Class 12 Finance Chapter 18 Fee-Based Financial Services

Class 12 Finance Chapter 18 Fee-Based Financial Services Solutions English Medium As Per AHSEC New Syllabus to each chapter is provided in the list so that you can easily browse through different chapters ASSEB Class 12 Finance Chapter 18 Fee-Based Financial Services Solutions in English and select need one. AHSEC Class 12 Finance Chapter 18 Fee-Based Financial Services Solutions Download PDF. HS 2nd Year Finance Textual Solutions.

Class 12 Finance Chapter 18 Fee-Based Financial Services

Also, you can read the NCERT book online in these sections Solutions by Expert Teachers as per Central Board of Secondary Education (CBSE) Book guidelines. ASSEB Class 12 Banking Question Answer are part of All Subject Solutions. Here we have given HS 2nd Year Finance Textual Solutions English Medium for All Chapters, You can practice these here.

Fee-Based Financial Services

Chapter: 18

Unit – 4: Financial Services

A. Very Short Answer Questions: 

1. Credit Rating is a fee-based financial service.(True/False)

Ans: True.

2. Stock brokers are commission agents.Whether True or False?

Ans: True.

3. “License for undertaking Stock Broking is not essential.”Whether True or False?

Ans: False.

4. “Credit rating is done only to assess the ability to return bank credit.”- Whether true or False?

Ans: False.

5. Credit rating is done by Commercial Banks.- Whether true or False?

Ans: False.

6. “Merchant banking is a non-banking activity.”-Whether true or False?

Ans: True.

7. “There is no difference between Merchant Banking and Commercial Bank.”’-Whether true or False?

Ans: False.

8. The first bank that started Merchant Banking in India is Grindlays Bank.(True/False)

Ans: True.

9. “Accepting deposits is the main function of Merchant Banker.”Whether true or False?

Ans: False.

B. Short Answer Questions: 

1. What is Financial Service?

Ans: Financial services are services provided by financial institutions and intermediaries to facilitate the mobilization, investment, and management of funds for individuals and businesses.

2. What are the two types of Financial Services?

Ans: (i) Fund-based Financial Services.

(ii) Fee-based Financial Services.

3. What is Stock Broker?

Ans: A stock broker is a licensed person or firm who buys and sells securities on behalf of investors in the stock exchange and earns brokerage for the service.

4. What is meant by Brokerage?

Ans: Brokerage is the commission or fee charged by a stock broker for buying and selling securities on behalf of clients.

5. What is Credit Rating?

Ans: Credit rating is the process of assessing the creditworthiness and repayment capacity of an individual, company, or financial instrument by a credit rating agency.

6. What is Merchant Banker?

Ans: A merchant banker is a financial institution or company that provides consultancy and financial services such as issue management, underwriting, project counselling, and corporate advisory services.

7. Mention two Credit Rating Agencies of India.

Ans: (i) CRISIL (Credit Rating Information Services of India Limited).

(ii) ICRA (Investment Information and Credit Rating Agency).

C. Long Answer Questions (Type-I): 

1. Write the functions of Stock Brokers.

Ans: The functions of Stock Brokers include the following:

(i) As Intermediary: The primary function of a stock broker is to help investors in buying and selling securities on the stock exchange. They act as intermediaries between buyers and sellers and earn a fee called brokerage or commission.

(ii) As Adviser to Clients: Stock brokers provide market information and investment advice based on research and analysis to help clients achieve their investment objectives.

(iii) Provider of Personalized Services: Stock brokers offer personalized services such as financial planning, insurance planning, retirement planning, tax services, and depository services.

(iv) Provides Margin Financing: Some stock brokers provide margin finance, allowing investors to borrow money to purchase more shares than they can afford with their own funds.

(v) Additional Services: Stock brokers also provide additional services such as tax advice, insurance advice, portfolio analysis, access to IPOs, and financial planning.

2. What are the general duties that Stock Brokers are expected to exercise?

Ans: The general duties of a Stock Broker are as follows:

(i) Fairness in Activities: Stock brokers should maintain high standards of integrity and fairness in the conduct of all their business activities.

(ii) Exercise of Due Skill and Care: Stock brokers are expected to exercise due skill, care, and honesty while dealing with business transactions on behalf of their clients.

(iii) No Manipulation: A stock broker should not indulge in manipulative, fraudulent, or deceptive transactions on behalf of clients.

(iv) Compliance with Statutory Requirements: Stock brokers must comply with all the rules and regulations issued by SEBI and other competent authorities.

