What is cash credit means? ANSWER -

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Export Import Management
Section A: Objective Type & Short Questions (30 Marks)
„h This section consists of Multiple Choice and Short Note type questions.
„h Answer all the questions
„h Part one carries 1 mark each and Part two carries 4 marks each.
Part One:
Multiple Choices:
1. In case of goods being rejected or wrong shipments which section of customer act provides
drawback facility on the customer.s duty?
a. Section 47
b. Section 88
c. Section 74
d. Section 40
2. Risks arising out of foreign law due to______________
a. Lack of knowledge about foreign market
b. Expensive and complex litigation
c Both .a. & .b.
d. None of the above
3. Import LC is also known as _______________
a. Letter of Debt
b. Bills of exchange
c. Open account
d. Letter of credit
4. How much digits are there in IEC number?
a. 8
b. 10
c. 12
d. 15
5. What is the full form of RFID?
a. Rural Fund Information Development
b. Request For International Development
c. Radio Frequency Identification System
d. Radio Frequency Internal System
6. The Export Inspection Council is a ________________
a. Support the export corporation
b. Responsible for the enforcement of QC
c. Administrative control of the ministry of Commerce & industry
d. Provides consultancy to export organization
7. The World Trade Organization was formed in_______________
a. 1994
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b. 1995
c. 1996
d. 1997
8. Government policies are related to__________________
a. Income tax
b. Sales tax
c. Both .a. & .b.
d. None of the above
9. Clearing and forwarding agents are an important link between_______________
a. The exporter and various other agencies
b. The importer and various other agencies
c. Import and export of goods
d. All of the above
10. Which Regional issues are important to commercial success?
a. Taxation matters
b. Importance of negotiations
c. Degree of market risk
d. All of the above
Part Two:
1. Define EDI procedure.
2. Differentiation between ¡§Measurement Rules¡¨ and ¡§Pallet Rules¡¨.
3. Explain the Benefits of Electronic Procurement.
4. What is DGCI$S?
5. Define the role of intermediaries in Shipping Industry.
Section B: Caselets (40 marks)
„h This section consists of Case lets.
„h Answer all the questions.
„h Each Case let carries 20 marks.
„h Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
¡§Large Package Meal¡¨ is a full-package meals service company, a large hotel by the Shanghai Li Yang
couple of laid-off workers, was founded in 1994 and now has developed into a small Suxichang and
Hangjiahu area famous food service businesses.¡§Popular Package Meal¡¨ service is divided into two
categories: lunch and package delivery services. Lunch mainly by the meat dish, vegetables, Lu Cai,
popular soup and fruit composition of normal. Available for customers to choose menu: six kinds of meat
END OF SECTION A
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IIBM Institute Of Business Management
dish, vegetables, 10 species of Lu Cai 4, three kinds of soup and the general public three kinds of fruit can
also be adorned with custom-made drinks. Despite little change in the menu, but the annual report on the
point of view, the overall level of demand for this service fairly stable, the old customers will call to order
a day usually. However, as facilities and equipment reasons, the ¡§public packet meals¡¨ will ask the
customers at 10 am before the telephone booking, in order to ensure that the day of delivery in place.
In the package of services, the company.s core competency is to provide enterprises buffet reception,
large gatherings, as well as the average family feast and celebration dinner. Customers need a variety of
food and services can be pre-booking, but because of the service highly seasonal, but also with a variety of
community festivals and national holidays related to the demand fluctuated, with high season and low
season, so ask the customer a few weeks or even a month ahead of schedule to come to book. Volkswagen
meal package layout is similar to the company.s facilities in a processing plant. There are five work areas:
thermal system for food work areas, cold dish work area, Lu Cai preparation area, soups and fruit
preparation area, as well as a work area catering specifically for the installation of the sets of dishes lunch
box and book Zhuangpen share. In addition, there are three small refrigerators for storing frozen foods, a
large dry storage rooms for non-perishable materials. As the facilities and equipment limitations and the
risk of food spoilage constrained plant mass the size of the company.s development package meals. While
the drinks and fruit can be purchased, and some stores are willing to deliver door, but the overall package
on the limits of human congregation offers flexible meal service. Li Yang couples employed 10 staff: two
chefs and eight food preparation workers, part-time employment during the peak season other attendants.
