GU Indian Financial System Solved Question Paper 2023 PDF [Gauhati University BCom 5th Sem]

 

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Gauhati University B.com 5TH Semester Indian Financial System 2023 previous year question paper solution.

Name of the examination	Gauhati University Semester Examination.
Course	B.COM (Honours)CBCS
Subject Name	Indian Financial System
Subject /Paper Code	COM-HE-5066
Full Marks	80
Year	2023

4 (Sem-5/CBCS) COM НЕ 6 (IFS)

2023

COMMERCE (Honours Elective)

Paper: COM-HE-5066

(Indian Financial System)

Full Marks : 80

Time : Three hours

1. Answer the following questions as per direction. 1×10=10

(i) "Stock exchanges have been playing an important role in smooth functioning of the Capital Market." (Write Yes or No)
Answer: Yes

(ii) Indian financial system is primarily divided into two parts—one is organised financial system and the other is known as_______ (Fill in the blank with suitable words)
Answer: Unorganised financial system

(iii) Depository system is constituted by
(a) Depository participants
(b) Investors and issuers
(c) Depository
(d) All of the above (a), (b), and (c)
Answer: (d) All of the above (a), (b), and (c)

(iv) Indian capital market is regulated by SEBI. (Write True or False)
Answer: True

(v) Name the oldest institution engaged in mutual fund business in our country.
Answer: Unit Trust of India (UTI)

(vi) Merchant banking is
(a) Fee based service
(b) Fund based service
(c) Both (a) and (b) above
(d) None of the above
Answer: (a) Fee based service

(vii) Indian banking system is basically regulated by
(a) RBI Act, 1934
(b) Banking Regulation Act, 1949
(c) Both (a) and (b) above
(d) None of the above
Answer: (c) Both (a) and (b) above

(viii) Write the full form of PFRDA.
Answer: Pension Fund Regulatory and Development Authority

(ix) Which of the following is related to the Primary Market?
(a) Trading in new issues of new company
(b) Trading in new issues of existing company
(c) Both (a) and (b) above
(d) None of the above
Answer: (c) Both (a) and (b) above

(x) RBI is the Apex regulatory institution of the Banking system in our country. (Write True or False)
Answer: True

2. Answer the following questions in about 50 words each. 2×5=10

(a) Give the meaning of 'financial system'.
A financial system refers to the network of institutions, markets, instruments, and services that facilitate the transfer of funds between investors, lenders, and borrowers. It includes financial institutions like banks, stock exchanges, and regulatory bodies, and plays a crucial role in promoting economic growth by ensuring efficient allocation of resources and providing liquidity in the market.

(b) State two distinguishing features of money market.

1. Short-term financing: The money market deals with instruments that have short-term maturities, typically less than one year, such as Treasury bills, commercial paper, and certificates of deposit.

2. High liquidity: Instruments traded in the money market are highly liquid, enabling investors to quickly convert them into cash with minimal loss in value, making it a secure option for short-term financing.

(c) Mention two characteristics of financial services.

1. Intangible in nature: Financial services like banking, insurance, and investment services do not have a physical form, and are based on trust, expertise, and information.

2. Customer-specific: Financial services are often tailored to meet the specific needs of clients, such as customized loan structures, investment portfolios, and insurance policies.

(d) Name two public sector banks currently operating in our country.

1. State Bank of India (SBI)

2. Punjab National Bank (PNB)

(e) Define venture capital.
Venture capital is a form of private equity financing provided to startups and small businesses that are in the early stages of development but have high growth potential. Venture capitalists invest in these companies in exchange for equity, with the expectation of high returns when the company succeeds or goes public.

Or

Write two objectives of IRDAI.

Ans:- Following are two key objectives of the Insurance Regulatory and Development Authority of India (IRDAI):

1. Protection of Policyholders' Interests: IRDAI aims to ensure that policyholders are treated fairly and provided with transparent and secure insurance services. It regulates the conduct of insurance companies to safeguard consumer interests.

