Jaiib Principle & Pactice Of Banking Final Mock

Factors, which are financial institutions that purchase accounts receivable from businesses, are entitled to service charges for the maintenance of sales receivables. These service charges cover the costs associated with managing and collecting the receivables, such as credit checks, invoicing, and debt collection. Therefore, the statement "Factors are entitled to service charges for maintenance of sales receivables" is true.

Under domestic factoring, the factor provides prepayment to the seller drawers after the buyer/drawees accept the bills receivable. The prepayment is typically around 80% of the invoiced value, minus the factor's discount at the normal rate of interest for the usance period. The remaining balance of the invoice value is paid to the client supplier once it is collected from the purchaser. This statement accurately describes the process of domestic factoring, making the answer "True."

According to Basel III regulations, the minimum requirement for Common Equity is 4.5%. However, RBI (Reserve Bank of India) has set a higher requirement of 5.5% for Common Equity. Therefore, the statement is true as the Common Equity under Basel III should be 4.5% as per Basel, but it should be 5.5% as per RBI.

Under recourse factoring, the factor assumes the risk of non-payment by the debtor. If the factor is unable to collect the dues from the debtor, they have the right to recover the amount already paid to the client. This means that the client is ultimately responsible for any unpaid invoices. Therefore, the statement is true.

In non-recourse factoring, the factor not only provides financing to the business but also assumes the risk of non-payment by the customer. This means that if the customer fails to pay the invoice, the factor absorbs the loss and the business is not held responsible. Therefore, the statement that in non-recourse factoring the factor provides both finance and credit protection is true.

When the purchaser of the client seller fails to pay the due amount on the due date, the client supplier is responsible for making the payment to the factor. This means that if the buyer does not fulfill their payment obligations, the client supplier will step in and ensure that the factor is paid. Therefore, the statement "the client supplier shall make good to the factor of the payment" is true.

Domestic factoring involves the management of receivables that come from domestic trade. This means that it specifically deals with the handling of unpaid invoices and collections within a country's borders. Therefore, the statement is true as it accurately describes the concept of domestic factoring.

The explanation for the given correct answer is that after the implementation of CERSAI, banks and financial institutions are required to register all security interests created in the asset. This means that any security interest, such as mortgages or liens, must be officially recorded with CERSAI to ensure transparency and legal protection. By registering these interests, it allows for easier tracking and verification of ownership and prevents disputes or fraudulent activities. Therefore, the statement "True" is correct.

The statement is true because a factor is a financial institution that collects the outstanding dues from the client's debtors on the due date. The factor then pays the collected amount to the client, who is the seller or creditor. This process is known as factoring, where the factor provides immediate cash flow to the client by purchasing their accounts receivable. Therefore, the factor acts as an intermediary between the client and their debtors, ensuring timely payment and providing financial stability to the client.

The statement is true because in factoring, the factor purchases the client's accounts receivable or invoices and pays the client a percentage of the total amount upfront. The remaining balance is then paid to the client/seller by the factor after collecting the full payment from the client's debtor or purchaser. This allows the client to receive immediate funds for their invoices and transfers the responsibility of collecting payment to the factor.

In non-recourse factoring, the factors take on the risk of bad debts if they are unable to collect the money owed by the purchaser's debtor. This means that if the debtor fails to pay, the factors will be responsible for the loss and will not be able to recover the funds from the purchaser or client. Therefore, the statement is true.

The statement is true because there are indeed two types of factoring: recourse factoring and without recourse factoring. Recourse factoring is when the factor (the company providing the financing) has the right to seek payment from the seller if the buyer does not pay the invoice. Without recourse factoring, on the other hand, is when the factor assumes the risk of non-payment and cannot seek payment from the seller. Therefore, the given statement is correct.

Mutual Fund organizations in India are required to obtain a license from the Reserve Bank of India (RBI) to operate. However, the regulation and oversight of mutual fund instruments, such as their creation, management, and distribution, are carried out by the Securities and Exchange Board of India (SEBI). Therefore, the statement that mutual fund instruments are regulated by SEBI while the organization itself is licensed by RBI is true.

