Business Finance-II

CONTENTS
Unit Contents Page No.
1 Stock Exchange 1-20
2 Foreign Capital 21-39
3 New Dimensions in Business Finance 40-56
4 Corporate Restructuring and Finance 57-67

Business Finance - II
UNIT - I STOCK EXCHANGE
Unit Structure:
1.0 Objectives
1.1 Stock Exchange –
3.1.1 Definition of Stock Exchange
3.1.2 Importance of Stock Exchange
3.1.3 Functions of Stock Exchange
1.2 Stock Exchanges in India
1.3 Working of BSE and NSE
1.4 Trading Mechanism
1.5 Depository
1.6 Summary
1.7 Questions
1.8 Suggested/Further Readings:
1.0 OBJECTIVES:
• To understand the concept of Stock Exchange.
• To study the importance and functions of Stock Exchange.
• To study the different Stock Exchanges and working of BSE and NSE in
India.
• To understand the trading mechanism of Stock Exchanges Depositories in
India.
1.1 Stock Exchange –

1.1.1 Definition of Stock Exchange
Meaning and Definition of Stock Exchange:
The word “Stock Exchange” is made from two words 'Stock' and
‘Exchange’. Stock means part of the capital of a company, and Exchange
means a transferring the ownership. It represents a market for purchasing
and selling of stocks, securities like share, debentures, bonds etc. Thus, we
can describe the stock exchange as a market or a place where different types
of securities are bought and sold. Securities traded on a stock exchange
include shares issued by various companies, unit trusts, derivatives, pooled
investment products and bonds. The stock exchange deals in different types
of securities, therefore it is known as 'securities market' or 'securities Stock Exchange
exchange'. A stock exchange is a secondary market since the trading
happens only for the securities that have already been issued to the public 1
“Only for Private Circulation”

Business Finance - II and now being allowed to be traded on the stock exchange after getting
listed with the stock exchange. The initial offering of stocks and bonds to
investors is by definition done in the primary market and subsequent
trading is done in the secondary market.
Definition of stock exchange as
“An association, organization or body of individuals, whether
incorporated or not, established for the purpose of assisting, regulating
and controlling business of buying, selling and dealing in Securities.”
The Securities Contracts (Regulation) Act, 1956
“Security exchanges are market places where securities that have been
listed thereon may be bought and sold for either investment or
speculation”.
Pyle
“An association of persons engaged in the buying and selling of stocks,
bonds and shares for the public on commission and guided by certain
rules and conditions.”
K.L. Garg
Features of Stock Exchanges:
On the basis of above definitions, given below are the main characteristics
of any stock exchange:
Organized Market:
Stock exchange is an organized market of securities like shares, debentures,
bonds, etc. It is a place where the securities are bought and sold. All the
transactions are regulated by the rules and bye-laws of the concerned stock
exchange.
Formation & Membership:
A stock exchange is a registered body as an association or a society or a
company. The membership of the stock exchange is restricted to a certain
number. Every member has to pay the prescribed membership fee.
Only Members Can Trade:
only members can trade on the stock exchange. Brokers act as an agent of
the buyers and sellers of shares, debentures and bonds. In a stock exchange,
transactions take place between members or their authorized agents on
behalf of the investors.
Listed Securities:
To be able to trade a security on a certain stock exchange, it must be listed
on the respective stock exchange as per the rules, bye laws and guidelines
issued by the exchange. Companies which want their securities to be traded
on the exchange have to fulfill certain conditions.
Stock Exchange
1.1.2 Importance of Stock Exchange
2 (a) Economic Barometer:

An economic condition of a country can be judged through growth of stock Business Finance - II
exchange. Changes in the prices of shares reflect the changes in the country.
The rise or fall in the share prices indicates the boom or recession cycle of
the economy. Stock exchange is also known as a pulse of economy or
economic mirror which reflects the economic conditions of a country.
(b) Pricing of Securities:
Demand and supply is the deciding factors for value the securities. The
securities of sch companies which is profitable and growth oriented have
high demand and possess high value on the stock exchange. The valuation
of share are used by many stakeholders like shareholder, creditor,
prospective investor, Government etc.
(c) Safety of Transactions:
Stock Exchange is an institution which list down the securities after
scrutinizing and doing periodically supervision of their solvency.
Therefore only such companies which are registered, solvent and have up
to date accounts record are allowed to list their securities on any stock
exchange. It facilitates safety of transaction to the participants in the market
namely investor, broker and many others who are directly or indirectly
dealing in the stock exchange.
(d) Contributes to Economic Growth:
Stock exchange facilitates trading of securities number of times in a day
and therefore process of disinvestment and reinvestment helps to invest in
most productive investment proposal and this leads to capital formation
and economic growth.
(e) Spreading of Equity Cult:
Stock exchange encourages people to invest in owning the securities by
regulating new issues (IPO), better trading practices and by spreading
awareness about investment.
(f) Providing Scope for Speculation:
Prices of securities on the stock exchanges are decided by many factors
except demand and supply of particular securities. Stock exchange
facilitates liquidity apart from other advantages which makes the market
more speculative.
(g) Liquidity:
Stock exchange facilitates liquidity by providing ready market for sale and
purchase of securities. It gives assurance to the investors that their
investment can be converted into cash whenever they want. The investors
can invest in long term investment projects without any hesitation, as
because of stock exchange they can convert long term investment into short
term and medium term.
1.1.3 Functions of Stock Exchange Stock Exchange

Stock exchange is one of the most important financial intermediaries and
plays an indispensable role in the capital formation and economic 3
Business Finance - II development of the country. Given below are some important functions of
stock exchanges:
(a)Marketability of Securities:
The stock exchange facilitates easy marketability of securities as securities
can be bought and sold conveniently. The Stock Exchange provide
companies a platform with all convenience where they can raise money
through issue of securities and giving good investment opportunities to the
investor to invest in these securities for good returns.
(b)Price Determination & Continuity:
There is regular transaction (buying and selling) of securities on the stock
exchange. Demand and supply of particular securities decides the price of
any securities. Supply and demand in stock markets are driven by various
factors and this balance of supply and demand affects the price of stocks.
(c)Mobilizing Surplus Savings:
Stock exchange is very important part of the capital market of a country.
People bought shares from their savings (through an IPO or already listed
securities), this leads mobilization of funds to help companies finance their
organizations.
(d)Barometer of the Economy:
The share prices fluctuate on stock exchanges as a result of market forces.
Share prices tend to rise or remain stable when companies and the economy
show signs of stability and growth whereas they might fall sharply at the
time of an economic recession, stagnation, depression, or financial crisis.
(e)Mobility of Capital:
Stock exchange facilitates investment in securities by all section of the
society it might be small investor or investor at organization level. Stock
exchange mobilizes capital from the investor to the businessmen who are in
dire need of funds. Savings are encouraged when people come to invest in
stock exchange. Therefore stock exchange mobilizes capital from one end
to other.
(f)Profit Sharing & Resource Allocation:
As a result of stock market transactions, funds flow from the less profitable
to more profitable enterprises. All type of stock investors whether they are
individuals, professional stock investors, institutional investors earn
capital gains through dividends and stock price increases. This enables
them to share in the wealth of profitable businesses. Industries which have
potentials of growth are able to attract the savings of people towards their
ventures relatively more than those which have no such prospects. Thus,
financial resources of the economy are allocated on a reasonable basis.
Unprofitable and troubled businesses may result in capital losses for
shareholders.
(g) Speculation:
Stock Exchange
Prices of securities on the stock exchanges are decided by many factors
4 except demand and supply of particular securities. Stock exchange

facilitates liquidity apart from other advantages which makes the market Business Finance - II
more speculative.
(h)Liquidity:
Stock exchange facilitates liquidity by providing ready market for sale and
purchase of securities. It gives assurance to the investors that their
investment can be converted into cash whenever they want. The investors
can invest in long term investment projects without any hesitation, as
because of stock exchange they can convert long term investment into short
term and medium term.
1.2 Stock Exchanges in India

Ø BSE Ltd.
Ø NSE
Ø Calcutta Stock Exchange Ltd.
Ø Magadh Stock Exchange ltd.
Ø Metropolitan Stock Exchange Ltd.
Ø NSE IFSC Ltd. Etc.
The National Stock Exchange of India Limited (NSE)
The National Stock Exchange of India Limited (NSE) is the leading stock
exchange of India which is located in Mumbai. The NSE was established in
1992 as the first demutualized electronic exchange in the country. NSE was
the first exchange in the country to provide a modern, fully automated
screen-based electronic trading system. It offers easy trading facility to the
investors.
National Stock Exchange has a total market capitalization of more than
US$2.27 trillion, making it the world’s 11th-largest stock exchange as of
April 2018. NSE's the NIFTY 50, the 50 stock index is used extensively by
investors in India and around the world as a barometer of the Indian capital
markets.
Stocks trading at the BSE and NSE account for only around 4% of the
Indian economy, which derives most of its income related activity from the
so-called unorganized sector and households.
Bombay Stock Exchange (BSE)

The Bombay Stock Exchange (BSE) is an Indian stock exchange located at
Dalal Street, Mumbai (formerly known as Bombay).
BSE established in 1875, the BSE formerly known as Bombay Stock
Exchange Ltd. which is Asia’s first stock exchange. It claims to be the
world's fastest stock exchange, with a median trade speed of 6
microseconds. The BSE is the world's 10th largest stock exchange with an
overall market capitalization of more than $2.3 trillion on as of April 2018. Stock Exchange
Bombay Stock Exchange was founded by Premchand Roychand. He was 5