2. Promotion of Insurance Sector Growth: IRDAI encourages the orderly growth of the insurance industry while ensuring financial stability. It promotes competition, ensuring that consumers have access to a variety of insurance products and services at competitive prices.

3. Answer any four questions from the following in about 200 words each. 5×4=20

(a) Explain the composition of Indian financial system.

Ans:- (a) Explain the composition of Indian financial system.

The Indian financial system is a complex and organized structure that facilitates the transfer of financial resources between investors, lenders, and borrowers. It can be broadly divided into four key components:

1. Financial Institutions:
   These institutions include banks, non-banking financial institutions (NBFIs), insurance companies, pension funds, and other intermediaries. They play a crucial role in mobilizing savings and directing funds towards investment activities. The Indian financial system includes:

• Banking institutions: Public sector banks, private sector banks, foreign banks, and cooperative banks.

• Non-banking financial institutions (NBFIs): These include entities like mutual funds, insurance companies, and housing finance companies.

2. Financial Markets:
   Financial markets provide a platform for the trading of financial assets such as stocks, bonds, and commodities. The Indian financial market is divided into:

• Capital market: Deals with long-term funds and consists of the primary and secondary markets.

• Money market: Deals with short-term financial instruments, usually maturing in less than a year.

• Foreign exchange market: Facilitates the trading of currencies.

• Derivatives market: Deals with financial instruments like futures and options.

3. Financial Instruments:
   These are the tools or assets used for transferring funds in the financial system. Examples include shares, bonds, debentures, Treasury bills, commercial papers, and certificates of deposit. They can be divided into two categories:

• Money market instruments: Short-term instruments like Treasury bills and commercial papers.

• Capital market instruments: Long-term instruments such as equity shares and debentures.

4. Regulatory Bodies:
   The Indian financial system is regulated by several key institutions:

• Reserve Bank of India (RBI): Regulates the banking sector and monetary policy.

• Securities and Exchange Board of India (SEBI): Regulates the securities market.

• Insurance Regulatory and Development Authority of India (IRDAI): Regulates the insurance sector.

• Pension Fund Regulatory and Development Authority (PFRDA): Oversees the pension sector.

(b) Distinguish between NBFI and Bank.

Ans:- 

distinction between NBFI (Non-Banking Financial Institution) and Bank in a tabular format:

Basis	NBFI (Non-Banking Financial Institution)	Bank
Definition	Financial institutions providing banking-like services but without accepting demand deposits.	Licensed institutions accepting deposits and offering various banking services like loans, payments, etc.
Regulation	Regulated by the RBI under the Reserve Bank of India Act, 1934 and specific provisions.	Regulated by the RBI under the Banking Regulation Act, 1949.
Deposit Acceptance	Cannot accept demand deposits like savings or current accounts.	Can accept demand deposits from the public (e.g., savings and current accounts).
Credit Creation	Provide credit through various means like loans and investments but cannot create credit through deposits.	Engage in credit creation using deposits from customers.
Payment Services	Do not offer payment services like issuing cheques or managing payments.	Provide payment services such as issuing cheques, debit cards, and managing transactions.
Scope of Services	Offer specialized services like leasing, hire-purchase, asset financing, etc.	Offer a broad range of services like deposits, loans, wealth management, and payment services.

(c) Explain the merits of mutual fund.

Ans:- Explain the merits of mutual fund.

Mutual funds are collective investment schemes that pool money from multiple investors to invest in a diversified portfolio of assets such as stocks, bonds, or money market instruments. They offer several advantages to investors:

1. Diversification:
   One of the biggest benefits of investing in mutual funds is diversification. Since mutual funds invest in a wide range of securities, they reduce the risk associated with individual investments. A well-diversified portfolio helps minimize the impact of poor performance by any one asset.

2. Professional Management:
   Mutual funds are managed by experienced fund managers who have the expertise and resources to analyze markets and make informed investment decisions. This professional management ensures that the investment is handled carefully and in line with market trends.