Packet meals sector, competition is very intense, high-quality food products, reliable delivery, flexible
service and low-cost carriers are all in this line of survival and development is fundamental. Recently, the
public packet meals from the company has began to feel more and more discerning customers and several
new packages meal providers of professional competition. Customers increasingly need to diversify the
menu of services, flexible, and the response-time. Li Yang wife recently attended knowledge of modern
logistics training courses, on the time of the operation and the concept of third-party logistics services, was
impressed by careful consideration of these concepts is the public packet meals company to maintain its
competitiveness need. But they are puzzled, popular package Meals Company.s ability to help third-party
logistics services.
Questions:
1. The public package meal companies implement service-time availability of difficulties, Explain.
2. The introduction of third-party logistics services to the public packet meals would you put forward
any firm recommendations?
Caselet 2
UPS is a large international express delivery company, has hundreds of planes in addition to its own cargo
planes, he also rented hundreds of aircraft cargo aircraft, the transport capacity of more than 1,000 a day.
UPS in this world has established more than 10 air transport transit center in more than 200 countries and
regions of the tens of thousands of delivery centers. UPS.s employees to reach hundreds of thousands.
Annual turnover of the amount could reach tens of billions of dollars; express delivery companies in the
world enjoy a high reputation.
UPS Company is engaged in correspondence, documents and parcel delivery business, the company
quickly. It is the world.s countries and regions have made access to the air traffic rights. In the China, this
established a number of delivery centers. A company to take advantage of high-tech means to achieve
rapid and safe, is a wide range of logistics services, image perfect.
Questions:
1. Why do we say UPS is an international logistics business, and general transport logistics
company?
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2. To describe the international express logistics enterprises in the development prospects.
Section C: Applied Theory (30 marks)
„h This section consists of Applied Theory Questions.
„h Answer all the questions.
„h Each question carries 15 marks.
„h Detailed information should form the part of your answer (Word limit 200 to 250 words).
1. Discuss the role of Banks in an export-import transaction.
2. Describe briefly the steps involved in export business to succeed in the era of globalization.
END OF SECTION B
END OF SECTION C
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Examination Paper MM.100
International Trade
Section A: Objective Type & Short Questions (30 Marks)
„h This section consists of Multiple Choice & Short Note type Questions.
„h Answer all the questions
„h Part one carries 1 mark each and Part two carries 5 marks each.
Part One:
Multiple Choices:
1. _________is beneficial between two nations that have strong markets in two different sectors.
a. Economic Growth
b. International Trade
c. Trade Integration
d. Trade Diversion
2. What is the full form of UNCTAD?
a. United Nation Conference on Trade and Development
b. Union Nations Committee of Trade and Development
c. Union Nations Conference on Trade and Development
d. None of the above
3. ______is fixed through negotiation between the importing country and the exporting country.
a. Tariff Quota
b. Bilateral Quota
c. Mixing Quota
d. Unilateral Quota
4. Under which Act Reserve Code Number is required?
a. Foreign Exchange Regulation Act
b. Custom Act
c. Export Import Control Act
d. Foreign Trade Act
5. Which policy of the government will have a direct bearing on the exchange rate of the country?
a. Fiscal Policy
b. Instrument of Trade Policy
c. Monetary Policy
d. Both .a. & .c.
6. Which scheme helps the exporters in procuring imported raw materials?
a. IES
b. C.C.S.
c. IRS
d. None of the above
7. Which of the following factor affecting the Exchange rate?
a. Purchasing power Parity
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b. Exchange Control
c. Balance of Payments
d. All of the above
8. The system of permitting the currencies to move within a band is called___________.
a. Snake in the tunnel
b. Turtle Device
c. UNCTAD
d. None of the above
9. Periodic, as often as daily devaluations of pre-announced magnitude means________.
a. Managed Float Regime
b. The crawling Peg Regime
c. Single currency Peg
d. Composite currency Peg
10. The Export Policy of Government of India can be divided into_______ distinct phases.
a. 2
b. 3
c. 4
d. 5
Part Two:
1. Write a brief note on ¡§International Monetary Fund¡¨.
2. Write the components of the Uruguay Round Agreement.
3. Differentiate between Export Expansion and Import Substitution.
4. Explain the Term:-
a. Bill of Landing
b. Marine Insurance Policy
Section B: Caselets (40 marks)
„h This section consists of Caselets.