Business Finance - II one of the most influential businessmen in Bombay. A man who made a
fortune in the stock broking business and came to be known as the Cotton
King, the Bullion King or just the Big Bull.
The place where first stock broker meetings in the 1850s was held in rather
natural environs - under banyan trees - in front of the Town Hall, where
Horniman Circle is now situated. After a decade, the brokers moved their
venue to another set of foliage, this time under banyan trees at the junction
of Meadows Street and what is now called Mahatma Gandhi Road. As the
number of brokers increased, they had to shift from place to place, but they
always overflowed to the streets. At last, in 1874, the brokers found a
permanent place, and one that they could, quite literally, call their own. The
new place was, aptly, called Dalal Street (Brokers' Street).
The Bombay Stock Exchange is the oldest stock exchange in Asia. Its
history dates back to 1855, when 22 stockbrokers would gather under
banyan trees in front of Mumbai's Town Hall. On August 31, 1957, the BSE
became the first stock exchange to be recognized by the Indian Government
under the Securities Contracts Regulation Act.
In 1980, the exchange moved to the Phiroze Jeejeebhoy Towers at Dalal
Street, Fort area. In 1986, it developed the S&P BSE SENSEX index,
giving the BSE a means to measure the overall performance of the
exchange. In 2000, the BSE used this index to open its derivatives market,
trading S&P BSE SENSEX futures contracts. The development of S&P
BSE SENSEX options along with equity derivatives followed in 2001 and
2002, expanding the BSE's trading platform.
The Bombay Stock Exchange switched to an electronic trading system
developed by CMC Ltd. in 1995. It took the exchange only 50 days to make
this transition. This automated, screen-based trading platform called BSE
On-Line Trading (BOLT) had a capacity of 8 million orders per day. The
BSE has also introduced a centralized exchange-based internet trading
system, BSEWEBx.co.in to enable investors anywhere in the world to trade
on the BSE platform. Now BSE has raised capital by issuing shares and as
on 3rd May 2017 the BSE share which is traded in NSE only closed with
Rs.999.
The BSE is also a Partner Exchange of the United Nations Sustainable
Stock Exchange initiative, joining in September 2012. BSE established
India INX on 30 December 2016. India INX is the first international
exchange of India.
NSE IFSC Limited

NSE IFSC Limited (NSE International Exchange) incorporated on
November 29, 2016 by the Registrar of Companies, Gujarat, is a fully
owned subsidiary company of National Stock Exchange of India Limited
(NSE) and has received approval from Securities and Exchange Board of
India (SEBI) to establish an international exchange in Gujarat International
Stock Exchange
Finance Tech City (GIFT) - International Financial Service Centre (IFSC)
6 Gandhinagar. GIFT city, which is a special economic zone, is India's first

IFSC. NSE IFSC claims the benefits include exemptions from security Business Finance - II
transaction tax, commodity transaction tax, dividend distribution tax,
capital gain tax waivers and no income tax.
Subject to SEBI approval, trading is permitted in equity shares of
companies incorporated outside of India, depository receipts, debt
securities of eligible issuers, currency, index, interest rate and non-
agriculture commodity derivatives and all categories of exchange traded
products that are available for trading in stock exchanges in FATF/ IOSCO
complaint jurisdiction.
Ø November 29, 2016 - NSE International Exchange obtained
Certificate of incorporation from the Registrar of Companies,
Gujarat situated at Ahmedabad
Ø December 23, 2016- Received approval from Development
Commissioner, Kandla Special Economic Zone for setting up of
NSE International Exchange Exchange in Gujarat International
Finance Tech-City (GIFT) multi services Special Economic Zone
Ø NSE International Exchange will offer a wide range of products in
the segments of equity index derivatives, commodity derivatives,
interest rate derivatives and currency derivatives. All products
offerings are subject to rules and regulations enlisted by NSE
International Exchange.
Metropolitan Stock Exchange of India Limited (MSE)

Metropolitan Stock Exchange of India Limited (MSE) is recognized by
Securities and Exchange Board of India (SEBI) under Section 4 of
Securities Contracts (Regulation) Act, 1956. The Exchange was notified a
"recognized stock exchange" under Section 2(39) of the Companies Act,
1956 by Ministry of Corporate Affairs, Govt. of India, on December 21,
2012.
MSE has Shareholders which include public sector banks, private sector
banks and domestic financial institutions who, together hold over 88%
stake in the Exchange. MSE is subjected to CAG Audit and has an
independent professional management.
In line with global best practices and regulatory requirements, clearing and
settlement of trades done on the Exchange are conducted through a separate
clearing corporation - Metropolitan Clearing Corporation of India Ltd.
It offers an electronic, transparent and hi-tech platform for trading in
Capital Market, Futures & Options market, Currency Derivatives and Debt
Market segments. The Exchange has also received approval from SEBI for
SME trading platform.
Magadh Stock Exchange Association Ltd (MSEA)
Magadh Stock Exchange Association Ltd (MSEA) is located in Patna,
India. It was established in the year 1986. It is one among the 25 odd Stock Exchange
regional stock exchanges in India. The exchange was disbanded on 3
September 2007 by Securities and Exchange Board of India (SEBI) 7
Business Finance - II By 1999-2000, the Magadh Stock Exchange had a total of 199 brokers, out
of which 15 were corporate brokers. Among 199 brokers, it was further
classified as 183 proprietor brokers, 1 partnership broker and 5 corporate
brokers. Then, there were only 2 sub-brokers registered.
In September 2005, the Magadh Stock Exchange was corporatised and
demutualised in accordance with the provisions of the Securities Contracts
(Regulation) Act, 1956.
On 17 August 2000, the Magadh Stock Exchange became the only regional
stock exchange in the country to trade on the National Stock Exchange of
India (NSE), the Bombay Stock Exchange (BSE), Calcutta Stock
Exchange (CSE) and the Interconnected Stock Exchange (ISE) when the
exchange finally got connected to the NSE through ISE.
1.3 Working of BSE and NSE

On the Bombay stock exchange and National Stock Exchange Market
timings are stipulated by the regulator. Following are the securities which
are traded on the stock exchange.
Ø Equity
Ø Equity Derivatives
Ø Debt Segment
Ø NSE Bond Futures
Ø Currency Derivatives
The Exchange operates the following sub-segments in the Capital Market
segment:
Ø Rolling Settlement
Ø Limited Physical Market
Ø Institutional segment (IL series)
Ø Qualified Foreign Investor (QFI) Segment
Ø Trade for Trade Segment
Ø Block Trading Session
Ø Post Close Session
Ø Offer for Sale (OFS)
Price Bands
Daily price bands are applicable on securities as below:
Ø Daily price bands of 2% (either way)
Stock Exchange Ø No price bands are applicable on scrips on which derivative products
are available
8

Ø Price bands of 20% (either way) on all remaining scrips (including Business Finance - II
debentures, preference shares etc).
Order Conditions: A Trading Member can enter various types of orders
depending upon his/her requirements. These conditions are broadly
classified into three categories: time related conditions, price-related
conditions and quantity related conditions.
Tick Size:
Tick sizes for different securities are as follows
Ø All non-convertible and convertible debt instruments, Mutual Fund
Units, Central Government Securities available for trading is one
paisa.
Ø Exchange Traded Fund (ETF) is one paisa.
Ø For all other securities and Gold ETFs tick size is five paisa.
1.4 Trading Mechanism

NSE operates on the 'National Exchange for Automated Trading' (NEAT) system
NEAT is a fully automated screen based trading system, which adopts the
principle of an order driven market. This system helps to reduce jobbing spreads
not only on NSE but in other exchanges, thus reducing transaction costs.
The NEAT system has following types of market. They are:
Normal Market
All orders which are of regular lot size or multiples thereof are traded in the
Normal Market. For shares that are traded in the compulsory
dematerialised mode the market lot of these shares is one. Normal market
has different book wherein orders are segregated as Regular lot orders,
Special Term orders, negotiated Trade Orders and Stop Loss orders.
Odd Lot Market
All orders whose order size is less than the regular lot size are traded in the
odd-lot market. An order is called an odd lot order if the order size is less
than regular lot size. These orders do not have any special terms attributes
attached to them. In an odd-lot market, both the price and quantity of both
the orders (buy and sell) should exactly match for the trade to take place.
Auction Market
In the Auction Market, auctions are introduced by the Exchange on behalf
of members for settlement related reasons. There are 3 participants in this
market.
Ø Initiator - the party who initiates the auction process is called an
initiator.
Ø Competitor - the party who enters orders on the same side as of the
initiator.
Stock Exchange
Ø Solicitor - the party who enters orders on the opposite side as of the
initiator. 9
Business Finance - II The NSE trading system:
Ø Provides complete flexibility to members in the kinds of orders that
can be placed by them.
Ø Orders are first numbered and time-stamped on receipt and then
immediately processed for potential match.
Ø Every order has a distinctive order number and a unique time stamp
on it.
Ø If a match is not found, then the orders are stored in different 'books'.
Ø Orders are stored in price-time priority in various books in the
following sequence:
Ø Best Price
Ø Within Price, by time priority.
Price priority means that if two orders are entered into the system, the
order having the best price gets the higher priority.
Time priority means if two orders having the same price are entered, the
order that is entered first gets the higher priority.
The Equities segment has following types of books:
Regular Lot Book
The Regular Lot Book contains all regular lot orders that have none of the
following attributes attached to them.
All or None (AON)
Minimum Fill (MF)
Stop Loss (SL)
Special Terms Book