3. Liquidity:
   Most mutual funds are open-ended, meaning that investors can redeem their units on any business day at the prevailing net asset value (NAV). This makes mutual funds a relatively liquid investment, allowing investors to convert their holdings into cash easily.

4. Affordability:
   Mutual funds allow small investors to participate in the financial markets by pooling money from many individuals. Even with a small amount of money, investors can gain access to a broad, professionally managed portfolio, which would otherwise require substantial capital to build on their own.

5. Transparency:
   Mutual funds are regulated by the Securities and Exchange Board of India (SEBI), which ensures a high level of transparency. Fund performance, fees, and portfolio holdings are disclosed regularly, allowing investors to track their investments.

6. Tax Efficiency:
   Certain mutual funds, such as Equity-Linked Savings Schemes (ELSS), provide tax benefits under Section 80C of the Income Tax Act, 1961. Long-term capital gains on equity mutual funds also enjoy favorable tax treatment.

(d) State the different submarkets of money market.

Ans:- The money market consists of several submarkets, each specializing in short-term financial instruments. These submarkets include:

1. Call Money Market:
   The call money market deals with short-term borrowing and lending, typically for one day to 15 days. It is mainly used by banks to manage liquidity and meet reserve requirements.

2. Treasury Bills Market:
   This submarket deals with Treasury Bills (T-Bills) issued by the government. T-Bills are short-term securities with maturities ranging from 91 days to 364 days, and are used by the government to raise funds for short-term needs.

3. Commercial Paper Market:
   Commercial papers (CPs) are unsecured, short-term debt instruments issued by large corporations to raise funds. They have maturities ranging from 7 days to 1 year and are a cheaper alternative to bank loans for short-term financing.

4. Certificate of Deposit Market:
   Certificates of Deposit (CDs) are time deposits issued by banks with fixed maturities, usually ranging from 3 months to 1 year. They are negotiable and provide a higher interest rate compared to savings accounts.

5. Repo Market:
   The repurchase agreement (repo) market allows participants to borrow funds by selling securities with an agreement to repurchase them at a later date, usually the next day. It is a vital tool for managing short-term liquidity in the banking system.

6. Money Market Mutual Funds (MMMFs):
   MMMFs pool money from investors to invest in short-term, low-risk securities like T-Bills and commercial papers. They offer retail investors access to the money market with relatively low risk.

(e) Mention the objectives of SEBI.

Ans:- The Securities and Exchange Board of India (SEBI) was established to regulate and develop the securities market in India. The main objectives of SEBI are:

1. Protecting Investor Interests:
   SEBI aims to safeguard the rights and interests of investors by ensuring transparency, fair practices, and access to reliable information in the securities market. It enforces regulations to prevent malpractices like insider trading and price manipulation.

2. Promoting Fair and Efficient Markets:
   SEBI works to ensure that the securities market operates in an efficient and orderly manner. It fosters competition, enhances liquidity, and reduces volatility to maintain investor confidence in the market.

3. Regulating the Securities Market:
   SEBI regulates intermediaries such as stock exchanges, brokers, and mutual funds to ensure compliance with laws and maintain the integrity of the market. It frames rules to govern market participants and takes enforcement actions against violators.

4. Developing the Securities Market:
   SEBI promotes innovation and growth in the securities market by introducing new products and services. It encourages the use of technology and modern practices to enhance market infrastructure and make it more accessible to a broader range of participants.

(f) Define lease and state the features of financial lease.

Ans:
A lease is a contractual agreement in which the owner (lessor) of an asset allows another party (lessee) to use the asset for a specified period in exchange for regular payments. The ownership remains with the lessor, but the lessee enjoys the use of the asset.

Features of Financial Lease:

1. Long-term Contract:
   A financial lease is typically a long-term lease agreement, often extending for most or all of the asset’s useful life. The lessee may be responsible for the asset throughout its life.

2. Non-cancellable:
   Financial leases are non-cancellable contracts, meaning the lessee cannot terminate the lease agreement before the lease period ends without incurring penalties.

3. Transfer of Risks and Rewards:
   While the lessor retains legal ownership of the asset, most of the risks and rewards associated with owning the asset (such as maintenance, insurance, and obsolescence) are transferred to the lessee during the lease term.

