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Introduction to Financial Services

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Meaning

Assisting in sourcing of funds

Funding

Advising

Procedural assistance in deployment of

funds

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Two Main Types of Financial Services

Fund Based service provider will invest his own

funds and will bear some risk on his own balancesheet

Non-Fund (Fee) Based service provider would

act as an intermediator / facilitator between the

funding agency & the corporates

The financial services w.r.t. Balance Sheet &

Income Statement items are related to

Corporates & Mutual Funds, Credit Cards &

Consumer Finance Loans are related to Retail

Customers

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The Term Financial Services

Balance Sheet Items:-

Share Capital Management of Public Issues,Underwriting, Registry Services, Custodian Services,

Book Running, Pricing Advice, Ratings, Sourcing of

Venture Capital

Reserves & Surplus Advice on Bonus issue and

Dividend Policies

Term Loans Loan Syndication & Restructuring,

Securitization, Recovery Services & Credit Rating

Debentures/Bonds Management of Debenture

issues, Registry services, Custodian services

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The Term Financial Services

Balance Sheet Items:-

Current Liabilities Working Capital arrangements inform of CC, OD, CP, CD, Rating of these short terminstruments, Intermediation of these services

Fixed Assets Project feasibility study, RiskAssessment, Capital Rationing, Partner Search,Funding Structure, Capital Cost advice, Liaisoning

with various authorities Investments Investment Strategies, Asset

Selection, Risk Mitigation

Current Assets Management & StrategicConsulting on Inventory and Receivables

Total Balance Sheet Overall rating of the firm

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The Term Financial Services

Income Statement Items:-

Sales Bill Discounting, Factoring, Forfeiting &Letter of Credit

Variable Costs Credit arrangement for purchase of

raw material & Bills of Exchange

Fixed Costs BPR, Management Consultancy,Lease or Buy decision analysis

Interest Loan Optimization, Restructuring, Risk

Cover Allocation

Tax Tax Advice

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Factors determining use of FinancialServices In-house orSourced

Frequency

Size of the organization

Expertise of the Exiting Personnel

Fund Based Activity

Excessive Workload Ascertaining Decisions / Unbiased Advice

Regulatory Requirements

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Agencies providing Financial Services

Commercial Banks

Merchant Bankers Leasing & Hire Purchase Companies

Mutual Funds

Venture Capital Funds Rating Agencies

Other NBFCs (Consumer Finance, PMS, etc)

The Stock Exchanges

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Financial Innovation & Services

Financial Innovation (Engineering) involves

the design, the development and theimplementation of innovative financialinstruments and processes and theformulation of creative solutions to variousproblems in finance.

A financially innovative product may beinnovative today but it may eventuallybecome a common product in the nearfuture.

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Causes of Financial Innovation

Competition

Liberalization

Technology

Financial Awareness

Matured Legal Processes

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Stagesin Financial Engineering

Need Identification

Idea Formation of the Product Product Development & Model Building

Product Testing

Product Improvement based on Test Feedback

Product Pricing Restructuring the Product to suit Pricing Idea

Test Marketing

Launching of the Product

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Various Types of FinanciallyEngineered Products

Preference Shares

Convertible Debentures Call & Put Option

Warrants

Derivatives Forwards, Futures, Options Non-Voting Shares

Employees Stock Option (ESOPs)

Sweat Equity Shares

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Challenges before Financial ServicesIndustry

Market Issues

Regulatory Issues

Operational Issues

Technological Issues

Manpower Issues