The statement is true because a factor is a financial institution that provides financing to businesses by purchasing their accounts receivable. When a client prepays funds to the factor, the factor may charge financial charges, such as interest or fees, to recover the cost of providing the financing. Therefore, the factor does indeed recover financial charges from the client for funds prepaid to them.

Under Basel III, the minimum Tier I capital and Capital Conservation Buffer for banks in India should be 8%, which is higher than the 7% requirement set by Basel. This means that Indian banks are required to maintain a higher level of capital to ensure their financial stability and ability to absorb losses. This higher requirement is in line with the regulatory authorities' efforts to strengthen the banking sector and protect depositors' funds. Therefore, the statement that the minimum Tier I capital and Capital Conservation Buffer under Basel III for banks in India should be 8% is true.

This statement is true because a factor, which is a financial institution that provides financing to businesses by purchasing their accounts receivable, may or may not be exposed to credit risk. Credit risk refers to the possibility that a borrower may default on their debt obligations. Factors can mitigate credit risk by conducting thorough credit assessments and monitoring the creditworthiness of their clients. However, there is always a chance that a client may default, resulting in credit risk for the factor. Therefore, it is accurate to say that factors may or may not have credit risk.

The statement is true because a factor is a financial institution that buys a company's accounts receivable and provides credit protection to the client. The factor takes on the responsibility of credit control, collection, and sales accounting, allowing the client to focus on production and sales. This arrangement helps the client company manage its cash flow effectively and reduces the risk of bad debts.

Factoring is a financial arrangement where a company sells its outstanding book debts, also known as accounts receivable, to a third party called a factor. The factor then provides cash to the company, allowing them to access the funds immediately instead of waiting for the debts to be paid by customers. This enables companies to improve their cash flow and meet their immediate financial needs. Therefore, the statement that factoring enables companies to sell their outstanding book debts against cash is true.

Factoring can be either with recourse or without recourse. With recourse factoring means that the factor has the right to seek payment from the seller if the buyer fails to pay the invoice. Without recourse factoring means that the factor assumes the credit risk and cannot seek payment from the seller if the buyer defaults. Therefore, the factoring arrangement can be either with recourse or without recourse, depending on the terms agreed upon between the parties involved.

Factoring is indeed a service that deals with the financing and collection of accounts receivable, typically within a domestic context. This means that companies can sell their invoices or receivables to a factor, who then takes responsibility for collecting the payments from customers. The factor provides immediate cash flow to the company by advancing a percentage of the invoice amount. Therefore, the given statement is true.

An increase in the Repo Rate leads to credit becoming costlier. This is because the Repo Rate is the rate at which the central bank lends money to commercial banks. When the Repo Rate is increased, it becomes more expensive for commercial banks to borrow money from the central bank. As a result, commercial banks tend to increase the interest rates on loans and credit facilities that they offer to consumers and businesses. This increase in interest rates makes credit costlier for borrowers.

The correct answer is Liquidity Coverage Ratio. LCR is a regulatory requirement introduced under Basel III framework to ensure that banks have sufficient high-quality liquid assets to withstand a significant stress scenario lasting for 30 days. It measures the ability of a bank to meet its short-term liquidity needs and promotes the resilience of the banking sector.

The correct answer is "Yes, as the SARFAESI Act,2002 has made provisions to that effect." The SARFAESI Act,2002 allows banks to sell moveable securities in their possession without the intervention of the court. This act gives banks the power to take possession of and sell assets of borrowers in order to recover their dues. Therefore, the bank can sell moveable securities without the need for a court order.

The correct answer states that registration under both the SARFAESI Act and any other applicable law is necessary. This is because the SARFAESI Act is not a substitute for any other law. Therefore, to ensure legal compliance and protection of the creditor's rights, registration must be made under both laws.

The correct answer is Capital Conservation Buffer / Counter Cyclical Capital Buffer. These terms refer to two important buffers introduced under Basel III regulations. The Capital Conservation Buffer is an additional capital requirement that banks must maintain to withstand periods of financial stress. It helps ensure that banks have enough capital to continue lending during economic downturns. The Counter Cyclical Capital Buffer is a tool used by regulators to increase capital requirements during periods of excessive credit growth, and to release it during economic downturns. These buffers aim to enhance the resilience of banks and prevent excessive credit expansion.