4. Fixed Payments:
   The lessee is required to make regular, fixed payments throughout the lease term, covering the cost of using the asset and any associated financing charges.

5. Option to Purchase:
   In many financial leases, the lessee may have the option to purchase the asset at the end of the lease term, either at a nominal price or at fair market value.

6. Capitalization on Balance Sheet:
   In a financial lease, the asset is recorded on the lessee’s balance sheet as if it were owned, along with the corresponding liability for future lease payments. This accounting treatment reflects the long-term nature of the lease.

(f) Define lease and state the features of financial lease.

Ans:- A lease is a contractual agreement in which one party, known as the lessor, grants the right to use a specific asset (such as property, equipment, or vehicles) to another party, known as the lessee, for a specified period in exchange for periodic payments. The lessee pays the lessor rental amounts in return for the right to use the asset.

Features of a Financial Lease:

A financial lease (also known as a capital lease) is a long-term lease where the lessee has most of the risks and rewards of ownership, even though the title to the asset might remain with the lessor.

Here are its key features:

1. Long-term Lease: Financial leases are typically for the major part of the asset's economic life, often making it impractical for the lessee to cancel the lease before the lease term expires.

2. Ownership Risk and Rewards: Although legal ownership remains with the lessor, the lessee assumes most of the risks and rewards associated with the ownership of the asset, such as maintenance, insurance, and the risk of obsolescence.

3. Non-cancelable Contract: The financial lease agreement is generally non-cancelable, meaning the lessee cannot easily terminate the lease before the end of its term.

4. Full Payout Lease: The lease payments over the term of the lease are sufficient to cover the full cost of the asset, and the lessor expects to recover the cost of the asset plus interest from the lease payments.

5. Option to Purchase: At the end of the lease term, the lessee may have the option to purchase the leased asset at a nominal price, or the asset may automatically transfer to the lessee after the last payment.

6. Bargain Purchase Option: Many financial leases offer the lessee an option to buy the leased asset at a reduced or "bargain" price after the lease term ends.

7. Balance Sheet Treatment: Under accounting standards, financial leases are treated similarly to asset purchases, meaning the leased asset and the corresponding liability are recorded on the lessee's balance sheet.

8. Tax Benefits: The lessee may claim depreciation on the leased asset and deduct interest on the lease payments, while the lessor may get tax benefits depending on how the transaction is structured.

Financial leases are commonly used for high-value assets, like machinery, buildings, and large vehicles, where ownership at the end of the lease term is desired or economically beneficial.

4. Discuss the important functions of financial system. 10

Ans:- The financial system of a country plays a critical role in its economic stability and growth by facilitating the movement of money and investments, ensuring liquidity, and promoting efficient resource allocation. Below are the important functions of a financial system:

1. Mobilization of Savings: The financial system encourages individuals and businesses to save their surplus funds. Financial institutions like banks, mutual funds, and pension funds provide avenues for savings by offering returns on investments.

2. Efficient Allocation of Resources: The financial system channels funds from savers (who have surplus funds) to borrowers (who need funds). This helps in the efficient allocation of resources, ensuring that capital is directed towards productive investments.

3. Facilitation of Payments: The financial system ensures the smooth facilitation of payments and transactions. This includes systems like banking, digital payment platforms, and other financial technologies, which enable safe and swift transfer of money domestically and internationally.

4. Risk Management: Financial institutions offer various tools and services to help individuals and companies manage financial risks. This includes insurance, hedging through derivatives, and diversification of investments through mutual funds.

5. Liquidity Provision: A key function of the financial system is to provide liquidity to individuals and businesses, ensuring that short-term assets can be quickly converted into cash without significant loss of value.

6. Economic Development Support: The financial system provides the foundation for economic development by funding infrastructure projects, providing loans to businesses, and supporting government financial needs through bond markets.

7. Price Discovery: Financial markets, particularly the stock and bond markets, help in determining the prices of financial assets. This function ensures that assets are fairly priced, based on the demand and supply of capital, and provides valuable information to investors.

