country.

(vi) Being the principal financial institution, IDBI has also been vested with the responsibility or coordinating the working of the institutions engaged in financing promoting and developing industries.

(vii) The main objective of IDBI is to provide term finance and financial services for establishment of new projects as well as for expansion, diversification, modernisation and technological upgradation of existing industrial enterprises.

Q.26. State the functions of IDBI.

Ans :- The main functions of the IDBI is to finance industrial enterprises such as manufacturing, mining, processing, shipping and other transport industries and hotel industry. If offers a wide range of financial products. It constantly making effort to respond to the financial needs of industry by expanding the scope of its existing products and services and introducing new innovative products.

Following are the financial functions of IDBI :

(i) Non-project of finance :- IDBI also offers several diversified financial products of non-project nature to meet the specific needs of existing enterprises having good performance record and sound financial position.

(ii) Equipment Finance :- IDBI provides rupee and foreign currency loans for acquisition of Machinery or equipment. It also provides credit to industrial units for financing their normal Capital expenditure over a specified period.

(iii) Equipment Leasing :- IDBI offers both indigenous and imported machinery and equipment in the form of full payout financial lease.

(iv) Project Finance :- Project finance is provided for setting up of a new project as well as for expansion, diversification, modernisation and technological upgradation of existing enterprises. Funds are made available in from of term loans, both rupee and foreign currency, and underwriting or direct subscription to debt instruments or equity.

(v) Bills Rediscounting :- IDBI rediscounting bills or promissory notes arising out of sales of indigenous machinery on deferred payment basis bills or promissory notes drawn in favour of or by the machinery manufactures, are discounted by them with their bankers who, in turn, rediscount the same with IDBI. The scheme enables on industrial concerns to buy machinery on deferred payment basis.

(iv) Direct assistance :- IDBI provides direct financial assistance to industrial concerns in the form of loans, underwriting and direct subscription to shares and debentures and guarantees.

Q.27. Write a brief note on SFCs.

Ans :- State Finance Corporations (SFCs) :

State Financial corporations (SFCs) are the state level development banks established for the development of small and medium scale industries. At present there are 18 SFCs. Seventeen of them have been set up under the State Financial Corporations Act 1951 by the respective state government as regional institutions.The resources of SFCs come from

(a) Share Capital, reserves, bond issues, loans from the RBI, IDBI and state government.

(b) refinance from the RBI and IDBI.

(d) assistance from the IDA and foreign currency line of credit from the IDBI.

SFCs Performs the following functions :

(i) They provide financial assistance to industries by way of term loans, direct subscription to equity/debentures.

(ii) They meet the term loan requirements of small and medium scale industries for acquisition of fixed assets like land, building, machinery and equipment.

(iii) They provide loans for setting up new industrial units as well as for expansion and modernization of the existing units.

(iv) They also promote the development of medium and small scale industries in backward areas of the country.

(v) SFCS provide equity types support of up to Rs. 4 lacks on short terms to entrepreneurs under the special capital scheme.

Q.28. Write a brief function of SFCs.

Ans :- The functions which performed by the State Finance Corporations are as follows :

(i) The Provide financial assistance to industries by way of term loans, direct subscription to equity/debentures.

(ii) They meet the term loan requirements of small and medium scale industries for acquisition of fixed assets like land, building, machinery and equipment.

(iii) They provide loans for setting up new industrial units as well as for expansion and modernization of the existing units.

(iv) They also promote the development of medium and small scale industries in backward areas of the country.

(v) SFCs provide equity types support of up to Rs. 4 lakhs on short terms to entrepreneurs under the special capital scheme.

Q.29. Write a detailed note on NABARD.

Ans :- The National Bank for Agriculture and Rural Development (NABARD) :

The National Bank for Agriculture and Rural Development (NABARD) was established on 21 July 1982 by the Government of India by merging the agricultural credit Department of the R.B.I, the Agricultural Refinance and development corporation.

Its resources comprise of

(a) Credit from the RBI.

(b) loans from Central Government World Bank. IDA and other multilateral and bilateral agencies.

(e) direct borrowings, deposits, gifts, grants and so on.

The following are the main objectives of NABARD :

1. To act as an apex institution for the entire rural credit system at national level.

2. To provide investment credit to small industries, village and cottage industries, handicrafts and other rural crafts, artisans and farmers.