3. What are the various factors considered in the process of Credit Rating?

Ans: The following factors are considered in the process of Credit Rating:

(i) Business Risk: The nature of business, industry position, market competition, and future growth prospects are evaluated.

(ii) Financial Risk: The financial strength of the borrower is assessed through profitability, liquidity, solvency, and cash flow.

(iii) Management Evaluation: The experience, competence, integrity, and efficiency of the management are examined.

(iv) Past Credit Record: The previous repayment history and creditworthiness of the borrower are considered.

(v) Earning Capacity: The ability of the borrower to generate sufficient income for timely repayment is analysed.

(vi) Economic and Industry Conditions: General economic conditions and industry trends that may affect repayment capacity are also taken into account.

4. Explain the three components of Credit Rating.

Ans: The three components of Credit Rating are:

(i) Business Risk Analysis: It evaluates the business risk of the borrower by examining the nature of business, industry position, market competition, and future growth prospects.

(ii) Financial Risk Analysis: It assesses the financial strength of the borrower by analysing profitability, liquidity, solvency, cash flow, capital structure, and repayment capacity.

(iii) Management Evaluation: It examines the quality, competence, experience, integrity, and efficiency of the management, as good management improves the creditworthiness of the borrower.

5. Distinguish between Commercial Banking and Merchant Banking Functions.

Ans:

Basis	Commercial Banking	Merchant Banking
(i) Meaning	Commercial banks are financial institutions established for providing basic banking functions.	Merchant banks provide a broad array of financial services to their clients.
(ii) Main Functions	Accept deposits, grant loans and advances, and provide agency and general utility services.	Provide corporate counselling, project counselling, issue management, and other advisory services.
(iii) Nature of Functions	Offer Fund-based financial services.	Provide Non-fund/Fee-based financial services.
(iv) Customers	Individuals, firms, government, and corporate bodies.	Mainly corporate bodies and high net-worth individuals.
(v) Earnings	Earn primarily from interest on loans and advances.	Earn primarily from fees charged for services rendered.

D. Long Answer Questions (Type-II): 

1. Explain the steps involved in Credit Rating Process.

Ans: The steps involved in the credit rating process are:

(i) Receipt of Rating Request: The borrower approaches a credit rating agency and submits an application with the required information.

(ii) Assignment of Analytical Team: The credit rating agency appoints a team of analysts to evaluate the proposal.

(iii) Collection and Analysis of Information: The team collects financial and non-financial information and analyses the business risk, financial risk, and management quality.

(iv) Meeting with Management: The analysts discuss the company’s performance, future plans, and financial position with the management.

(v) Rating Committee Decision: The rating committee reviews the analysis and assigns an appropriate credit rating.

(vi) Communication of Rating: The assigned rating is communicated to the client for acceptance.

(vii) Publication of Rating: After acceptance, the rating is published for the information of investors.

(viii) Surveillance and Review: The rating agency continuously monitors the performance of the borrower and revises the rating whenever necessary.

2. Explain the merits and demerits of Credit Rating.

Ans: Merits of Credit Rating:

(i) Helps investors take better investment decisions.

(ii) Assesses the creditworthiness of borrowers.

(iii) Increases investor confidence.

(iv) Helps companies raise funds easily.

(v) Improves transparency in the financial market.

Demerits of Credit Rating:

(i) Ratings are only opinions and not guarantees.

(ii) Ratings may become outdated due to changing business conditions.

(iii) The rating process involves fees and costs.

(iv) It may not accurately predict future defaults.

(v) Excessive dependence on ratings may mislead investors.

3. Write the functions performed by Merchant Bankers.

Ans: The functions of Merchant Bankers are:

(i) Project counselling services.

(ii) Corporate counselling services.

(iii) Syndication of loans and project finance.

(iv) Issue management of shares and debentures.

(v) Provision of working capital assistance.

(vi) Lease finance.

4. Explain the services rendered by Stock Brokers to their clients.

Ans: The services rendered by Stock Brokers are:

(i) Acts as an Intermediary: Helps clients buy and sell securities and earns brokerage.

(ii) Acts as an Adviser: Provides market information and investment advice based on research and analysis.

(iii) Provides Personalized Services: Offers financial planning, insurance planning, retirement planning, tax services, and depository services.

(iv) Provides Margin Financing: Allows investors to borrow funds for purchasing securities through margin trading.

(v) Offers Additional Services: Provides tax advice, portfolio analysis, access to IPOs, insurance advice, and financial planning services.