8. Regulation and Stability: The financial system, through central banks and regulatory bodies, monitors and regulates financial institutions to maintain economic stability and prevent financial crises.

9. Promotion of Trade and Commerce: By facilitating credit and capital flow, the financial system supports businesses in expanding their operations, leading to increased trade and commerce.

10. International Financial Integration: The financial system facilitates international trade, foreign investments, and cross-border financial activities, helping countries integrate into the global economy.

Or

"Financial system and economic development is the complementary to each other." Explain the statement.

Ans:- The statement suggests that a well-functioning financial system is essential for economic development, and in turn, economic development helps strengthen the financial system. The relationship between the two can be understood through the following points:

1. Capital Formation: Economic development requires investments in infrastructure, technology, and industries. A robust financial system mobilizes savings and transforms them into productive investments, fostering capital formation, which is crucial for economic growth.

2. Efficient Resource Allocation: A sound financial system ensures that resources are allocated efficiently by channeling funds into productive ventures. This improves the productivity of industries, leading to better utilization of resources and fostering economic development.

3. Encouraging Entrepreneurship: Financial systems provide entrepreneurs with the necessary funds through venture capital, loans, and other financial services. This promotes innovation, new business creation, and overall economic progress.

4. Employment Generation: As the financial system funds businesses and infrastructure projects, it leads to the creation of jobs. Employment, in turn, boosts consumer spending and demand, further driving economic development.

5. Investment in Human Capital: Financial systems offer credit for education, healthcare, and other services, allowing people to invest in human capital. A skilled workforce enhances productivity and economic development.

6. Stability and Confidence: A well-regulated financial system boosts confidence among investors and the public. Stability in the financial system prevents economic shocks and crises, promoting long-term development.

7. Support to Government Programs: Financial systems support governments in raising funds through bond markets for public welfare, infrastructure, and other developmental projects. This, in turn, enhances the overall quality of life and economic progress.

8. Global Integration and Competitiveness: A developed financial system facilitates international trade and foreign investment, making the country more competitive globally. Economic development, in turn, attracts more foreign investors and boosts the financial system.

5. What is money market? Explain the important defects of Indian Money Market. 2+8=10

Ans:- The money market is a segment of the financial market where short-term borrowing and lending take place. It deals with highly liquid and short-duration financial instruments such as Treasury bills, commercial papers, certificates of deposit, and repurchase agreements, typically with maturities ranging from overnight to one year. The primary participants in the money market include banks, financial institutions, corporations, and the government.

Defects of Indian Money Market

1. Lack of Integration: The Indian money market is fragmented into various segments like the organized sector (banks, financial institutions) and the unorganized sector (indigenous bankers, moneylenders). This lack of integration creates inefficiencies in the smooth functioning of the market.

2. Seasonality: The Indian money market exhibits strong seasonal fluctuations. The demand for funds increases during certain periods, such as the agricultural season, leading to short-term shortages of funds and volatility in interest rates.

3. Absence of a Well-Developed Bill Market: India lacks a highly organized and efficient bill market. While Treasury bills exist, the secondary market for these instruments is underdeveloped compared to developed countries.

4. Limited Supply of Funds: The availability of funds in the Indian money market is often inadequate to meet the growing demand, particularly during peak periods. This leads to increased borrowing costs and inefficiencies.

5. Unorganized Sector's Dominance: A large portion of the Indian money market is controlled by the unorganized sector, including local moneylenders and chit funds. This sector operates without proper regulation, often leading to higher interest rates and exploitation of borrowers.

6. Underdeveloped Banking System: While the Indian banking system has improved, it is still not fully developed in many rural and semi-urban areas. This limits the efficient flow of credit and savings between these areas and the formal financial sector.

7. Interest Rate Structure: The Indian money market is characterized by an inefficient interest rate structure, with multiple rates existing simultaneously. This leads to confusion and inefficiency in the allocation of resources.