The Special Terms book contains all orders that have either of the following
terms attached:
All or None (AON)
Minimum Fill (MF)
Note: Currently, special term orders i.e. AON and MF are not available on
the system as per the SEBI directives.
Stop-Loss Book
Stop Loss orders are stored in this book till the trigger price specified in the
order is reached or surpassed. When the trigger price is reached or
surpassed, the order is released in the Regular lot book.
Odd Lot Book
Stock Exchange The Odd lot book contains all odd lot orders (orders with quantity less than
marketable lot) in the system. The system attempts to match an active odd
10 lot order against passive orders in the book.
Auction Book Business Finance - II
Ø This book contains orders that are entered for all auctions.
Ø The matching process for auction orders in this book is initiated only
at the end of the solicitor period.
Ø The best buy order is matched with the best sell order.
Ø An order may match partially with another order resulting in multiple
trades.
Ø The best buy order is the one with the highest price and the best sell
order is the one with the lowest price.
Ø The system views all buy orders available from the point of view of a
seller and all sell orders from the point of view of the buyers in the
market.
Ø The best buy order is the order with the highest price and the best sell
order is the order with the lowest price.
Price Conditions
Limit Price/Order – An order that allows the price to be specified while
entering the order into the system.
Market Price/Order – An order to buy or sell securities at the best price
obtainable at the time of entering the order.
Stop Loss (SL) Price/Order – The one that allows the Trading Member to
place an order which gets activated only when the market price of the
relevant security reaches or crosses a threshold price. Until then the order
does not enter the market.
Quantity Conditions
Disclosed Quantity (DQ) - An order with a DQ condition allows the
Trading Member to disclose only a part of the order quantity to the market.
The Exchange operates the following sub-segments in the Equities
segment:
Institutional Segment
To facilitate execution of such Inter-Institutional deals in companies where
the cut-off limit of FII investment has been reached, the Exchange
introduced a new market segment on December 27, 1999.
Qualified Foreign Investor (QFI) segment

To facilitate QFIs to trade in companies where the caution limit of QFI
investment has been reached and QFI wish to buy without the prior
approval of the depositories exchange has introduced new market segment
w.e.f. March 20, 2012. Stock Exchange
11
Business Finance - II Trade for Trade Segment
The scrips in Trade for Trade segment are made available for trading under
BE series. The settlement of scrips available in this segment is done on a
trade for trade basis and no netting off is allowed. The criteria for shifting
scrips to/from Trade for Trade segment are decided jointly by the Stock
Exchanges in consultation with SEBI and reviewed periodically.
The process of identifying the securities moving to Trade for Trade segment
is done on a fortnightly basis while securities moving to/from Trade to
Trade is done on a quarterly basis. This review is applicable to all securities
irrespective of Price Bands.
Fortnightly Review for Shifting Securities to Trade to Trade:

The detailed fortnightly review criteria for shifting of securities to Trade for
Trade segment is given below. The securities satisfying all the Criteria shall
be transferred to Trade for Trade segment.
Post Close Session
In accordance with SEBI guidelines outlining a facility of providing
Trading Session after normal market hours in Capital Market Segment,
'Closing Session' has been introduced by the Exchange from June 16, 2003.
Salient features of Post Close Session are as follows:
Ø Closing Session is available only in Normal Market Segment.
Ø Timings will be 3.40 PM to 4.00 PM
Ø Only market price orders are allowed.
Ø Trading will take place at single price i.e. close price of a security.
Ø Special Terms, Stop Loss and DQ orders are not allowed.
Ø Trades will be considered as Normal Market trades.
The post close session facility is available to all the securities which are
eligible for trading in Normal market in CM segment. However, if
securities not traded in the normal market session will not be allowed to
participate in the Closing Session.
Securities Available for Trading
The Capital Market (Equities) segment of NSE facilitates trading in the
following instruments:
Shares
Ø Equity Shares
Ø Preference Shares
Debentures
Ø Partly Convertible Debentures
Stock Exchange Ø Fully Convertible Debentures
Ø Non Convertible Debentures
12
Ø Warrants / Coupons / Secured Premium Notes/ other Hybrids
Bonds Business Finance - II
Units of Mutual Funds
Internet Trading
The Securities & Exchange Board of India (SEBI) approved the report on
Internet Trading brought out by the SEBI Committee on Internet Based
Trading and Services In January 2000. Internet trading can take place
through order routing systems, which will route client orders to exchange
trading systems for execution. Thus a client sitting in any part of the
country would be able to trade using the Internet as a medium through
brokers' Internet trading systems. SEBI-registered brokers can introduce
Internet based trading after obtaining permission from respective Stock
Exchanges.
Internet Trading at NSE
Ø NSE became the first exchange to grant approval to its members for
providing Internet based trading services.
Ø In line with SEBI directives, NSE has issued circulars detailing the
requirements and procedures to be complied with by members
desirous of providing Internet based trading and services.
Ø Members can procure the Internet trading software from software
vendors who are empanelled with NSE or they may develop the
software through their own in-house development team or may
procure the software from other non-empanelled vendors.
Ø Members can also avail of services provided by Application Service
Providers (which may inter-alia include providing / maintaining
software / hardware / other infrastructure etc.) for providing Internet
based trading services subject to the Application Service Provider
(ASP) being empanelled with the Exchange for providing such
services.
Ø The SEBI Committee on Internet Based Trading and Services in its
meeting held on August 2, 2000 approved the minimum
requirements for brokers offering securities trading through wireless
medium on Wireless Application Protocol (WAP) platform.
Ø SEBI-registered brokers who have been granted permission to
provide Internet based trading services can introduce WAP trading
after obtaining permission from respective stock exchanges.
Ø SEBI has stipulated the minimum conditions to be fulfilled by
trading members to start Internet based trading and services.
WAP trading at NSE

Ø NSE became the first exchange to grant permission to its members
for providing WAP trading services. Stock Exchange
13
Business Finance - II Ø NSE has granted permission to one of its trading members M/s.Gogia
Capital Services Ltd. to provide securities trading through WAP.
Ø This is the first WAP enabled online stock trading facility in the
country.
Ø The WAP technology has been harnessed jointly by NSE.IT and
Bharti Telesoft using Bharti Telesoft's WAP interface and NSE.IT's
E-broking products NeatXS/ iXS, leading to convenience of live
stock trading for people on the move.
1.5 Depository
Ø Depository is an institution or a kind of organization which holds securities
with it in De Mat form, in which trading is done among shares, debentures,
mutual funds, derivatives, F&O and commodities.
Ø The intermediaries perform their actions in variety of securities at
Depository on behalf of their clients.
Ø These intermediaries are known as Depositories Participants (DPs).
Fundamentally,
Ø There are two sorts of depositories in India.
Ø One is the National Securities Depository Limited (NSDL) and the other is
the Central Depository Service (India) Limited (CDSL).
Ø Every Depository Participant (DP) needs to be registered under this
Depository before it begins its operation or trade in the market.
Ø Depository interacts with its clients / investors through its agents, called
Depository Participants normally known as DPs.
Ø For any investor / client, to avail the services provided by the Depository,
has to open Depository account, known as Demat A/c, with any of the DPs.
Services provided by Depository

Ø Dematerialisation (usually known as demat) is converting physical
certificates of Securities to electronic form
Ø Rematerialisation, known as remat, is reverse of demat, i.e. getting physical
certificates from the electronic securities
Ø Transfer of securities, change of beneficial ownership
Ø Settlement of trades done on exchange connected to the Depository
Ø Pledging and Unpledging of Securities for loan against shares
Ø Corporate action benefits directly transfer to the Demat and Bank account
of customer
Stock Exchange Number of Depository in the country