The Supreme Court declared the condition to pay 75% of the amount as a precondition while preferring appeal to the DRT as invalid.

With recourse factoring refers to a situation where the client of the factor continues with his responsibility, but the factors of the client take on the entire responsibilities and make the client free. In India, all factoring is done with recourse, which means that the factor will not pay 100% but a maximum of 85% of the invoice to the client/seller. Therefore, the correct answer is 1+3+4.

The correct answer is "All" because factoring is an arrangement that involves all of the mentioned activities. Factoring is a financial service where a company sells its accounts receivable to a third party (factor) in order to receive immediate cash. The factor then takes over the management of receivables, maintains sales ledgers, submits sales accounts, and collects the debt from the customers. Therefore, all of these activities are part of the factoring process.

The convertible portion of a convertible debenture refers to the part of the debenture that can be converted into equity shares of the issuing company. This means that the debenture holder has the option to convert their debt into ownership in the company. Tier-II capital, on the other hand, refers to a bank's supplementary capital, including items such as subordinated debt and revaluation reserves. Therefore, the convertible portion of a convertible debenture is an example of Tier-II capital for CAR (Capital Adequacy Ratio).

The RWA (Risk-Weighted Assets) for Operational Risk under Basel II is approximately 5400 crore. This is calculated by adding the minimum capital requirements for market risk, credit risk, and operational risk, which are 1000 crore, 2000 crore, and 500 crore respectively. Therefore, the total RWA is 1000 crore + 2000 crore + 500 crore = 3500 crore. Since the answer options are given in approximations, the closest option to 3500 crore is 5400 crore.

The correct answer is 55. Revaluation Reserve, as part of Tier II capital, needs to be discounted at a rate of 55% in order to be considered as tier-II capital. This means that only 55% of the value of Revaluation Reserve can be counted towards Tier II capital.

The answer is 10000 crore because the question states that the total of Tier I and Tier II capital is 900 crore, which is the minimum level required under Basel II. This means that the total risk-weighted assets (RWA) must be equal to or greater than 900 crore. Since the only option that is equal to or greater than 900 crore is 10000 crore, it is the correct answer.

Commercial bills are a type of short-term negotiable instrument used in the financial market. They are essentially promissory notes issued by businesses to finance their working capital needs. Commercial bills are considered a form of money because they are widely accepted and can be easily traded or discounted in the financial market. They represent a form of debt for the issuer, but they are also considered a form of money due to their liquidity and acceptability in the market.

Pillar I and Pillar II in Basel II refer to the capital requirement and supervisory review process, respectively. Pillar I focuses on establishing minimum capital requirements for banks based on their risk profiles, ensuring that they have sufficient capital to absorb potential losses. Pillar II, on the other hand, involves the supervisory review process, where regulators assess the adequacy of a bank's capital and risk management practices. This pillar aims to enhance the overall stability and soundness of the banking system by ensuring that banks have effective risk management frameworks in place.

The correct answer is "50% of Tier I." This means that the discounted value of Subordinated Debt can be considered as Tier-II capital, but it is subject to a maximum of 50% of Tier I capital. This limitation ensures that the amount of Tier-II capital derived from Subordinated Debt does not exceed 50% of the Tier I capital, maintaining a balanced capital structure for the institution.

The bank issuing a bond for 5 years and one year already passing is an example of Tier-II capital. Tier-II capital refers to a bank's supplementary capital, which includes items such as subordinated debt and long-term bonds. These funds provide additional cushion to absorb losses and support the bank's financial stability. By issuing a bond for a specific time period, the bank is raising capital that can be used to meet regulatory requirements and enhance its Tier-II capital position.

Pillar III under Basel II refers to market discipline. This pillar aims to enhance market discipline by promoting transparency and disclosure of banks' risk profiles, capital adequacy, and risk management practices. It requires banks to publish information about their risk exposures, capital adequacy ratios, and other relevant information to enable market participants to make informed decisions. Market discipline plays a crucial role in promoting stability in the financial system by encouraging market participants to monitor and assess the riskiness of banks, which in turn can influence their behavior and risk-taking activities.