8. Limited Participation: The participation of international financial institutions and foreign banks in the Indian money market is relatively low. This limits the overall liquidity and depth of the market.

Or

What is Capital Market? Explain the procedure of issue of securities in primar market. 2+8=10

Ans:- The capital market is a financial market where long-term securities such as stocks and bonds are issued and traded. It is divided into two segments: the primary market, where new securities are issued, and the secondary market, where existing securities are traded.

Procedure of Issue of Securities in the Primary Market

1. Preparation of Prospectus: A company intending to raise funds from the public must first prepare a prospectus that contains detailed information about the company, its financial health, and the securities being issued. This document must be approved by the regulatory body, the Securities and Exchange Board of India (SEBI).

2. Obtaining Approval from SEBI: Before issuing securities, the company must seek approval from SEBI. The regulatory body ensures that the company complies with all the required guidelines and provides transparent and accurate information to the investors.

3. Underwriting the Issue: Companies often involve underwriters (financial institutions or brokerage firms) to guarantee the sale of the securities. If the issue is under-subscribed, the underwriters agree to buy the remaining unsold shares or bonds.

4. Pricing of the Issue: The company, in consultation with investment bankers, sets the price of the securities. This can either be a fixed price or through a book-building process where the price is determined based on the demand from institutional investors.

5. Marketing the Issue: Once the price is fixed, the company promotes the issue to attract potential investors. This is done through advertisements, roadshows, and presentations to potential investors.

6. Subscription Period: Investors are allowed to apply for the securities within a specific subscription period. During this time, investors can subscribe to the shares or bonds by submitting their applications through authorized channels, such as stockbrokers or online platforms.

7. Allotment of Securities: After the subscription period ends, the company allocates the securities to the investors. In case of oversubscription (when demand exceeds supply), the company may allot securities on a pro-rata basis.

8. Listing on Stock Exchange: After the allotment, the company must list its securities on a recognized stock exchange. The listing allows the investors to trade the securities in the secondary market.

6. What is Commercial Bank? State the modern functions of a commercial bank. 3+7=10

Ans:- A commercial bank is a financial institution that accepts deposits from the public and provides loans for the purpose of consumption and investment. It operates for profit by charging interest on loans, offering various banking products, and earning fees from different financial services. Commercial banks play a crucial role in the economic development of a country by facilitating the flow of money and promoting savings and investments.

Modern Functions of a Commercial Bank

1. Accepting Deposits: The primary function of a commercial bank is to accept deposits from individuals and businesses, providing them with a safe place to store their money.

2. Providing Loans and Advances: Commercial banks offer loans and advances to individuals, businesses, and governments for various purposes like personal needs, business expansion, or capital investment.

3. Credit Creation: Through the process of lending, commercial banks create credit in the economy. They extend loans that add to the overall money supply in the system.

4. Agency Functions: Banks act as agents for their customers by paying bills, collecting checks, managing assets, and executing various financial transactions on their behalf.

5. Investment Services: Commercial banks also help customers invest in financial products like bonds, mutual funds, and government securities.

6. Foreign Exchange Services: They facilitate international trade by providing foreign exchange services, including the buying and selling of foreign currencies.

7. Electronic Banking: Modern commercial banks offer digital banking services such as online transactions, mobile banking, and electronic fund transfers.

8. Wealth Management: Banks also provide services such as portfolio management, financial planning, and retirement savings accounts.

9. Issuing Bank Instruments: They issue instruments like debit and credit cards, which make transactions easier for customers.

10. Safe Deposit Locker Facility: Commercial banks offer locker services for safekeeping valuable items like documents, jewelry, and other valuables.

Or

What is the objectives of insurance? Also point out the functions of insuran companies in India. 10

Ans:- Objectives of Insurance
Insurance is a contract between the insurer and the insured, in which the insurer provides financial protection or reimbursement against losses to the insured in exchange for regular premium payments. The key objectives of insurance are:

1. Risk Management: Insurance provides protection against uncertain risks and losses, helping individuals and businesses mitigate the financial impact of unforeseen events.