3. To improve the credit distribution system by institution building, rehabilitation of credit institutions and training of bank personnel.

4. To provide refinance facilities of SLDBs, SCBs, RRBs and Commercial banks for development purposes in rural areas.

5. To coordinate the working of different agencies engaged in development work in rural areas at the regional level.

Q.30. Write brief functions of NABARD.

Ans :- The following are the five main objectives of NABARD :

(a) To act as an apex institution for the entire rural credit system at national level.

(b) To provide investment credit to small industries, village and cottage industries, handicrafts and other rural crafts, artisans, and farmers.

(c) To improve the credit distribution system by institution building, rehabilitation of credit institutions and training of bank personnel.

(d) To provide refinance facilities of SLABs, SCBs, RRBs and Commercial banks for development purposes in rural areas.

(e) To Coordinate the working of different agencies engaged in development work in rural areas at the regional level.

Q.31. Write a note on SIDCs.

Ans :- State Industrial Development Corporations (SIDCs) :

The beginning for setting them up was made in 1960 when the first State Industrial Development Corporations (SIDC) was established in Bihar. Most of SIDCs have been set up during the 1960s and early 1970s. They are wholly owned by respective governments. Some of them are set up under State Acts as statutory Autonomous Corporations (viz, Maharashtra and Grujrat), while others are either public or private limited companies under the companies act, 1956.

The main functions of SIDCs are :

1. To provide financial assistance to industrial units by way of term loans, underwriting and direct subscriptions to shares debentures and guarantees ;

2. To conduct surveys on industrial potential to identify project ideas, prepare feasibility reports and select and train entrepreneurs;

3. To administer the incentive schemes of Central and State governments;

4. To develop industrial areas, plots, sheds, and estates;

5. To set up industrial projects in the joint sector, i.e. in partnership with private entrepreneurs or as wholly-owned subsidiaries.

Q.32. Write a brief function of SIDCs.

Ans :- The main functions of State Industrial Development Corporations (SIDC) are as follows :

(A) To provide financial assistance to industrial units by way of term loans, underwriting and direct subscriptions to shares, debentures and guarantees.

(B) To conduct surveys on industrial potential to identify project ideas, prepare feasibility reports and select and train entrepreneurs.

(D) To develop industrial areas, plots, sheds and estates.

(E) To set up industrial project in the joint sector, i.e., in partnership with private entrepreneurs or as wholly owned subsidiaries.

Q.33. Write a note on LICI.

Ans :- Life Insurance Corporation of India : With a view of channelise the savings of large number of people, Government of India nationalised over 245 companies in the field and set up Life Insurance Corporation of India (LICI) in 1956. An act known as Life Insurance Corporation Act of 1956 was passed for the purpose.

LIC was established with an initial capital of Rs. 5 crore. The premium received from the policy holders are the principal source of funds of LIC. Besides LIC receives interest, dividends, repayments and redemption, which add up to its investible resources.

The LICI has the following objectives :

1. To provide life insurance protection to people at reasonable cost by spreading life insurance cover.

2. To mobilise savings of the people through insurance linked savings schemes.

3. To invest funds so mobilised keeping in view the interest of the policy holders and nation as a whole.

4. To conduct the business efficiently and economically taking into consideration that money belongs to policy holder.

5. To act as trustees of policy holders money and to protect the individual and collective interest of policy holder.

Q.34. Write a brief objective of LIC.

Ans :- Following are the main objectives of LIC :

(A) To provide life insurance protection to people at reasonable cost by spreading life insurance cover.

(B) To Mobilise Savings of the people through insurance linked saving schemes.

(D) To conduct the business efficiently and economically taking into consideration that money belongs to the policy holder.

(E) To act as trustees of policy holders money and to protect the individual and collective interest of policy holders.

Q.35. Write a brief note on GICI.

Ans :- General Insurance Corporation of India (GICI) : The General Insurance Industry in India has Nationalised and a Government Company known as General Insurance Corporation (GIC) of India was formed in November 1972. With effect from January 1, 1973, the erstwhile 107 Indian and foreign companies which were operating in the country prior to the nationalisation, were regrouped into four subsidiaries of GIC, namely

(a) National Insurance Company Limited.