„h Answer all the questions.
„h Each case let carries 20 marks.
„h Detailed information should form the part of your answer (Word limit 150 to 200 words).
Caselet 1
India.s tea export rose to 46.74 million kg during the first quarter of the current financial year from 35.47
million kg in the previous comparable period. Export earnings from this item aggregates Rs. 81.61 crores
during April-June 1981, against Rs. 68.03 crores in the corresponding period last year. Thus, although in
terms of quantity our tea exports have looked upon this year, the unit value realization dropped from Rs.
19.8 per kg, to Rs 17.46 per kg.
The drop in unit value realization is attributed to the slackness in the international tea market due to the
global oversupply in this commodity. Since 1975, world tea production has gone up by 41 percent whereas
increase in consumption by the tea importing countries has been only of the order of the 9 percent.
END OF SECTION A
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Naturally, the prospects of a revival in international tea price are dim at least in the immediate future. The
recommendations made by the recent national meet on tea; .revitalize. the tea industry in the country have
to be viewed in this context.
The national meet on tea, organized by the Union Commerce Ministry, was held in the first week of
August to take a close look at the various problems confronting the tea industry the meeting which was
attended by the representatives of the Central Government, tea producing states, planter.s associations and
small growers, has recommended a package of fiscal reliefs ¡Vboth at the Central and State levels.
The package includes, among other things, a substantial reduction in excise duty on tea, refund of indirect
taxes paid on tea exports, simplification of drawback procedures, substantial reduction or removal of the
exercise duty on packet tea until further review,, suspension of sales tax an auction teas, concessional
credit and a significant cut in the agriculture income tax and other local taxed by the respective state
governments. It was also recommended that the state government should consider grant of exemption from
rural employment cess to all export sales of tea and teas used for packaging by the procedures themselves.
According to the available information these recommendations are being considered by the central and
states concerned by the central and states concerned for implementation.
The basic problem that confronts the tea industry in the international sphere is one of depressed price.
More and more black tea is coming into the international markets from several new tea producing export
countries leading to oversupply, lower realization. Among the tea producing nations area realizing without
greater cooperation among them, to bring a better equilibrium between demand and supply, they cannot
get incentives for tea exports. Because of lower production cost, some of our competitors have an edge
over us in export makers, and incentives may be necessary to an extent for offsetting this price
disadvantage. Similarly, assistance for exports of non-traditional items such as tea bags and packet tea
would be advantageous for establishing markets for these high value added items whose share in our
overall a tea exports is small at present.
Questions:
1. Discuss the problem that comforts the Tea Industry in the International sphere.
2. How you asses would the Tea producing states has recommended a package of fiscal reliefs?
Caselet 2
August 12, 1992 was a really bad day for John Martin. That was the day Canada, Mexico and the United
States announced an agreement, in principle, to the North America Free Trade Agreement (NAFTA).
Under the plan, all tariffs between the three countries would be eliminated within the next 10 to 15 years,
with most being cut in five years. What disturbed Martin most was the plan.s provision that all tariffs on
trade of textiles among the three countries are to be removed within 10 years. Under the proposed
agreement, Mexico and Canada would also be allowed to ship a specific amount of clothing and textiles
made from foreign materials to the United States each year, and this quota would raise slightly over the
first five years of the agreement. ¡§My God!¡¨ thought Martin.
Martin is the CEO of a New York based textile company, Martin.s Textiles. The company has been in the
Martin family for four generations, having been founded by his great grandfather in 1910. Today, the
company employs 1500 people in three New York plants that produce cotton based clothes, primarily
underwear. All production employees are union members and the company has a long history of good
labour relations. The company has never had a labour dispute and Martin, like his father, grandfather, and
great -grandfather before him, regards the workforce as part of the "Martin family". Martin prides himself
not only in knowing many of the employees by name, but also in knowing a great deal about the family
circumstances of many of the long time employees.
