Sem 2 Flashcards
What is financial services?
Financial services are economic services tied to finance provided by financial institution. Financial services encompasses a broad range of service sector activities, especially as concerns like financial management and consumer
What are the importance of financial services
- Economic Growth
- Investment opportunities
- Risk management
- Efficient payment method
- Financial inclusion
- Monetary policy implementations
- Wealth management
- Market liquidity
Objective of Financial services
- Facilitating Economic Growth
- Mobilizing Savings
- Providing liquidity
- Risk management
- Enabling Efficient payment method
- Promoting Financial Inclusion
- Wealth creation and management
- Supporting Capital formation
What is forfaiting
Forfeiting is a financial Instrument used in international trade to facilitate the purchase of goods and by providing exporters with immediate cash flow. It involes the sale of medium to long term receivable (such as promissory notes or bills of exchange) to a forefaiter (a financial intermediary) at a discount, in exchange for immediate payment.
Key benefits of forfaiting(FIRM’S LIE)
- Fixed Financing Cost
- Immediate cash flow
- Risk mitigation
- Mitigates recourse of the exporters
- Simplifies Trade transaction
- Long term Financing
- Improves Balance Sheet
- Enhances competitiveness
Explain Leasing
Leasing is a financial arrangement in which one party(the leasor) grants the other party(the leasee) the right to use an asset(such as equipment, Vehicles, property) for specified period in exchange for regular payments. At the end of the lease team, the lease may have the option to purchase the asset, return it, or renew the lease. Leasing is commonly used by businesses and individuals to acquire asset without the need for large upfront capital expenditure
Drawbacks of leasing(GOLD TRAP)
- Greater Total Cost
- Ownership not acquired
- Limited customization
- Difficult Contracts
- Termination Penalties
- Restrictions to use
- Absence of Residual value benefit
- Prolonged obligations
What is Venture Capital
Venture Capital (VC) is a type of private equity financing where investors provide funds to startups and small businesses with high growth potential. In return, investors receive equity (ownership) in the company. Venture capitalists typically invest in innovative and scalable businesses, taking on high risk in exchange for potentially high returns.
Stages of Veture Capital Financing
- Early Stage Financing
a) Seed Capital
b) Start up Capital
c) Second round Financing - Late Stage Financing
a) Expansion
b) Replacement
c) Turn around
d) Buyout
What is Hire-Purchase
Hire purchase is a Financing arrangement where a buyer pays for a asset in installments while using it but gains ownership only after the final payment. It is used to purchase Assets like Vehicles, machinery, equipment, etc.
Benefits(Choose) and Drawbacks(Thorns) of Hire purchase
Benefits:
1. Credit score improvement
2. Helps Manage Cash flow
3. Ownership after the term
4. Offers Immediate access to the asset
6. Supports Flexible payments
5. Eliminates need for collateral
Drawbacks:
1. Total Cost is Higher
2. Hidden Charges
3. Ownership delayed
4. Risk of repossession
5. No Resale flexibility
6. Steep Interest rates
Explain the characteristiscs of Hire Purchase(HI DRIFT)
🔹 H – Hirer’s Right to Use
🔹 I – Installment Payments
🔹 D – Down Payment (Deposit)
🔹 R – Repossession Clause
🔹 I – Interest & Charges
🔹 F – Final Ownership Transfer
🔹 T – Termination Option
Types of Factoring
- Recourse Factoring
- Non-Recourse Factoring
- Domestic Factoring
- International Factoring
- Disclosed Factoring
- Non-Disclosed Factoring
- Advance Factoring
- Maturity Factoring
Advantages of Factoring (FINBOOST)
- Flexible Financing
- Improved Cash Flow
- No Collateral Required
- Bad Debt Protection
- Outsourced Collection Services
- Opportunities for Business Growth
- Stronger Credit Management
Timely Payments
Disadvantage of Factoring: (CREDIT LOSS)
- Customer Perception
- Risk of Over-Reliance
- Excessive Cost
- Dependency on Factoring
- Inconsistent financing
- Time Consuming Process
- Loss of Control
- Over-Reduction in Profits
- Short term focus
- Slow Payment Risk
Advantages of Consumer finance:
(Finance)
- Flexibility & Convenience
- Increased Purchasing power
- Need based support
- Access to discounts and rewards
- Nurtures Credit history
- Contributes to Economic Growth
- Eases Inflation pressure