(b) New India Insurance Company Limited.

(d) United India Insurance Company Limited.

The important features of GICI are as follows :

(i) The Capital of GICI is subscribed by the Government of India.

(ii) The Capital of four associate Companies is subscribed by GIC.

(iii) All these are public Sector Companies and Registered Under Company Act.

(iv) They are required by law to invest at least 35% of their fresh accruals of investible funds in Government and other approved securities.

(v) It also participates in the underwriting of new issues and giving term loans to industry.

Q.36. Write a note on UTI.

Ans :- Unit Trust of India UTI :

The Unit Trust of India (UTI) was established in 1964 as a public sector investment institution by the Government of India under Unit Trust of India Act, 1963. The trust is Managed by a Board of trustees consisting of Chairman and nine other trustees.

UTI has set up a number of associate Companies. The Companies and organisations in the UTI group are :

(a) UTI Investment Advisory services (1988)

(b) UTI Institute of Capital Markets (1989)

(d) UTI Securities Exchange Limited (1994)

(e) UTI Bank Limited (1994)

(f) UTI (International) Limited.

UTI has been set up for the following objectives :

(i) To stimulate and pool the savings of the middle and low income groups.

(ii) To enable unit holders to share the benefits and prosperity of the rapidly growing industrialization in the country.

(iii) To sell units among as many investors as possible.

(iv) To invest the money raised from the sale of units and its own capital in corporate and industrial securities.

(v) To pay dividend to the unit holders.

Q.37. Write a brief note on MMMF.

Ans :- Money Market Mutual Funds (MMMFs) :- A Money Market Mutual Funds (MMMFs) is a special genre mutual fund which invests in short-term money market instruments like Governments Securities, Commercial paper, Certificate of Deposit, Call Money etc and passes on the benefit of higher yield on these instruments to the share holders consisting Mainly of individuals and other small investors.

The main features of MMMFs are :- (i) MMMFs can be set up by Scheduled Commercial banks and public financial institutions or through their existing mutual funds/subsidiaries engaged in funds Management.

(ii) MMMFs can be set up either as Money Market Deposit Accounts (MMDAs) or MMMFs.

(iii) MMMFs would be free determine the minimum size of investment by a single investor.

(iv) The shares/units issued by MMMFs would be subject to stamp duty.

(v) The setting up of MMMF would require the prior authorization of the R.B.I.

Q.38. Write a note on IMF.

Ans : International Monetary Fund (IMF) :- International Monetary Fund (IMF) is an international monetary institution established by 44 countries as per the decision taken in the conference held at Bretton Woods after the World War II in 1945. The fund came into operation in March 1947.

According to the second Amendment of the article of Agreement of the International Monetary Fund, which become effective from April 1, 1978, the main objectives of the fund are :

(a) To promote international Monetary Cooperation through a permanent institution.

(b) To facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of light levels of employment and real income.

(d) To assist in the establishment of multilateral system of payments in respect of current transactions between members.

(e) To give confidence to members by making the general resources of the fund temporarily available to them under adequate safeguards.

Q.39. State five functions of IMF.

Ans :- The following are the five major functions performed by IMF :

1. It functions as short-term credit institutions.

2. It provides machinery for the orderly adjustments of exchange rates.

3. It is a reservoir of the currencies of all the member countries from which a borrower nation can borrow the currency of other nations.

4. It is a sort of lending institutions in foreign exchange. However, it grants loans for financing current transactions only and not capital transactions.

5. It also provides machinery for international consultations.

Q.40. State five objectives of IMF.

Ans :- The five Major Objectives of International Monetary Fund (IMF) are as follows :

(i) To promote international monetary Cooperation through a permanent institution.

(ii) To facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income.

(iii) To promote exchange stability and to Maintain orderly exchange arrangements among members.

(iv) To assist in the establishment of multilateral System of payments in respect of current transaction between members.

(v) To give confidence to members by making the general resources of the fund temporarily available to them under adequate safeguards.

Q.41. Write a note on IBRD.

Ans :- International Bank for Reconstruction and Development (IBRD) :

International Bank for Reconstruction and Development (IBRD) is also known as World Bank. The establishment of IBRD was agreed upon by the representatives of 44 countries at the UN Monetary and Financial conference at Bretton Woods in July 1944. If was established in December 1945. It came into operations in June 1946.

