Unit4_Financial Services

Question 1

Define 1) loans.

Answer 1

Individuals and companies can obtain fixed/term loans for buying cars, properties and shares. They can use assets they own as collateral for these loans. Assets accepted as collateral are:
.Land
.Properties
.Fixed Deposit
.Shares of public-listed companies
.Accounts Receivable, subjected to certain conditions
.inventories, subjected to certain conditions
.Gold bars

Question 2

Define 2) Hire Purchase Financing

Answer 2

Sometimes, companies may need to buy assets, but do not have enough money to pay at one go.
The finance companies will help them to purchase the assets under hire purchasing. The company will enter into an agreement with the finance company. The company will pay a deposit, followed by regular monthly installments for the use of the assets.

Question 3

Define 3) Accounts Receivable Financing

Answer 3

Companies that tended to take a shirt-term loan can approach a finance company and offer accounts receivable as collateral.
The finance company will do the flowing:
.Evaluate the quality of the account receivable to determine the an value.
.Obtain a list of debtors, collection dates and amounts.
.Require an undertaking from the borrowing company to remit all debt collected to reduce the loan.

Question 4

Define 4) Inventory Financing

Answer 4

This is also a short-term loan where, inventories are used as collateral. The loan value will depend on the inventories e.g. Marketability, price and expiry dates.

Question 5

Define 5) Letter of Credit

Answer 5

It is a form of credit facility that helps reduce the risk of international trade for both importers and exporters of goods and machinery. Bank also offers this facility.

Question 6

Define 5/ LC

Answer 6

This method is widely accepted as a method of settlement in international trade. It is used for importing goods and machinery.
The importer applies to bank(issuing bank, ie, importer’s bank) for credit facilities to enable him to buy goods and machinery from an overseas exporter.
Once the issuing bank has made the payment, the sum becomes a loan from the bank to the importer.

Question 7

Define 6) Leasing

Answer 7

The finance companies also lease assets to clients. The clients have to make regular payments to finance companies, which retains the ownership of the assets.