Financial Services IMPs (10 Mks)

1) Explain the term financial services also explain the nature and types of financial services
2) Explain the difference between fund based and fee based services also explain the scope of
financial services
3) Explain in your own words the growth of financial services in last 8 yrs.
4) Explain the term leasing with its types
5) Does leasing helps in growth of economy/ financial services?
6) How hire purchase contributes as an important sector in financial services
7) Explain the evaluation and functions of factoring
8) There is thin difference between factoring and bill discounting – explain/comment
9) Explain the nature of forfeiture (5 Mks)
10) Write a note on customer credit (5 Mks)
11) Explain concept of housing finance (5 Mks)
12) Stages of financing (5 Mks)
13) Explain significance of venture capital toward growth of financial service sector of India
Answers

13.

Venture capital is type of private equity investment that involves providing funding and support
to startups, branded companies with promising business ideas with significant returns with
reference to financial services. Venture capital firms generally invest in startups which are
developing innovative technologies or business modules in fintech sector such as mobile
payments, block chain technology, credit lending platforms etc.

In addition to providing funding venture capitalists offer strategic guidance and operational
support to company’s portfolio management. This can include helping startups refine their
business plans, connect with potential customers or partner and recruit key talent.

Overall venture capital firms play important role in financial service industry by providing capital
on resources needed to boost innovation and drive growth in emerging fintech companies.

Significance of venture capital

 Provides capital to innovative startups –

Venture capital firms invest in startups that have potential business model or innovative
technology. These startups often have a high growth potential but may not have enough
collateral or operating history to qualify for traditional bank loans. VC firms provide
necessary capital these startups allowing them to develop their products and services
and gain market share.

 Generate Job growth –

Startups funded by VC create new jobs thus helping in economic growth of country and
support local communities.

 High potential for returns –

VC is high risk high reward investment. The potential for high returns is significant as
successful startups can grow rapidly and generate significant profits for investors. This
potential high returns attract investors who are looking to diversify their portfolio and
capture high returns.

 Support a wide range of industries –

VC is not limited to any particular industry or sector. VC firms can invest in startups
belonging to various industries including technology, healthcare, energy, consumer
goods and others.

 Promote innovation and entrepreneurship –

VC firms provide not only financial support but also mentorship, guidance and
connections required to succeed startups. This support system encourages
 entrepreneurship and innovation thus creating new products and services and creating
new markets for such products.

1.

Financial services are economic services provided by finance industry consisting of broad range of
services including banking, investing, insurance, etc. Financial service sector provides financial
services to people and corporations. This segment of economy consists of various organized and
unorganized components like banks, investment houses, broker services, insurance services, credit
lenders and many more. Financial service sector is primary driver of nation’s economy. It provides
free flow of capital and liquidity in marketplace. Financial services firms make it easy to generate
flow of capital in various businesses, industries, sectors, etc. through credit lending. Financial
services are responsible for free flow of money in economy, its growth and optimal performance.

Financial services are backbone of economy as they contribute greatly toward the GDP of country.
Financial services are also responsible for creation of employment, Foreign Direct Investment (FDI),
mobilizing funds, long term credit facilities, insurance, investment services, banking services,
investment services and many more.

 Nature of Financial Services –

1) Intangibility – Any type of services provided by service provider are intangible in nature so
are financial services. Businesses need to build their goodwill and confidence in clients for
providing best performing and efficient financial services to them which will meet the
financial requirement and goals of clients.

2) Customer Oriented – The financial institutes have to study a lot of consumer data to identify
their requirements and demands. The financial institutions make different strategies relating
to cost, liquidity and maturity consideration of financial products. Hence, financial services
are customer oriented.

3) Inseparability – Financial institutions and its customers cannot be separated from each other
while producing and supplying financial services as both functions of financial services are
done at same time.
 4) Perishability – Financial services cannot be stored as they need to be created and delivered
to target customers as per their requirement. So, it is important for financial institutions to
assure that there is match of demand and supply of financial services.

5) Dynamism – The financial services should be dynamic so that they can be changed as per
socio-economic changes change the economy like disposal of income, standard of living,
level of education, etc. The financial services should be efficient so that new series can be
made by studying the future wants of consumers.

6) Derivatives and Catalysts – The financial services are derivatives of financial markets and
thus they also act as catalyst in market operations. The efficiency of market and its
performance depends upon the efficient working of financial services.

2.

Fund based financial services-

Fund based financial services are the fund services or financing services that are provided by banks
to their customers like short term and long term loans.