According to the clause I of the agreement made at the time of establishment of the bank, it was assigned the following objectives.

1. To provide long-run Capital to member Countries for economic reconstruction and development.

2. To induce long-run capital investment for assuring Balance of payment (BOP) equilibrium and balanced growth of international trade.

3. To promote capital investment in member countries by providing guarantee on private loans or capital investment.

4. To provide guarantee for loans granted to small and large units and other projects of members countries.

5. To ensure implementation of development projects. So as to bring about a smooth transference from war time to peace economy.

Q.42. Write a brief function of IBRD.

Ans :- Following are functions performed by the IBRD :

(i) It grants loans for long and medium terms. Loans may be divided into two ways.

(a) Reconstruction Loans. and

(b) Development Loans.

(ii) The bank gives loans to government and also to private borrowers.

(iii) The Bank gives technical advice to the borrowers and for this purpose appoints experts.

(iv) The bank promotes foreign investments by guaranteeing loans made by other organisations.

(vi) The bank also can buy and sell securities issued or guaranteed by it. But it must obtain the approval of the member countries.

Q.43. Write a brief objective of IBRD.

Ans :- According to the clause I of the agreement made at the time of establishment of the bank, it was assigned the following objectives :

(a) To provide long-run capital to member countries for economic reconstruction and development.

(b) To provide long-run capital investment for assuring Balance of payment (BOP) equilibrium and balanced growth of international trade.

(d) To provide guarantee for loans granted to small and large units and other projects of members countries.

(e) To ensure implementation of development projects so as to bring about a smooth transference from wartime to peace economy.

Q.44. Write a brief note on IFC.

Ans :- International finance Corporation (IFC) :- The International Finance Corporation is the private Sector arm of the World Bank family which was established in July 1956. It is the Major Multilateral agency promoting productive Private investment in developing countries.

The following are the some of the functions performed by the IFC :

(A) It assists provide enterprise in developing countries by direct investment both in the from of loans and equity participation.

(B) If assist private enterprise in developing countries by securing foreign and local capital.

(D) Provides specialised resources for studying problems and needs of the financial markets of developing countries through its capital Market Development.

(E) It also renders help to small-scale industries in the form of advice for the preparation of project reports and technical assistance.

Q.45. Write a brief function of IFC.

Ans :- The major function of IFC are as follows :

(i) It assists private enterprise in developing countries by direct investment both in the form of loans and equity participation.

(ii) It assists private enterprise in developing countries by securing foreign and local capital.

(iii) It assists private enterprise in developing Countries by providing technical assistance.

(iv) If provides specialised resources for studying the problems and needs of the financial markets of developing countries through its Capital Market Department.

(v) It also renders help to small-scale industries in the form of advice for the preparation of project reports and technical assistance.

Q.46. Write a short note on International Development Association.

Ans :- International Development Association (IDA) :- The International Development Association (IDA) was established in 1960 as an affiliate to the World Bank. If is well known as ‘Soft Loan Window’ of the IBRD.

The International Development Association (IDA) was established in 1960 as an affiliated to the World Bank.

The main objectives of the IDA are as follows :

1. To provide development finance to the less developed countries on easy and flexible terms.

2. To promote economic development increase productivity, and thus raise the standard of living in the less developed countries.

3. To supplement the objectives and activities of the World Bank. The resources of the IDA include the initial subscriptions from members general replenishment from its more industrialised members, transfers from the net earnings of the World Bank, Special Funds contributions and adjustment and accumulated surpluses.

Q.47. Write a brief note on ADB.

Ans :- Asian Development Bank (ADB) :

Asian Development Bank (ADB) is a regional financial institution, which has established under the auspices of a United Nations Body. The Bank Stated functioning in 1966 and has the Head office at Manila in Philippines.

The main objectives of ADB, as laid down in its charter, are “to foster economic growth and cooperation in the region of Asia and Far East, and to contribute to the acceleration of the process of economic development of the developing members in the region, collectively and individually.”

The following are the functions performed by the ADB :

1. Mobilisation and promotion of investment of Private and public capital of productive Purposes.

2. Utilisation of resources for financing those development projects, which contribute most to the economic growth of the region as a whole.