2. Financial Stability: By compensating for losses, insurance helps maintain financial stability in the face of accidents, natural disasters, or illness.

3. Encouraging Savings: Some insurance policies, such as life insurance, serve a dual purpose by also functioning as long-term savings tools for policyholders.

4. Capital Generation: Premiums collected by insurance companies are invested in various financial markets, contributing to capital formation and economic growth.

5. Social Security: Insurance ensures that individuals and families are financially protected in cases of death, disability, or health issues.

6. Promoting Business Activities: Insurance helps businesses function smoothly by protecting them against losses from accidents, lawsuits, or property damage.

7. Minimizing Losses: Insurers work to reduce the likelihood and impact of risks by providing guidance on safety measures and loss prevention.

Functions of Insurance Companies in India

1. Risk Bearing: Insurance companies bear the risks of individuals and businesses by providing coverage against uncertain future events like accidents, illness, or death.

2. Resource Mobilization: By collecting premiums, insurance companies mobilize resources that are then invested in infrastructure, government bonds, and securities, aiding national economic development.

3. Social Welfare: They offer insurance products designed to provide social security, such as health insurance, pension plans, and life insurance.

4. Claim Settlement: One of the key functions is to assess and settle claims efficiently, ensuring that policyholders receive timely compensation for insured losses.

5. Product Innovation: Insurance companies regularly introduce new policies and products tailored to meet the changing needs of the market, such as cyber insurance, crop insurance, and more.

6. Employment Generation: Insurance companies provide employment to millions through direct jobs in their offices and indirect jobs via agents and brokers.

7. Economic Stability: By compensating for losses and ensuring financial security, insurance companies contribute to economic stability and growth.

8. Development of Insurance Products: They also work on creating specialized products to address the needs of sectors like agriculture, health, and technology.

9. Regulatory Compliance: Insurance companies in India operate under the supervision of the Insurance Regulatory and Development Authority of India (IRDAI), ensuring consumer protection and adherence to legal frameworks.

10. Investment of Funds: They invest the collected premiums into different portfolios, contributing to the development of financial markets and economic activities.

7. Define hire-purchase. Differentiate between leasing and hire-purchase. 3+7=10

Ans:- Hire-Purchase

Hire-purchase is a system of buying goods where the buyer agrees to pay for goods in installments over time. The buyer can take possession of the goods immediately but does not become the legal owner until all installments are paid. If the buyer fails to pay the installments, the seller has the right to repossess the goods. This arrangement is often used for the purchase of consumer durables like vehicles, electronics, and appliances.

Difference between Leasing and Hire-Purchase

Basis	Leasing	Hire-Purchase
Ownership	Ownership remains with the lessor (leasing company) throughout the lease period.	Ownership transfers to the buyer after all installments are paid.
Type of Agreement	It is a rental agreement where the lessee pays for using the asset.	It is a financing agreement where the buyer purchases the asset over time.
Installments	Payments are made as rental charges, not towards ownership.	Installments are paid towards the purchase price, leading to ownership.
Transfer of Ownership	Ownership of the asset never transfers to the lessee.	Ownership is transferred to the buyer at the end of the hire-purchase agreement.
Depreciation Claim	Lessee cannot claim depreciation since they do not own the asset.	The buyer can claim depreciation on the asset once ownership transfers.
Responsibility for Maintenance	Maintenance responsibility usually lies with the lessor.	Maintenance is the responsibility of the buyer after possession.
Tax Benefits	Lessee can claim the lease rental as a tax deduction.	Buyer can claim both interest and depreciation as tax benefits.
Cancellation	Leasing agreements can often be canceled early with some penalties.	Hire-purchase agreements are more rigid and harder to cancel without legal consequences.
Examples	Commonly used for property, machinery, or vehicles for businesses.	Commonly used for personal goods like cars, motorcycles, electronics.
Risk of Ownership	Risk related to the asset’s ownership remains with the lessor.	Risk of ownership (like damage, loss) passes to the buyer after possession.