ü National Securities Depository Ltd. - NSDL - Having 1.39 crores Demat
14 A/c as on 30-06-2015
ü Central Depository Service Ltd. - CDSL - Having 9800000 Demat A/c as Business Finance - II
on 30-06-2015
About NSDL
§ NSDL, the first and largest depository in India, established in August 1996
§ NSDL is promoted by institutions of national stature has established a state-
of-the-art infrastructure that handles most of the securities held and settled
in dematerialized form in the Indian capital market.
§ The enactment of Depositories Act in August 1996 paved the way for
establishment of NSDL.
§ Using innovative and flexible technology systems, NSDL works to support
the investors and brokers in the capital market of the country.
§ NSDL aims at ensuring the safety and soundness of Indian marketplaces by
developing settlement solutions that increase efficiency, minimize risk and
reduce costs.
§ NSDL play a central role in developing products and services that will
continue to nurture the growing needs of the financial services industry.
§ In the depository system, securities are held in depository accounts, which
is more or less similar to holding funds in bank accounts.
§ Transfer of ownership of securities is done through simple account
transfers.
§ NSDL is promoted by Industrial Development Bank of India (IDBI) - the
largest development bank of India, Unit Trust of India (UTI) - the largest
mutual fund in India and National Stock Exchange (NSE) - the largest stock
exchange in India.
Promoters
Industrial Development Bank of India Limited (Now, IDBI Bank Limited)
Unit Trust of India (Now, Adminstrator of the Specified Undertaking of the
Unit Trust of India)
National Stock Exchange of India Limited
Other Shareholders
Ø State Bank of India
Ø HDFC Bank Limited
Ø Deutsche Bank A.G.
Ø Axis Bank Limited
Ø Citib ank N.A.
Ø Standard Chartered Bank
Stock Exchange
15
Business Finance - II Ø The Hongkong and Shanghai Banking Corporation Limited
Ø Union Bank of India
Ø Canara Bank
Ø Kotak Mahindra Bank Limited
Ø Dena Bank
Ø Kotak Mahindra Life Insurance Company Limited
About CDSL
Ø A Depository facilitates holding of securities in the electronic form
and enables securities transactions to be processed by book entry.
Ø The Depository Participant (DP), who as an agent of the depository,
offers depository services to investors.
Ø According to SEBI guidelines, financial institutions, banks,
custodians, stockbrokers, etc. are eligible to act as DPs.
Ø The investor who is known as beneficial owner (BO) has to open a
demat account through any DP for dematerialisation of his holdings
and transferring securities.
Ø The balances in the investors account recorded and maintained with
CDSL can be obtained through the DP.
Ø The DP is required to provide the investor, at regular intervals, a
statement of account which gives the details of the securities
holdings and transactions.
Ø The depository system has effectively eliminated paper-based
certificates which were prone to be fake, forged, counterfeit resulting
in bad deliveries.
Ø CDSL offers an efficient and instantaneous transfer of securities.
Ø CDSL was initially promoted by BSE Ltd. which has thereafter
divested its stake to leading banks as "Sponsors" of CDSL.
Ø CDSL was set up with the objective of providing convenient,
dependable and secure depository services at affordable cost to all
market participants.
Some of the important milestones of CDSL system are:
Convenience:
Ø Wide DP Network: CDSL has a wide network of DPs, operating from
over 17,000 sites, across the country, offering convenience for an
investor to select a DP based on his location.
Ø On-line DP Services:The DPs are directly connected to CDSL
Stock Exchange thereby providing on-line and efficient depository service to
investors.
16

Ø Wide Spectrum of Securities Available for Demat:The equity shares Business Finance - II
of almost all A, B1 & B2 group companies are available for
dematerialisation on CDSL, consisting of Public (listed & unlisted)
Limited and Private Limited companies. These securities include
equities, bonds, units of mutual funds, Govt. securities, Commercial
papers, Certificate of deposits; etc. Thus, an investor can hold almost
all his securities in one account with CDSL.
Ø Competitive Fees Structure: CDSL has kept its tariffs very
competitive to provide affordable depository services to investors.
Ø Internet Access: A DP, is required to mandatorily register with CDSL.
Dependability:
Ø On-line Information to Users: CDSL's system is built on a
centralised database architecture and thus enables DPs to provide on-
line depository services with the latest status of the investor's
account.
Ø Convenient to DPs: The entire database of investors is stored
centrally at CDSL. If there is any system-related issues at DPs end,
the investor is not affected, as the entire data is available at CDSL.
Ø Contingency Arrangements: CDSL has made provisions for
contingency terminals, which enables a DP to update transactions, in
case of any system related problems at the DP's office.
Ø Meeting User's Requirements: Continuous updation of procedures
and processes in tune with evolving market practices is another
hallmark of CDSL's services.
Ø Audit and Inspection: CDSL conducts regular audit of its DPs to
ensure compliance of operational and regulatory requirements.
Ø Dormant Account Monitoring: CDSL has in place a mechanism for
monitoring dormant accounts.
Ø Helpdesk: DPs and investors can obtain clarifications and guidance
from CDSL's prompt and courteous helpline facility.
Security:
Ø Computer Systems: All data held at CDSL is automatically
mirrored at the Disaster Recovery site and is also backed up and
stored in fireproof cabinets at the main and disaster recovery site.
Ø Unique BO Account Number: Every BO in CDSL is allotted a
unique account number, which prevents any erroneous entry or
transfer of securities. If the transferor's account number is wrongly
entered, the transaction will not go through the CDSL system, unless
corrected.
Stock Exchange
Ø Data Security: All data and communications between CDSL and its
users is encrypted to ensure its security and integrity. 17
Business Finance - II Ø Claims on DP: If any DP of CDSL goes into liquidation, the
creditors of the DP will have no access to the holdings of the BO.
Ø Insurance Cover: CDSL has an insurance cover in the unlikely
event of loss to a BO due to the negligence of CDSL or its DPs.
1.6 Summary
Stock exchange is an indispensable tool for the economic development. It
mobilizes saving of the individual which help industries and other sector which
faces problem of funds. In India Stock Exchanges are controlled and supervised
by SEBI, and other laws, rules and regulation and various guidelines from time to
time by concerned authorities.
A stock exchange is a secondary market since the trading happens only for the
securities that have already been issued to the public and now being allowed to be
traded on the stock exchange after getting listed with the stock exchange.It is a
place where buying and selling of securities are done through a proper mechanism
which facilitates transparency in the trading. There are two depositories namely
CDSL and NSDL who controls and manages trading in Stock exchanges. There
are huge opportunities available in this segment which will eventually help the
countries for development. There are various stock exchanges functioning in India
and contributing for the economic development by mobilizing savings of the
household sectors and funds from the surplus to scarce.
The stock exchange facilitates easy marketability of securities as securities can be
bought and sold conveniently. Demand and supply of particular securities decides
the price of any securities. The share prices fluctuate on stock exchanges as a result
of market forces. It also facilitates investment in securities by all section of the
society it might be small investor or investor at organization level. As a result of
stock market transactions, funds flow from the less profitable to more profitable
enterprises. All type of stock investors whether they are individuals, professional
stock investors, institutional investors earn capital gains through dividends and
stock price increases. Stock exchange facilitates liquidity by providing ready
market for sale and purchase of securities. It gives assurance to the investors that
their investment can be converted into cash whenever they want.
1.7 Questions
Fill in the blanks:
1. Dematerialisation (usually known as demat) is converting physical
certificates of Securities to _____________________.
2. Currently there are two depositories operational in the country, that
are___________ and ____________.
3. The NSE was established in the year_____________.
4. The NEAT stand for________________________.
Stock Exchange [Answers :(1) electronic form (2) NSDL, CDSL, (3) 1992, (4) National
Exchange for Automated Trading
18

Multiple choice questions: Business Finance - II
1. The Stock Exchange facilitates.

(a) Liqidity (b) Mobility of capital
(c) Mobilizing of surplus saving (d) All of the above a,b,c
2. On the Stock Exchange_______ are traded.
(a) Share (b) Debentures
(c) Bond (d) All of the above a, b, c
3. DP stands for…………
(a) Depository Participants (b) Depository planning
(c) Depository Payment (d) Depository Page
[Answers: (1-d), (2-d), (3-a)]
Match the following:

1. Demat a. Depository
2. Remat b. Trading System
3. CDSL c. Rematerialization
4. NEAT d. Broker
5. Depository Participants e. Dematerialization
[Answer: (1-e), (2-c), (3-a), (4-b), (5-d)]

1) `Capital Market', Business and Political Observer, New Delhi, November
20, 1990.
2) Ojha P.D., Investors and the Capital Market, Reserve Bank of India
Bulletin, Bombay, December 1987.
3) Mayya M.R. `Do our Stock Exchanges have a future', Economic and
Political Weekly, Bombay, February, 1978.
4) Mehta Anil, `Committee set up to look into SE's payment problems',
Economic Times, February 14, 1991, New Delhi.
5) Mehta Anil, `Committee set up to look into SE's payments problems',
Economic Times, February 14, 1991, New Delhi.
6) `Stock Markets -- The bull mirage', Financial Express, New Delhi,
December 17, 1990.
7) `Stock Markets -- The bull mirage', Financial Express, New Delhi,
December 17, 1990.
8) Bhatia Sidharth, `Investor confidence in BSE collapses', Independent, Stock Exchange
Journal of Politics and Business, Bombay, February 1, 1991.
19
Business Finance - II 9) Ministry of Finance Report of High powered Committee on Stock
Exchange reforms, (1985).
10) National Planning Committee report on Industrial Finance, 1948, p.53 to
54. This Committee was constituted in 1938. Jawaharlal Nehru was its
Chairman. Members of the Committee included A.O. Shroff, J.K. Mehta,
Purushottamdas Thakurdas, S.C. Majumdar, Dr. P.S. Loknathan, Lal Shri
Ram and J.R.D. Tata.
11) Mayya M.R., `Do Stock Exchanges have a Future', Economic and Political
Weekly, Bombay, February 1978.
12) Bhatia Sidharth, `Investor Confidence in BSE Collapses', Independent
Journal of Politics and Business, Bombay, February 1, 1991.
13) Ministry of Finance, G.S. Patel Committee Report (1983).
14) Ministry of Finance, Department of Economic Affairs, Report of the High
powered committee on Stock Exchange Reform, 1985, p. 6; See M.R.
Mayya, 'Do Stock Exchanges have a Future', Economic and Political
Weekly, Bombay, February 1978.
15) Report of the High powered study Group on Establishment of New Stock
Exchange, June, 1991.
Stock Exchange
20