Over the past 20 years the company has experienced increasingly tough competition, both from overseas
and at home. The mid 1980s was particularly difficult. The strength of the dollar on the foreign exchange
market during that period enabled Asian producers to enter the US market with very low prices. Since
then, although the dollar has weakened against many major currencies, the Asian producers have not raised
their prices in response to the falling driven by wage rates and labour productivity. Not surprisingly, most
of Martin.s competitors in the north-eastern United States respond to the intense cost competition by
moving production south, first to states such as South Carolina and Mississippi where non ¡Vunion labour
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could be hired for significantly less than in the unionized North-east, and then to Mexico, where labour
costs for textile workers were less than $2 per hour. In contrast, wage rates are $12.50 per hour at Martin.s
New York plant and $8 to $10 per hour at non-union textile plants in the south eastern United States.
The last three years have been particularly tough at Martin.s Textiles. The company has registers a small
loss each year, and Martin knows the company cannot go on like this. His major customers, while praising
the quality of Martin.s products, have worried him that his prices are getting too high and they may not be
able to continue to do business with him, His long-time banker has told him he must get his labour costs
down. Martin agrees, but he knows of only one surefire way to do that, to move production south, way
south, to Mexico. He has always been reluctant to do that, but now he seems to have little choice. He fear
as that in a5 years the Us market will be flooded with cheap imports from Asian, US and Mexican
companies, all producing in Mexico. It looks like the only way for Martin.s Textiles to survive is to close
the New York plant and move production to Mexico. All that would be left in the United States would be
the Sales force.
Martin.s mind was spinning. How could something that throws good honest people out of work be good
for the country? The politicians said it would be good for trade, good for economic growth and good for
the three countries. Martin could not see it that way. What about Mary Morgan who has worked for
Martin.s for 30 years? She is now 54 year as old. How will she and others like her find another job? What
about his moral obligation to his workers? What about the loyalty his workers have shown his family over
the years? Is this a good way to repay it? How would he break the news to his employees, many of whom
have worked for the company for 10 to 20 years? And what about the Mexican workers? Could they be as
loyal and production in Mexico, he had heard stories of low productivity, poor workmanship high turnover
and high absenteeism. Is this true? If so, how could be ever cope with that? Martin has always felt that the
success of Martin.s textiles was partly due to the family atmosphere, which encourages worker loyalty,
productivity and attention to quality, an atmosphere that has been built up over four generations. How
could he replicate that in Mexico with a bunch of foreign workers who speak a language he doesn.t even
understand?
Questions:
1. What are the social costs of benefits to Martin.s Textiles of shifting production to Mexica?
2. What seems to be the most ethical action?
Section C: Applied Theory (30 marks)
„h This section consists of Applied Theory Questions.
„h Answer all the questions.
„h Each question carries 15 marks.
„h Detailed information should form the part of your answer (Word limit 200 to 250 words).
1. Describe the current issues affecting the Exchange Rate of India.
2. Explain briefly ¡§New Trade Theory¡¨.
S-2-300813
END OF SECTION C
END OF SECTION B




Principles & Practices of Banking
Section A: Objective Type & Short Questions (30 Marks)
 This section consists of Multiple Choice & Short Note type questions.
 Answer all the questions.
 Part One carries 1 mark each & Part Two carries 4 marks each.
Part One:
Multiple Choices:
1. Frequency of First Tranche Returns is:
a. Weekly
b. Monthly
c. Monthly/quarterly
d. Monthly/quarterly/half-yearly
2. An order for winding up a banking company can be issued by___________
a. The High Court
b. The RBI
c. The Central Government
d. The Supreme court
3. Who shall be natural guardian in case of married minor girl?
a. Father
b. Brother in law
c. Father-in-law
d. Husband
4. X a partner in the firm XYZ Co. wants to open a Bank account in the firm‟s name. It will require
signatures of:
a. All partners
b. Any one of the partner
c. Managing partner only
d. Sleeping partner not required
5. Public limited companies should have minimum shareholders, before Opening Bank account.
a. 11
b. 7
c. 5
d. 15
6. If the beneficiary is government then the Expiry of guarantee is governed by the „law of
limitation‟ ranging from 3 years to
a. 15 years
b. 30 years
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c. 20 years
d. 10 years
7. Charge created on LIC Policy is
a. Lien
b. Hypothecation
c. Pledge
d. Assignment
8. The device that combines the parallel input data into single serial output data is known as
a. Switcher
b. Multiplexer
c. Encoder
d. Front end processor
9. In market skimming pricing strategy:
a. Initially price is lower and then it is increased
b. Initial price is high and is maintained high
c. Initial price is low and is maintained low
d. Initially price is higher and then it is reduced
10. The marketing personnel need information _________intervals.
a. At yearly
b. At quarterly
c. At monthly
d. On a continuous basis and regular
Part Two:
1. Discuss the role of RBI in Indian Banking sector.
2. Write short notes on:
a. Repo Rate
b. Reverse Repo Rate.
3. Write short notes on:
a. Bank Lien
b. Right of set off
4. What is cash credit means?
Section B: Caselets (40 marks)
 This section consists of Caselets.
 Answer all the questions.
 Each caselet carries 20 marks.
 Detailed information should form the part of your answer (Word limit 200 to 250 words).
END OF SECTION A
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Caselet 1
There is a lacuna in the present T-Bill auction system of RBI. The dealers (investors) are subject to
what is called the „Winners Curse‟. The value of a T-Bill to a dealer is the price it can fetch in the
secondary market. This is an unobserved random value, which is likely to be common to all dealers.
It is quite unlike the works of art which the Sotheby‟s would place at an auction. The price of Mona
Lisa, say, to an avid collector of Da Vinci‟s paintings, would be more than what a Picasso collector
would value it. In sharp contrast, market participants are likely to agree on the price of a T-Bill in the
secondary market. Now winning an auction in a discriminatory price method may not be profitable.
For, it would mean that the winner has overestimated the T-Bill value.
Questions:
1. How does the winner in such an auction become the loser due to the „winner curse‟?
2. Explain the role of primary dealers in the money market.
Caselet 2
In a bid to familiarize banks, exporters and other financial bodies with „Forfeiting‟, the State Bank of
India (SBI) will soon be setting up a three-man cell at its international division in Mumbai for
advisory purposes. According to Mr. D. Ian Guild, Senior Advisor, Forfeiting & Syndications
Group, Standard Bank, the cell was being set up after a series of meetings with the bank, and is
essentially aimed at spreading the message of Forfeiting as an effective trade financing mechanism
to increase exports. Suggesting that forfeiting was the ideal springboard for effecting a quantum
jump in exports in the medium-term, Mr. Guild said he was confident of aggregating forfeiting
business of $100 millions in 1998 and $250 millions in 1999 in the country. Since its introduction in
1992, Exim Bank had facilitated 69 forfeiting transactions valued at around $75 millions, with credit
periods ranging between 90 days and seven years, and covering the export of goods ranging from
textiles to plant and machinery. The RBI has now permitted all commercial banks to act as
facilitators for forfeiting transactions. Mr. Guild pointed out that forfeiting has not really taken off in
India because exporters and commercial banks lacked the knowledge of the mechanics of the
scheme. In India, the real challenge would be to motivate small and medium exporters to use the
forfeiting route for exports to countries which may not be able to buy on cash terms. Mr. S.
Bhattacharya, deputy general manager, Exim Bank, Calcutta, said: “Payment defaults by overseas
buyers were an integral part of cross-border business and export credit insurance has not been a
comprehensive answer to this problem”. Forfeiting offered an alternative solution, especially to
exporters wishing to penetrate difficult markets for the first time, he pointed out. Some of the top
international forfeiters in the world have stopped accepting forfeiting documents involving Pakistan
and Russia, according to Mr. Amitabh Mehta, Trader and Originator, Forfeiting and Syndications
group, Standard Bank London Ltd. (SBLL). According to Mr. Mehta, forfeiting transactions
involving Pakistan could not be carried out due to poor performance of the banks there. In addition,
the financial status of Pakistan following the nuclear blasts has made it impossible to carry out the
transactions. Similarly, transactions with Russia are being totally rejected by forfeiting due to the
current economic turmoil. Joining the list with Pakistan and Russia are Iraq, Sudan and Nigeria, he
added. Commenting on the Indian situation, Mr. Mehta said, “With its sound banking system, the
country is well placed in the international scene. In fact, there is tremendous potential for forfeiting
in the years to come,” he said. According to him, even after the nuclear tests conducted by India, the
top forfeiters were not worried and continued to accept forfeiting papers to be transacted with India.