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The provision on standard assets as a loss reserve under tier II capital can be a maximum of 1.25% of the Risk-Weighted Assets (RWA). This means that banks or financial institutions are required to set aside a certain percentage of their capital as a reserve to cover potential losses on standard assets. The 1.25% limit ensures that banks have a sufficient buffer to absorb any losses that may arise from their standard asset portfolio.

Insurance contracts are based on the principle of utmost good faith, which means that both parties involved in the contract must act honestly, disclose all relevant information, and have a genuine intention to fulfill their obligations. This ensures transparency and trust between the insurer and the insured. Therefore, the correct answer is "Absolute good faith."

The correct answer is Collateralized. In a REPO (Repurchase Agreement), a bank borrows funds by selling securities to another party with an agreement to repurchase them at a later date. The securities serve as collateral for the loan, providing security to the lender. Therefore, the borrowing in a REPO transaction is collateralized, as the lender has the right to sell the securities if the borrower fails to repurchase them.

The correct answer is that the transaction will have to be registered with the Central Registry within 30 days from the date of the charge. This is in accordance with the SARFAESI Act, 2002 which mandates that any charge against property obtained by a bank or financial institution must be registered with the Central Registry within a specified time period. This registration ensures that the charge is legally recognized and can be enforced if necessary.

A REPO (Repurchase Agreement) is a direct instrument under the Liquidity Adjustment Facility (LAF). The LAF is a tool used by the central bank to manage liquidity in the banking system. In a REPO, the central bank buys securities from banks with an agreement to sell them back at a later date. This helps inject liquidity into the banking system. The Bank Rate, Cash Reserve Ratio (CRR), and Statutory Liquidity Ratio (SLR) are also tools used by the central bank, but they are not direct instruments under the LAF.

Subordinated Debt is a component of Tier II capital that is taken at a discounted value based on the remaining period of maturity. The discount rate is applied on a cumulative basis. In this case, the correct answer is 20, indicating that the discounted value of the Subordinated Debt is 20%.

The factor in factoring refers to the practice of purchasing receivables that are created from the sales of goods and services. This means that a company or individual, known as the factor, buys the outstanding invoices or accounts receivable from another business. By doing so, the factor assumes the responsibility of collecting the payments from the customers who owe the original business. This allows the original business to receive immediate cash flow instead of waiting for the customers to pay. Factoring is a common financial practice used by businesses to improve their cash flow and manage their working capital.

If a securitization company ceases to carry on the business of securitization or reconstruction, it may be a reason for the cancellation of its registration by the RBI without giving a hearing opportunity. This means that if the company stops its operations in the securitization or reconstruction business, it can lose its registration.

The correct answer is "2% of previous fortnight NDTL / 3 days". This means that the Marginal Standing Facility (MSF) can be availed by banks for a maximum amount of 2% of their previous fortnight's Net Demand and Time Liabilities (NDTL) for a period of 3 days. MSF is a tool used by the Reserve Bank of India to provide overnight liquidity to banks against government securities. By setting a limit on the amount and duration of the facility, the central bank can control the availability of funds in the banking system.

The correct answer is that the borrower has to deposit Rs 48 lac minimum before filing the appeal. This is because when a recovery certificate is obtained against a defaulting borrower in a Debt Recovery Tribunal (DRT), the borrower is required to deposit a certain amount as a security before they can file an appeal before the Appellate Tribunal. In this case, the minimum amount that needs to be deposited is Rs 48 lac.

The correct answer is 2. Under Basel II, the minimum requirement for Common Equity is 2%. This means that banks are required to hold at least 2% of their risk-weighted assets as common equity to ensure financial stability and absorb potential losses. This requirement is part of the Basel II framework's efforts to enhance the resilience of the banking system and protect against excessive risk-taking.

The correct answer is 6. According to Basel II guidelines, the minimum capital requirement under Tier-I in the Indian context is 6%. This means that banks and financial institutions in India must maintain a capital adequacy ratio of at least 6% of their risk-weighted assets to ensure financial stability and protect against potential losses. This requirement helps to ensure that banks have enough capital to absorb any unexpected losses and maintain the confidence of depositors and investors.