UNIT - II FOREIGN CAPITAL
Unit Structure:
2.0 Objectives
2.1 Role and Importance of Foreign Capital
2.2 Sources of Foreign Capital
2.3 Foreign Direct Investment
2.4 NRI fund, GDR and ADR issues
2.5 Foreign Collaborations
2.6 Summary
2.7 Questions
2.0 Objectives:
• To understand the concept foreign Capital and its role and importance..
• To know different sources of foreign Capital.
• To study the Foreign Direct Investment.
• To understand NRI fund, GDR,ADR issues and foreign Collaborations.
2.1 Role and Importance of Foreign Capital

Everywhere in the world, including the developed countries, governments are
trying to attract foreign capital since they have belief that foreign capital plays a
constructive role in a country’s economic development.
The experience of South East Asian Countries (1986-1995) has especially
confirmed this belief and has led to a progressive reduction in regulations and
restraints that could have inhibited the inflow of foreign capital.
The term ‘foreign capital’ is a comprehensive term and includes any inflow of
capital in home country from abroad. It may be in the form of foreign aid or loans
and grants from the host country or an institution at the government level as well as
foreign investment and commercial borrowings at the enterprise level or both.
Foreign capital may flow in ally country with technological collaboration as well.
It is interesting to note that even in Russia and East European countries foreign
capital has been allowed to flow in.
Need of Foreign Capital
o Addition to domestic resources
Foreign Capital
Foreign capital inflows contribute to the domestic resources of the recipient
country. The developing countries suffer from poor saving rate and so 21
Business Finance - II cannot raise sufficient funds to improve economic growth. The saving
investment gap is filled by foreign capital.
o Balance of Payment (BOP) Position
At the initial stage of development, nations require the use of imported
capital goods and technical know-how as the domestic economy is
underdeveloped, there is lack of technological upgradation and
infrastructure. Thus there is a deficit in BOP. Foreign capital raised the
recipient economy’s capacity to import goods and updated technology. As
a result exports competitiveness of a country and dependency on imports is
gradually reduced which prevent BOP crisis of the country.
o Technological and Managerial Improvements
Foreign capital allows accessibility of improved technology from
developed nations. Foreign capital brings latest technology and
professional managerial teams along with finance. Foreign capital helps to
encourage research in the country with their Research & Development
activities.
o Human Capital Improvements
The foreign firms enhance employee’s skills through training and learning.
It allows better wages and working conditions. Such improvements have
additional effects on the economy as employees with improved skills may
join other domestic firms or become entrepreneur.
o Competitive and Efficient Environment
Foreign companies increase the competition and force the domestic firms
to follow more efficient business practices. The inefficient local firms are
driven out of business and thus freeing the resources to be used
productively. The competition leads to higher productivity, lower prices
and more efficient resource allocation.
o Employment Opportunities
Foreign investments create new enterprises and activities in the domestic
economy and so offer large employment opportunities and help to tackle
the problem of unemployment.
o Environmental and Social Conditions
Foreign investors by transferring cleaner and greener technology help in
environment protection. There is however, a debate that the foreign
investors export outdated technology which is not acceptable in their own
economy. Foreign capital creates employment opportunities reduce
poverty and improve labor standards and thus result into better social
condition of the country.
o Better Corporate Practices
Foreign investors lead to changes in managerial and business practices.
These investors insist on disclosure norms and improved corporate
Foreign Capital practices in the host country. This leads to improved corporate efficiency.
22

Limitations of Foreign Capital Business Finance - II
Ø Crowds out local Capital and Entrepreneurial Growth:

Foreign capital is generally directed towards buying the existing
profitable enterprises of the host country. The small enterprises
generally are the easy target. Thus foreign investments destroy the
local industry and entrepreneurial growth.
Ø Adverse impact on BOP Position
In the long run foreign investments cause pressure on the BOP
position of the economy due to repatriations of profits by foreign
firms, payment of interest on foreign debt, management fees and
royalties on foreign technology agreements.
Ø Distortions of Domestic Investment Patterns
Foreign capital may lead to the development of projects that may lack
any domestic relevance and cause misallocation of resources.
Foreign firms for example generally insist upon low-tech consumer
sector or trade and service sector. However, in the initial phase of
development infrastructure growth may be the priority.
Ø Competition for local Domestic Resources
Foreign investors raise resources from the domestic market to
finance their activities. Foreign firms instead of complementing the
local resources compete for the resources.
Ø Outdated Technology
There is a risk that technology transfers by foreign investors may be
inappropriate. Foreign firms try to dump the outdated technology in
the developing nations. It is quite likely that these firms use labor-
saving technology which is unsuitable for labor abundant country
like India.
2. Forms of Foreign Capital:

Foreign Capital can be obtained in the form of foreign investment or non-
concessional assistance or concessional assistance.
1. Foreign Investment includes Foreign Direct Investment (FDI) and Foreign
Portfolio Investment (FPI). FPI includes the amounts raised by Indian
corporate through Euro Equities, Global Depository Receipts (GDR’s), and
American Depository Receipts (ADR’s).
2. Non-Concessional Assistance mainly includes External Commercial
B o r r o w i n g s ( E C B ’s ) , l o a n s f r o m g o v e r n m e n t s o f o t h e r
countries/multilateral agencies on market terms and deposits obtained from
Non-Resident Indians (NRIs).
3. Concessional Assistance includes grants and loans obtained at low rates of
interest with long maturity periods. Such assistance is generally provided
Foreign Capital
on a bilateral basis or through multilateral agencies like the World Bank,
International Monetary Fund (IMF), and International Development
23
Business Finance - II Association (IDA) etc. Loans have to be repaid generally in terms of
foreign currency but in certain cases the donor may allow the recipient
country to repay in terms of its own currency.
Grants do not carry any obligation of repayment and are mostly made
available to meet some temporary crisis. Foreign Aid can also be received
in terms of direct supplies of agricultural commodities or industrial raw
materials to overcome temporary shortages in the economy. Foreign Aid
may also be given in the form of technical assistance.
2.2 Sources of Foreign Capital

Foreign capital has a key role in the economic development process of the country.
It is a source of modernization, income and employment generation in the
economy. India’s recent liberalization of its foreign investment regulations has
generated strong interest by foreign investors, turning India into one of the fastest
growing destinations for global investment inflows. Foreign firms are setting up
joint ventures and wholly owned enterprises in services such as computer
software, telecommunications, financial services, and tourism. The present
chapter examines the recent trends and pattern of foreign capital flows in India.
Components of Foreign Capital in India
Foreign capital refers to the capital flows from resident entity of one country to the
resident entity of another country. The resident entity may be an individual,
corporate firm or a Government. In India, there are three important components of
foreign capital flows.
A. Foreign Capital Investments
B. Foreign Aid
C. External Commercial Borrowings
(A) Foreign Capital Investments:

Foreign capital investments refer to investments made by an entity which is
not the resident of the country. In India there are two components of foreign
capital Investments:
a) Foreign Direct Investments (FDI)
b) Foreign Portfolio Investments (FPI)
(a) Foreign Direct Investments (FDI):
FDI refers to the physical investments made by foreign investors in the
domestic country. The physical investments refer to the direct investments
into building, machinery and equipments. Reserve bank of India (RBI)
defines FDI as a process whereby resident of one country (i.e. home
country) acquires ownership for the purpose of controlling production,
distribution and other activities of a firm in the another country.(i.e. the
host country).
Foreign Capital
It reflects the lasting interest by the foreign direct investors in the entity or
24 enterprise of domestic economy. There exists a long-term relationship

between the foreign investor and the domestic enterprise. The foreign Business Finance - II
direct investors generally exert a high degree of influence on the
management of the entity. The direct investor can be an individual, public
or private enterprises (referred to multinational corporations or MNCs)) or
Government. The management influence is exerted if foreign investor
holds significant shareholding or voting power in domestic entity. FDI can
be equity or debt investment.
In India there are three important element of FDI:
? Equity investments by foreign investors;
? Reinvested earnings i.e. retained earnings of FDI companies;
? Debt Investment (particularly the inter-corporate debt between
related entities).
The important forms of FDI are investments through:
? Financial Collaboration
? Joint Ventures and Technical Collaboration
? Capital Markets
? Private Placements.
(b) Foreign Portfolio Investments (FPI):
FPI refers to the short-term investments by foreign entity in the financial
markets. These are indirect investments and include investment in tradable
securities, such as shares, bonds, debenture of the companies. Foreign
Portfolio investors don’t exert management control on the enterprise in
which they invest. The important objective of FPI is the appreciation of the
capital investment regardless of any long-term relationship with enterprise
(IMF, Balance of Payment Manual). These investments are made with
short-term speculative gains.
There are three kinds of FPI in India:
i. Foreign Institutional Investment
ii. Funds raised through Global Depository Receipts or American
Depository Receipts (GDRs/ADRs)
iii. Off-shore funds
Foreign Institutional Investment:
These are the investments made by foreign institutions like pension funds,
foreign mutual funds etc. in the financial markets.
Funds raised through Global Depository Receipts or American Depository
Receipts (GDRs/ADRs):
GDRs and ADRs are instruments which signify the purchase of share of
Indian companies by foreign investors or American investors respectively.
Off-shore funds:
The schemes of mutual funds that are launched in the foreign country. Foreign Capital
25
Business Finance - II Foreign Direct Investments (FDI) vs. Foreign Portfolio Investment
(FPI)
The relative significance of two important components of foreign
investments can be summarized as follows:
ü FDI accelerates growth process mainly due to superior technology
transfers and greater competition that generally accompany FDI.
Domestic firms improve R&D to sustain competition with foreign
firms or multinational firms. FDI also improves export
competitiveness of the country. So, FDI has a positive spillover
effects on the economy. FPI enables the country to use huge pooled
foreign funds and directly doesn’t involve any kind of superior
technology or managerial transfers. Thus FPI has limited spillover
effects than FDIs.
ü FDI reflects seriousness and commitment on part of foreign investors
since FDI causes high initial set up cost and higher exit costs in terms
of difficulty in selling stake in the firm. Thus foreign direct investor
stay invested for long-term in the country and so help to improve
growth prospects of the country. FPI is guided by short-term gains
and involves problems to exit the country. FPI tends to be more
volatile than direct investments. The sudden FPI outflows at the time
of domestic crisis may disrupt the development process of the
country.
ü Portfolio investors due to their short-term perspective may indulge
into speculative activities in the domestic financial market and may
cause problems for the domestic investors.
ü FDIs are directly managed by foreign owners FPI on the other hand
are managed by “outside managers”. So FDI results into better asset
management.
ü The increased FDI flows give positive signal about the long-term
prospects of domestic economy and greater creditability of the
country. A very substantial amount of FPI of short-term nature
depicts risk in the domestic economy.
(B) External Aid
External aid refers to the concessional foreign finance with flexible terms
and conditions. It may be in the form of long term concessional debt or
grants (doesn’t involves any repayment obligations). The tenure of the aid
is generally very long. The important sources of foreign aid in India are:
(a) Official Aid:
It is given by foreign governments or international official bodies such
World Bank, International Monetary Fund (IMF), Asian Development
Bank (ADB) etc. It can be:
(I) Bilateral Aid: Loans or grants under bilateral (i.e. between two
Foreign Capital
countries) agreement.
(ii) Multilateral Aid: loans or grants extended by multilateral (i.e. more
26