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Questions:
1. Discuss the mechanism of forfeiting and the role played by banks in forfeiting transactions.
2. How does forfeiting differ from factoring?
Section C: Applied Theory (30 marks)
 This section consists Long Questions.
 Answer all the questions.
 Each question carries 15 marks.
 Detailed information should form the part of your answer (Word limit 150 to 200 words).
1. What are the various approaches to capital adequacy? Explain Basel II norms and minimum
capital requirements in Basel II norms.
2. What do you mean by non Performing Assets (NPA)? How have NPAs affected financial health
of Indian commercial banks?
END OF SECTION B
END OF SECTION C
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Examination Paper MM.100
Financial Services
Section A: Objective Type & Short Questions (30 Marks)
 This section consists of Multiple Choice & Short Note type questions.
 Answer all the questions.
 Part One carries 1 mark each & Part Two carries 5 marks each.
Part One:
Multiple Choices:
1. NBFS stands for ___________
2. ALCO is a decision making unit responsible for balance sheet planning from risk return
perspective. (T/F)
3. A contract of „Indemnity‟ is one whereby:
a. A person tries to use the other‟s property
b. A person promises to save the other‟s property from loss caused.
c. A person tries to trick the property of other for some other person.
d. None
4. The transaction between the lessor and the lessee being a demand sale is called__________
a. First sale
b. Second sale
c. Third sale
d. Fourth sale
5. Which of the following is comes under mutual funds?
Open-end funds
Closed-end funds
Both (a) & (b)
None
6. Concept of leasing involves:
a. Lessor
b. Lessee
c. None
d. All
7. CRISIL stands for____________
8. ____________are issued by the government for period ranging from 14 days to 364 days
through regular auctions.
a. Treasury Bills
b. Commercial Papers
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c. Call Money Market
d. None
9. The practice of discounting accommodation bills is known as _____________
10. HUDCO stands for _____________
Part Two:
1. Explain about SEBI guidelines to merchant bankers.
2. List the different types of Factoring.
3. Write a short note on venture capital in India.
4. Write a short note on Depositories.
Section B: Caselets (40 marks)
 This section consists of Caselets.
 Answer all the questions.
 Each caselet carries 20 marks.
 Detailed information should form the part of your answer (Word limit 200 to 250 words).
Caselet 1
Sunlight Industries Ltd manages its accounts receivables internally by its sales and credit
department. The cost of sales ledger administration stands at Rs 9 crore annually. It supplies
chemicals to heavy industries. These chemicals are used as raw material for further use of are
directly sold to industrial units for consumption. There is good demand for both the types of uses.
For the direct consumers, the company has a credit policy of 2/10, net 30. Past experience of the
company has been that on average 40 per cent of the customers avail of the discount while the
balance of the receivables are collected on average 75 days after the invoice date. Sunlight Industries
also has small dealer networks that sell the chemicals. Bad debts of the company are currently 1.5
per cent of total sales.
Sunlight Industries finances its investment in debtors through a mix of bank credit and own longterm
funds in the ratio of 60:40. The current cost of bank credit and long-term funds are 12 per cent
and 15 per cent respectively.
There has been a consistent rise in the sales of the company due to its proactive measures in cost
reduction and maintaining good relations with dealers and customers. The projected sales for the
next year are Rs 800 crore, up 15 per cent from last year. Gross profiles have been maintained at a
healthy 22 per cent over the years and are expected to continue in future.
With escalating cost associated with the in-house management of debtors coupled with the need
to unburden the management with the task so as to focus on sales promotion, the CEO of Sunlight
Industries is examining the possibility of outsourcing its factoring service for managing its
END OF SECTION A
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IIBM Institute of Business Management
receivables. He assigns the responsibility of Anita Guha, the CFO of Sunlight. Two proposals, the
details of which are given below, are available for Anita‟s consideration.