Q.48. State five functions of ADB.

Ans :- The five functions of ADB are : (i) Mobilisation and promotion of investment of private and public capital for productive purpose.

(ii) Utilisation of its resources for financing those development project which contribute most to the harmonious economic growth of the region as a whole with special emphasis on the needs of the smaller or less developed members.

(iii) Coordination of plans and policies of the member countries with a view to achieving better utilisation of their resources, making them economically more complementary and expanding their foreign their foreign trade.

(iv) Provision of technical assistance to the member countries for the preparation, financing and execution of development financing and execution of development projects.

(v) Cooperation with the United Nations and its various organs and other international organisation with the objectives of persuading them to make investments in this region.

E. Long answer questions : Type-II

Q.49. Discuss the main functions of Development Banks.

Ans :- The main functions of Development Banks are as follows :

(i) Promotion investment of public and private capital for development.

(ii) Mobilising resources and judiciously use productively.

(iii) Providing technical assistance to help prepare, finance and carry out development projects and programmes.

(iv) To-operating with the governments , Reserve Bank of India, other organisations that are concerned with the investment of development of funds.

(v) Promoting institution not infrastructure to accelerate the process of economic development.

(vi) Undertaking other activities and providing other services as are necessary to foster economic growth.

(vii) It Provides medium and long term loans to various industrial enterprises through various ways.

(viii) Development Banks also extend refinance facility to the lending institutions.

Q.50. Describe the role of Development Banks for economic development.

Ans :- The role of development banks for economic development are :-

1. Provide Development Finance :- There is lack of development finance in India due to low per capital income and lack of saving and saving facilities. There is a vast need of capital for the economic development of the country.

2. Promotional Role :- Development banks external assistance to the industrial units in different ways such as under writing, contribution in share and debentures direct loan and advances distribution of finance and scare raw material marketing of products etc.

3. Promotion of New Industries :- The development bank have granted assistance for the establishment of new industrial units, promotion of new entrepreneurs, expansion of existing project etc.

4. Modernisation and Renovation :- Development banks extend financial and technical assistance to the existing units for their renovations and modernisation to face the challenges due to globalisation.

5. Development of Small Scale Industries :- In order to face the challenges of increasing unemployment, development of small scale and tiny units is essential Development banks extend financial and other assistance to the small scale units and new entrepreneurs.

6. Development of Private Sector :- Although the development banks have granted loans of industries in both public and private sectors but the major thrust to their activities has been met out the financial needs of private sector.

7. Success of planned Development :- Development institutions play and important role for the success of economic planning. They provide finance for setting up of basic industries and public utility services.

8. Co- ordination :- Development banks also coordinate the activities of various development institutions. The IDBI is successfully performing this role in India.

Q.51. Give an account of the International Bank for Reconstruction and Development.

Ans :- The International bank for reconstruction and Development, generally known as the world Bank. This institution founded at the Bretton Woods conference held in 1944. The IBRD was established for Promoting long term investment loans or reasonable terms. The world Bank (IBRD) is an inter- governmental institution, corporate in form whose capital stock is entirely owned by its members governments. Initially, only nations that were members of the IMF could be members of the world Bank. This restriction on membership was subsequently relaxed.

Like the IMF , the world Bank is organised on a three basis

(a) The Board Governors.

(b) The Executive Directors. and

(c) The President The Board Governors is the supreme governing authority. It consists of one Governor (usually the finance Minister) and one alternate governor (usually the governor of a Central Bank), appointed by each member country for the term of five years.The board is required to meet at least once a year.

SCERT Class 12 Banking Chapter 4 Non Bank Financial InstitutionsFinancial Markets

Dev Kirtonia

Hi, I’m Dev Kirtonia, Founder & CEO of Dev Library. A website that provides all SCERT, NCERT 3 to 12, and BA, B.com, B.Sc, and Computer Science with Post Graduate Notes & Suggestions, Novel, eBooks, Biography, Quotes, Study Materials, and more.

SCERT Class 12 Banking Chapter 4 Non Bank Financial InstitutionsFinancial Markets

Non Bank Financial Institutions

SCERT Class 12 Banking Chapter 4 Non Bank Financial InstitutionsFinancial Markets

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