than two countries) agencies e.g. Loans from IMF, World Bank etc. Business Finance - II
Further, official aid (Bilateral or Multilateral) can be Government

Aid (i.e. aid that passes through government) or Non-Government
Aid (i.e. aid received by non-government bodies directly from
bilateral or multilateral agencies).
(b) Private Aid:
It is the fund which is received from private individuals, firms or
institutions. External aid may also be distinguished as tied aid or untied
aid. The tied aid is given with conditions in terms of its use e.g for the
purchase of goods for specific purpose or to be spent on specific country.
The untied aid can be used freely by the recipient country. Foreign aid
allows an access to foreign funds without putting pressures of their
repayment. In the initial growth process the country having saving-
investment gap, fails to attract enough private foreign capital. Foreign aid
helps to reduce the financial constraints on the growth of the economy. In
the absence of foreign aid country would have to rely on commercial
borrowings that involve huge interest burden on the country. Foreign aid
can be used to create infrastructure and basic industries and thus helps to
contribute towards economic development of the country.
There are certain problems with the use of foreign aid discussed as follows:
Political Pressures:
Heavy dependence on foreign aid may introduce political compulsions on
the economy. Donor countries may put certain pressures and lead to
decisions not in the interest of the country. Sanctions imposed against for
taking nuclear test is a recent example of pressures that developed nations
imposed on developing nations.
Uncertainty of Aid:
Aid moves at the convenience of the donor countries. The delay or
uncertainty in the aid may cause harmful consequences on the projects
dependent upon aid.
Restrictive Use:
Aid generally involves conditions upon its use and may result in
undesirable production and consumption pattern in the economy. For
example donor countries may insist upon purchase from specified sellers.
The foreign suppliers may charge higher price and cause high cost of the
project. Tied aid may not allow the free-use of funds in the sectors
important for the development process of the country. The real cost of aid
appears to be high due to conditions imposed on its use.
Low Utilization Rate:
It is ironical that developing nations having scarcity of capital and
resources are not able to utilize the total amount of sanctioned aid. This
may be due to the lack of complementary domestic resources or experience Foreign Capital
to use aid. Further the procedural delay also cause low aid utilization.
27
Business Finance - II Complacent domestic initiatives:
Foreign aid brings moral hazards in the recipient country. It results in the
complacent behavior on part of government to improve resource
generation.
Despite the problems associated with foreign aid, factors, such as lower
cost, long-term nature of aid, have encouraged the dependence on foreign
aid in comparison to commercial funds. In the recent years however, there
is a significant decline in foreign aid as a percentage of GDP.
(C) External Commercial Borrowings (ECBs):

ECBs comprises of borrowings from international capital market on
commercial terms. It covers all medium/long term loans e.g. supplier’s
credit, foreign currency convertible bonds (FCCBs), e.g. India
development bonds, resurgent India bond (RIBs) etc. The interest rates on
these borrowings are higher than foreign aid. The higher dependence on
these borrowings can cause financial burden on the economy.
2.3 Foreign Direct Investment

A foreign direct investment (FDI) is an investment in the form of a
controlling ownership in a business in one country by an entity based in
another country. It is thus distinguished from a foreign portfolio investment
by a notion of direct control.
The origin of the investment does not impact the definition, as an FDI: the
investment may be made either "inorganically" by buying a company in the
target country or "organically" by expanding the operations of an existing
business in that country.
Types of FDI
ü Horizontal FDI arises when a firm duplicates its home country-based
activities at the same value chain stage in a host country through FDI.
ü Platform FDI Foreign direct investment from a source country into a
destination country for the purpose of exporting to a third country.
ü Vertical FDI takes place when a firm through FDI moves upstream or
downstream in different value chains i.e., when firms perform value-
adding activities stage by stage in a vertical fashion in a host country.
Importance and Barriers to FDI
The rapid growth of world population since 1950 has occurred mostly in
developing countries.This growth has been matched by more rapid
increases in gross domestic product, and thus income per capita has
increased in most countries around the world since 1950.
Foreign Capital An increase in FDI may be associated with improved economic growth due
to the influx of capital and increased tax revenues for the host country. Host
28 countries often try to channel FDI investment into new infrastructure and

other projects to boost development. Greater competition from new Business Finance - II
companies can lead to productivity gains and greater efficiency in the host
country and it has been suggested that the application of a foreign entity’s
policies to a domestic subsidiary may improve corporate governance
standards. Furthermore, foreign investment can result in the transfer of soft
skills through training and job creation, the availability of more advanced
technology for the domestic market and access to research and
development resources.
The local population may benefit from the employment opportunities
created by new businesses. In many instances, the investing company is
simply transferring its older production capacity and machines, which
might still be appealing to the host country because of technological lags or
under-development, in order to avoid competition against its own products
by the host country/company.
2.4 NRI fund, GDR and ADR issues

An Indian Citizen who stays abroad for employment/carrying on business or
vocation outside India or stays abroad under circumstances indicating an intention
for an uncertain duration of stay abroad is a non-resident. (Persons posted in U.N.
Organisations and Officials deputed abroad by Central/State Governments and
Public Sector undertakings on temporary assignments are also treated as non-
residents). Non –Resident foreign citizens of Indian Origin are treated on par with
non-resident Indian Citizens (NRIs) for the purpose of certain facilities.
The following are the main three categories of NRIs:-

Ø Indian citizens who stay abroad for employment or for carrying on a
business or Vocation or any other purpose in circumstances indicating an
indefinite period of stay abroad.
Ø Indian citizens working abroad on assignment with foreign government
agencies like United Nations Organisation (UNO), including its affiliates,
International Monetary Fund (IMF), World Bank etc.
Ø Officials of Central and State Government and Public Sector undertaking
deputed abroad on temporary assignments or posted to their offices,
including Indian diplomat missions, abroad.
"Traditionally, NRIs have preferred to invest in real estate. But this would
block large funds for a longer period of time. With equity markets aiming
higher, investments in stocks fetch better returns in a shorter span of time,
with high liquidity," says Rashmi Roddam, director, WealthRays
Securities.
If the rupee appreciates further in the future, it will be a big positive for
NRIs investing in debt now, says Ashish Shanker, head (investment
advisory) at Motilal Oswal Private Wealth Management. "Interest rates in
India are at an all-time high, amongst emerging markets. The current view Foreign Capital
is also supportive, since the expectation is that rupee will appreciate two to
three per cent. Even though bond yields have come off a bit, with the 29
Business Finance - II appreciation in the rupee, debt investments can give nine to 10 per cent,
which is a good return for NRIs.”
While there is no restriction on the asset classes that NRIs can invest in,
there are some restrictions with regard to repatriation of money, or in the
way the money can be remitted abroad.
Debt investment
NRIs can invest in either a non-resident ordinary (NRO) fixed deposit or
non-resident external (NRE) fixed deposit. Currently, the rates are eight to
nine per cent. In these deposits, the investment is in rupees. You can remit
freely from the NRE account. But in NRO accounts, there is a cap of $1
million in a financial year.
Another difference is that the interest earned in NRE accounts is not
taxable, while in the case of NRO accounts it is subject to tax.
Even for investment in other asset classes such as real estate, gold or
equities, it is essential to open an NRE or NRO account. In this case, you
can open a savings or current account.
NRIs can also invest in foreign currency non-resident (FCNR) deposits,
where the investment is in foreign currencies such as the dollar, yen, pound
and euro. These are only term deposits and the interest is linked to the
London Interbank Offered Rate for that particular currency. There is no tax
on the interest income from FCNR deposits.
NRIs can also invest in government securities and bonds, Non-convertible
debentures issued by companies and company-fixed deposits.
"Investment in debt also looks attractive to lock-in money at higher rates for
the medium term, as there is a possibility of softening of rates over the next
one year," says Arvind Rao, a chartered accountant and financial planner.
The debt instruments that are off-limits for NRIs are Public Provident Fund
and National Savings Certificates issued by post offices.
Equity investment
NRIs can invest in direct equities through the portfolio investment scheme
(PIS) or equity mutual funds. The condition for direct equity investments is
it cannot exceed 10 per cent of paid-up capital of private companies and 20
per cent for public sector companies. These investments should be routed
through Portfolio Investment Scheme regulated by the Reserve Bank of
India wherein NRE or NRO bank accounts are opened. These can be linked
to trading accounts, which can be opened with any stock broker in India.
For this, investors will be charged a management fee, usually with a profit-
sharing agreement.
Foreign Capital Real estate
30 There is no restriction on the residential or commercial properties NRIs can