Proposal from Canbank Factors Ltd: The main elements of the proposal are: (i) Guaranteed
payment within 30 days (i) Advance, 88 per cent and 84 per cent for the resource and non-recourse
arrangements respectively (iii) discount charge in advance, 21 per cent for with resource and 22 per
cent without resource (iv) Commission, 4.5 per cent without resources 2.5 per cent and with
resource.
Proposal from Indbank Factors: (i) Guaranteed payment within 30 days (ii) Advance, 84 per cent
with resource and 80 per cent without resource (iii) Discount charge upfront, without resource 21 per
cent and with resource, 20 per cent and (iv) Commission upfront, without resource 3.6 per cent and
with resource 1.8 per cent.
The opinion of the Chief Marketing Manager is that in the context of the factoring arrangement,
his staff would be able to exclusively focus on sales promotion which would result in additional
sales of Rs 75 crore.
Required The CFO of Sunlight Industries seeks your advice as a financial consultants on the
alternative proposals. What advice would you give? Why? Calculations can be upto one digit only.
Caselet 2
Following are the financial statements for A Ltd and T Ltd for the current financial year. Both firms
operate in the same industry.
BALANCE SHEETS
Particulars Firm A Firm B
Total current assets Rs 14,00,000 Rs 10,00,000
Total fixed assets (net) 10,00,000 5,00,000
_____________ __________
Total assets 24,00,000 15,00,000
_____________ ___________
Equity capital (of Rs 10 each) 10,00,000 8,00,000
Retained earnings 2,00,000 _
14% Long-term debt 5,00,000 3,00,000
Total current liabilities 7,00,000 4,00,000
_____________ ___________
24,00,000 15,00,000
INCOME STATEMENTS
Net sales Rs 34,50,000 Rs 17,00,000
Cost of goods sold 27,60,000 13,60,000
__________ ___________
Gross profit 6,90,000 3,40,000
Operating expenses 2,96,923 1,45,692
Interest 70,000 42,000
__________ ___________
Earnings before taxes (EBT) 3,23,077 1,52,308
Taxes (0.35) 1,13,077 53,308
Earnings after taxes (EAT) 2,10,000 99,000
Examination Paper of Banking & Financial Services Management
8
IIBM Institute of Business Management
Additional information: __________________________________
Number of equity shares 1,00,000 80,000
Dividend payment (D/P) ratio 0.40 0.60
Market price per share (MPS) Rs 40 Rs 15
__________________________________
Assume that the two firms are in the process of negotiating a merger through an exchange of equity
shares. You have been asked to assist in establishing equitable exchange terms, and are required to:
(i) Decompose the share prices of both the companies into EPS and P/E components, and also segregate
their EPS figures into return on equity (ROE) and book value of intrinsic value per share (BVPS)
components.
(ii) Estimate future EPS growth rates for each firm.
(iii) Based on expected operating synergies, A Ltd estimates that the intrinsic value of T‟s equity share
would be Rs 20 per share on its acquisition. You are required to develop a range of justifiable equity
share exchange ratios that can be offered by A Ltd‟s shareholders. Based on your analysis in parts (i)
and (ii), would you expect the negotiated terms to be closer to the upper, or the lower exchange ratio
limits? Why?
(iv) Calculate the post-merger EPS based on an exchange ratio of 0.4 : 1 being offered by A Ltd. Indicate
the immediate EPS accretion or dilution, if any, that will occur for each group of shareholders.
(v) Based on a 0.4 :1 exchange ratio, and assuming that A‟s pre-merger P/E ratio will continue after the
merger, estimate the post-merger market price. Show the resulting accretion or dilution in pre-merger
market prices.
Section C: Applied Theory (30 marks)
 This section consists of Long Questions.
 Answer all the questions.
 Each question carries 15 marks.
 Detailed information should form the part of your answer (Word limit 150 to 200 words).
1. What do you mean by money market? Discuss money market instruments in detail.
2. What is leasing? Explain about the advantages and disadvantages of lease finance.
S-2-300813
END OF SECTION B
END OF SECTION C