Or

Discuss the traditional and modern functions of RBI. 5+5=10

Ans:- Traditional Functions of the Reserve Bank of India (RBI)

1. Monetary Authority: The RBI formulates and implements the country’s monetary policy with the aim of controlling inflation, ensuring price stability, and promoting economic growth.

2. Issuer of Currency: The RBI has the sole right to issue currency notes in India, ensuring a consistent and reliable supply of money.

3. Banker to the Government: The RBI acts as the banker, agent, and financial advisor to the government of India. It manages the government's banking transactions and public debt.

4. Custodian of Foreign Exchange: The RBI manages India’s foreign exchange reserves and ensures stability in the foreign exchange market through policies and interventions.

5. Regulator of Financial System: The RBI regulates the functioning of commercial banks and other financial institutions in the country, maintaining financial stability and public confidence.

Modern Functions of the Reserve Bank of India (RBI)

1. Developmental Role: The RBI undertakes initiatives to promote banking and financial inclusion, especially in rural areas, encouraging small banks, and offering banking services to underserved communities.

2. Payment and Settlement Systems: The RBI ensures the smooth functioning of payment and settlement systems by regulating and improving platforms like NEFT, RTGS, UPI, and IMPS.

3. Supervisory Role: The RBI supervises the functioning of not just banks but also non-banking financial companies (NBFCs), ensuring they follow the necessary regulations for systemic safety.

4. Consumer Protection: The RBI has been playing an active role in protecting the rights of banking customers through the Banking Ombudsman Scheme, grievance redressal mechanisms, and regulations that protect customers from unfair practices.

5. Technology and Digital Banking: The RBI is involved in fostering the growth of digital payments and financial technology (FinTech) in India. It promotes innovations like digital banking, cybersecurity, and blockchain technologies to modernize the banking sector.

Or

In which year SEBI was established? Describe the measures taken by SEBI for the protection of interest of investors. 2+8=10

Ans:- Establishment of SEBI

The Securities and Exchange Board of India (SEBI) was established in 1988 as a non-statutory body, but it gained statutory powers in 1992 after the passing of the SEBI Act by the Indian Parliament. Its main purpose is to regulate the securities market and protect the interests of investors.

Measures Taken by SEBI for the Protection of Investors' Interests

1. Regulation of Stock Exchanges: SEBI regulates the functioning of stock exchanges to ensure that they operate transparently and fairly. It monitors their activities, prevents malpractices, and ensures that they adhere to the rules and guidelines set by SEBI.

2. Prohibition of Insider Trading: SEBI has stringent laws to prevent insider trading. It ensures that no individual or entity can trade based on non-public, material information, which gives them an unfair advantage over other investors. Strict penalties and imprisonment are imposed for violations.

3. Disclosure Requirements: SEBI mandates that companies provide full, timely, and accurate disclosures to investors. This includes disclosing financial results, material events, and any other relevant information that could impact the investment decisions of shareholders.

4. Protection Against Fraudulent Practices: SEBI takes strict action against fraudulent and unfair trade practices in the securities market, such as price manipulation, false information dissemination, and misleading advertisements.

5. Grievance Redressal Mechanism: SEBI has set up a comprehensive grievance redressal system for investors. It operates the SEBI Complaints Redress System (SCORES) through which investors can file complaints related to the securities market, and SEBI ensures timely resolution.

6. Regulation of Mutual Funds: SEBI regulates the mutual fund industry to safeguard investors' interests. It ensures that mutual funds operate with transparency, manage risks properly, and provide fair treatment to investors. The structure of fees and commissions is also regulated to protect small investors.

7. Fair Pricing of IPOs and Other Securities: SEBI ensures that Initial Public Offerings (IPOs) and other securities offerings are fairly priced. It requires that companies follow a book-building process for IPOs, ensuring transparency in pricing, so that investors get a fair deal.

8. Investor Education: SEBI plays a significant role in educating investors about their rights, the functioning of the stock market, and potential risks. Through various campaigns, workshops, and seminars, SEBI promotes informed investment decisions and financial literacy among retail investors.

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