invest in. But they cannot invest in agricultural land, farm house and Business Finance - II
plantations in India.
"Currently, there is a revival of sentiment in the real estate sector on
expectation that the economy will improve. And, real estate is heavily
dependent on sentiment. But there is still some time for this to translate into
action. Typically, NRI activity is seen in the real estate sector towards the
year-end in the November-December period. It could be better this year,"
says Ashutosh Limaye, head of research and real estate intelligence at
Jones Lang LaSalle India.
While NRIs can buy and sell property without any problem, when it comes
to repatriating the money, there are restrictions. For instance, if the property
was purchased by funds in the FCNR account, the repatriation cannot
exceed the amount paid through this account. If it was purchased using
funds in the NRE account, the repatriation cannot exceed the foreign
exchange equivalent of the amount in the NRE account. If you purchased
the property using the balance in your NRO account, the sale proceeds must
be credited to your NRO account and you can repatriate to the extent of $1
million, the condition for NRO accounts.
Taxation
The taxation rules for an NRI for different asset classes is the same as
residents, except for the following differences:
Equities
• Long-term capital gains are tax-free;
• Short-term capital gains are taxed at 15 per cent;
• In the case of long-term capital gains arising on shares and
debentures (unlisted), they are not allowed the benefit of indexing
the cost of acquisition;
Mutual funds
• Long-term capital gains on equity funds is exempt;
• Short-term capital gains on equity funds is taxed at 15 per cent;
• Long-term capital gains on debt funds (10 per cent without
indexation and 20 per cent with indexation), whichever is lower;
• Short-term capital gains on debt funds, according to the slab rates
Bank FDs, real estate transactions and gold are taxed in the same way as for
residents.
In all the above cases, there are prescribed rates for withholding taxes as
well. For instance, while sale of property attracts long-term capital gains tax
of 20 per cent, NRI investors can approach the income-tax assessing officer Foreign Capital
to get the Tax Deducted at Source lowered or exempted. They can put up a
31
Business Finance - II case saying they plan to invest the proceeds in other property and get the
exemption. While this can reduce the tax outgo, it does not mean there is no
tax.
Depositary Receipt (DR)

A depositary receipt (DR) is a negotiable financial instrument issued by a
bank to represent a foreign company's publicly traded securities. The
depositary receipt trades on a local stock exchange. A depositary receipt
facilitates buying shares in foreign companies, because the shares do not
have to leave the home country.
Depositary receipts that are listed and traded in the United States are
American depositary receipts (ADRs). European banks issue European
depository receipts (EDRs), and other banks issue global depository
receipts (GDRs).
A depositary receipt typically requires a company to meet a stock
exchange’s specific rules before listing its stock for sale. For example, a
company must transfer shares to a brokerage house in its home country.
Upon receipt, the brokerage uses a custodian connected to the international
stock exchange for selling the depositary receipts. This connection ensures
that the shares of stock actually exist and no manipulation occurs between
the foreign company and the international brokerage house.
A typical ADR goes through the following steps before it is issued:
Ø The issuing bank in the U.S. studies the financials of the foreign
company in detail to assess the strength of its stock.
Ø The bank buys shares of the foreign company.
Ø The shares are grouped into packets.
Ø Each packet is issued as an ADR through an American stock
exchange.
Ø The ADR is priced in dollars, and the dividends are paid out in dollars
as well, making it as simple for an American investor to buy as the
stock of a U.S.-based company.
A global depository receipt (GDR and sometimes spelled depository) is a
general name for a depository receipt where a certificate issued by a
depository bank, which purchases shares of foreign companies, creates a
security on a local exchange backed by those shares. They are the global
equivalent of the original American depository receipts (ADR) on which
they are based. GDRs represent ownership of an underlying number of
shares of a foreign company and are commonly used to invest in companies
from developing or emerging markets by investors in developed markets.
Prices of global depositary receipt are based on the values of related shares,
but they are traded and settled independently of the underlying share.
Typically, 1 GDR is equal to 10 underlying shares, but any ratio can be used.
Foreign Capital It is a negotiable instrument which is denominated in some freely
32 convertible currency. GDRs enable a company, the issuer, to access
investors in capital markets outside of its home country.
Several international banks issue GDRs, such as JPMorgan Chase, Business Finance - II
Citigroup, Deutsche Bank, The Bank of New York Mellon. GDRs are often
listed in the Frankfurt Stock Exchange, Luxembourg Stock Exchange, and
the London Stock Exchange, where they are traded on the International
Order Book (IOB).
Characteristics:
Ø it is an unsecured security
Ø it may be converted into number of shares
Ø interest and redemption price is public in foreign agency
Ø it is listed and traded in the stock exchange
An American depositary receipt (ADR, and sometimes spelled depository)
is a negotiable security that represents securities of a company that trades in
the U.S. financial markets.
Shares of many non-U.S. companies trade on U.S. stock exchanges through
ADRs, which are denominated and pay dividends in U.S. dollars and may
be traded like regular shares of stock. ADRs are also traded during U.S.
trading hours, through U.S. broker-dealers. ADRs simplify investing in
foreign securities by having the depositary bank "manage all custody,
currency and local taxes issues".
The first ADR was introduced by J.P. Morgan in 1927 for the British retailer
Selfridges on the New York Curb Exchange, the American Stock
Exchange's precursor. They are the U.S. equivalent of a global depository
receipt (GDR). Securities of a foreign company that are represented by an
ADR are called American depositary shares (ADSs).
ADR Programs
When a company establishes an ADR program, it must decide what exactly
it wants out of the program, and how much time, effort, and other resources
they are willing to commit. For this reason, there are different types of
programs, or facilities, that a company can choose.
Unsponsored ADRs
Unsponsored shares trade on the over-the-counter (OTC) market. These
shares are issued in accordance with market demand, and the foreign
company has no formal agreement with a depositary bank. Unsponsored
ADRs are often issued by more than one depositary bank. Each depositary
services only the ADRs it has issued. Since the company is not formally
involved in an unsponsored issue, the motivation of the company to list
overseas is irrelevant for unsponsored programs. Instead, the dynamics of
this market is determined by the incentive structure of three types of
players: holders of the securities on-shore, the investors in depository
receipts off-shore and the intermediaries (depository banks and
exchanges).
Foreign Capital
Sponsored Level I ADRs ("OTC" facility)
Level 1 depositary receipts are the lowest level of sponsored ADRs that can 33
Business Finance - II be issued. When a company issues sponsored ADRs, it has one designated
depositary who also acts as its transfer agent. A majority of American
depositary receipt programs currently trading are issued through a Level 1
program. This is the most convenient way for a foreign company to have its
equity traded in the United States.
Level 1 shares can only be traded on the OTC market and the company has
minimal reporting requirements with the U.S. Securities and Exchange
Commission (SEC).
The company is not required to issue quarterly or annual reports in
compliance with U.S. GAAP. However, the company must have a security
listed on one or more stock exchanges in a foreign jurisdiction and must
publish in English on its website its annual report in the form required by
the laws of the country of incorporation, organization, or domicile.
Companies with shares trading under a Level 1 program may decide to
upgrade their program to a Level 2 or Level 3 program for better exposure
in the United States markets.
Sponsored Level II ADRs ("Listing" facility)
Level 2 depositary receipt programs are more complicated for a foreign
company. When a foreign company wants to set up a Level 2 program, it
must file a registration statement with the SEC and is under SEC regulation.
In addition, the company is required to file a Form 20-F annually. Form 20-
F is the basic equivalent of an annual report (Form 10-K) for a U.S.
company. In their filings, the company is required to follow U.S. GAAP
standards or the International Financial Reporting Standards(IFRS) as
published by the IASB.
The advantage that the company has by upgrading their program to Level 2
is that the shares can be listed on a U.S. stock exchange. These exchanges
include the New York Stock Exchange (NYSE), NASDAQ, and the NYSE
MKT.
While listed on these exchanges, the company must meet the exchange's
listing requirements. If it fails to do so, it may be delisted and forced to
downgrade its ADR program.
Sponsored Level III ADRs ("offering" facility)
A Level 3 American Depositary Receipt program is the highest level a
foreign company can sponsor. Because of this distinction, the company is
required to adhere to stricter rules that are similar to those followed by U.S.
companies.
Setting up a Level 3 program means that the foreign company is not only
taking steps to permit shares from its home market to be deposited into an
ADR program and traded in the United States; it is actually issuing shares
to raise capital. In accordance with this offering, the company is required to
file a Form F-1, which is the format for a prospectus for the shares. They
also must file a Form 20-F annually and must adhere to U.S. GAAP
Foreign Capital standards or IFRS as published by the IASB. In addition, any material
information given to shareholders in the home market, must be filed with
34
the SEC through Form 6K.
Foreign companies with Level 3 programs will often issue materials that Business Finance - II
are more informative and are more accommodating to their U.S.
shareholders because they rely on them for capital. Overall, foreign
companies with a Level 3 program set up are the easiest on which to find
information. Examples include Vodafone, Petrobras, and China
Information Technology, Inc. (CNIT).
Restricted programs
Foreign companies that want their stock to be limited to being traded by
only certain individuals may set up a restricted program. There are two SEC
rules that allow this type of issuance of shares in the United States: Rule
144-A and Regulation S. ADR programs operating under one of these two
rules make up approximately 30% of all issued ADRs.
Privately placed (SEC Rule 144A) ADRs
Some foreign companies will set up an ADR program under SEC Rule
144A. This provision makes the issuance of shares a private placement.
Shares of companies registered under Rule 144-A are restricted stock and
may only be issued to or traded by qualified institutional buyers (QIBs).
U.S. public shareholders are generally not permitted to invest in these ADR
programs, and most are held exclusively through the Depository Trust &
Clearing Corporation, so there is often very little information on these
companies.
Offshore (SEC Regulation S) ADRs
The other way to restrict the trading of depositary shares to U.S. public
investors is to issue them under the terms of SEC Regulation S. This
regulation means that the shares are not, and will not be registered with any
U.S. securities regulation authority.
Regulation S shares cannot be held or traded by any “U.S. person” as
defined by SEC Regulation S rules. The shares are registered and issued to
offshore, non-U.S. residents.
Regulation S ADRs can be merged into a Level 1 program after the
restriction period has expired, and the foreign issuer elects to do this.
2.5 Foreign Collaborations:

Foreign collaboration is an agreement or contract between two or more
companies from different countries for mutual benefit. The collaborating
agreement can be between:
Ø Domestic and foreign private firm.
Ø Domestic and foreign public firm.
Ø Domestic Public and foreign private firm.
Ø Domestic government and foreign government.
Foreign Capital
35
Foreign collaboration is now recognized as an important driver of growth in the

country. Foreign collaboration requires Government approval, as the
collaboration involves partnership between two countries. Some legal formalities
are to be fulfilled to enter into a contract. That requires government permission.
Foreign collaboration leads to growth of industries of the countries coming into
contract. Foreign collaboration develops industries and increases employment
opportunities, thereby improving the working conditions of the masses. Foreign
collaboration encourages domestic and international entrepreneurs to invest in
business activities and accelerates industrial growth.
Foreign collaboration facilitates availability of the scarce resources. Resources

are made available from the country with abundant to the country with scarce
availability. Technology keeps on changing. Modern and sophisticated means of
technology is required for further qualitative production. The underdeveloped
countries have very low level of technology as compared to advanced countries.
Thus foreign collaboration bridges the gap for new technology between the
countries.
Foreign collaboration brings the economies closer. This reduces the disparities
between the countries thereby creating favorable atmosphere. When one country
comes in contract with another country develops cultural relations. Such
favorable international relation results into global integrity and peace.
Foreign collaboration accelerates economic growth of the country. Foreign
collaboration fills up the technological gaps. This helps in increase in
industrialisation. Due to foreign collaboration other resources such as capital,
Foreign Capital human and physical resources are mobilised. This accelerates the economic
growth of the country.
36

Foreign collaboration accelerate the rate of economic growth, ‘develop basic Business Finance - II
industries and lay down a sound economic foundation, thereby increasing
employment opportunities and improving the standard of living and the working
conditions of the masses.
2.6 Summary
Capital is the life blood of any economy and therefore its scarcity may hamper the
growth of economy. Capital scarcity can be financed through outside the country
by prior approval in different form like FDI, FPI, Foreign Aid, ECB etc. It
facilitates various advantages to host Countries. Foreign Capital is an
indispensable tool for the industrial growth and eventually for economic growth.
Foreign capital may flow in ally country with technological collaboration as well.
It is interesting to note that even in Russia and East European countries foreign
capital has been allowed to flow in. Foreign capital inflows contribute to the
domestic resources of the recipient country. Foreign capital raised the recipient
economy’s capacity to import goods and updated technology. As a result exports
competitiveness of a country and dependency on imports is gradually reduced
which prevent BOP crisis of the country.
Foreign capital may lead to the development of projects that may lack any
domestic relevance and cause misallocation of resources. There is a risk that
technology transfers by foreign investors may be inappropriate. Foreign firms try
to dump the outdated technology in the developing nations. It is quite likely that
these firms use labor-saving technology which is unsuitable for labor abundant
country like India. . Foreign Investment includes Foreign Direct Investment (FDI)
and Foreign Portfolio Investment (FPI). FDI refers to the physical investments
made by foreign investors in the domestic country. FPI refers to the short-term
investments by foreign entity in the financial markets. External aid refers to the
concessional foreign finance with flexible terms and conditions. ECBs comprises
of borrowings from international capital market on commercial terms. It covers all
medium/long term loans e.g. supplier’s credit, foreign currency convertible bonds
(FCCBs),
Foreign Capital
37
Business Finance - II 2.7 Questions
Fill in the blanks:
1. FDI stands for _____________________.
2. GDR stands for____________.
3. FPI stands for _____________.
4. _____________________is an agreement or contract between two or more
companies from different countries for mutual benefit.
[Answers :(1) Foreign Direct Investment (2) Global Depository Receipts
(3) Foreign Portfolio Investment (4) Foreign collaboration
Multiple choice questions:

1. Depositary receipts that are listed and traded in the United States are
_____________.
(a) FPI (b) FDI
(c) NRI (d) American depositary receipts (ADRs)
2. _______________directly doesn’t involve any kind of superior technology
or managerial transfers
(a) GDR (b) FDI
(c) ADR (d) FPI
3. FII stands for…………
(a) Foreign Institutional Investor (b) Foreign Indian Investor
(c) Foreign Incharge Investor (d) Foreign Identity Investor
[Answers: (1-d), (2-d), (3-a)]
Match the following:

1. Foreign Collaboration a. concessional foreign finance
2. FII b. Non-Resident Indian
3. Foreign Aid c. Foreign Institutional Investor
4. NRI d. External Commercial Borrowing
5. ECB e.Reduces the disparities between the countries
[Answer: (1-e), (2-c), (3-a), (4-b), (5-d)]

1) Anitha.R (2012), “Foreign Direct Investment and Economic Growth in
India,” International Journal of Marketing, Vol.1 No.8.
2) Balasubramanyam V.N, Sapsford David (2007): “Does India need a lot
Foreign Capital
more FDI”, Economic and Political Weekly.
38

3) Basu P., Nayak N.C, Archana (2007): “Foreign Direct Investment in India: Business Finance - II
Emerging Horizon”, Indian Economic Review, Vol. XXXXII. No.2.
4) Borenszte in E, JideGragoria and J.W.lee (1998), “How does FDI Affect
Economic Growth”, Journal of International Economics.
5) Gandhi. G.P. (2011), “FDI Inflows: Raod to India?s Rapid Development”,
Market Survey.
6) Garrick Blalock (2006): “Technology adoption from Foreign Direct
Investment and Exporting: Evidence from Indonesian Manufacturing” 262
7) Ghosh D.N.(2005): “FDI and Reform : Significance and Relevance of
Chinese Exoeruence”? Economic and Political ewwkly.
8) Baskaran A (2010), “The Impact of Foreign Direct Investment on Indian
Economy”, Excel Books.
9) Direct Tax Laws (2010), “Guide To Foreign Direct Investments In India
With FDI Policy Issued on 1st April 2010”, Taxmann Publications Pvt. Ltd.
10) G. Gopala Krishna Murthy (2007), “Foreign Institutional Investors –
Indian and Global Scenario”, Icfai University Press, Hyderabad
11) H. S. Kehal (2005), “Foreign Investments in Developing Countries”,
Palgrave Macmillan, New York
12) Jack L. Treynor (2007), “Treynor on Institutional Investing”, Wiley
13) Kamal Garg (2010), “Foreign Direct Investments in India”, Bharat Law
House Private Limited.
14) Karl Sauvant, Wolfgang A. Maschek and Geraldine A. McAllister (2010),
“Foreign Direct Investments From Emerging Markets: The Challenges
Ahead” Palgrave Macmillan, New York.
15) K. Seethapathi (2006), “FDI: Issues in Emerging Economies”, Icfai
University Press, Hyderabad.
16) Lata M Chakravarthy (2005), “Foreign Direct Investment in India”, Icfai
University Press, Hyderabad.
17) Manoj Pant (1995), “Foreign Direct Investment in India”, Lancer Books.
18) Rais Ahmed (2008), “Foreign Direct Investment in India”, Mittal
Publication
19) Raj Kumar Sen Suvranshu Pan (2007), “Foreign Direct Investment and
Trade in India”, Deep & Deep Publications Pvt. Ltd.
20) Singhania D C (2000), “Foreign Collaborations and Investments in India:
Law and Procedures”, Universal Law Publishing Co. P Ltd.
21) Sir Hans Singer N Hatti R Tandon (1991), “Foreign Direct Investments
(New World Order Series, Vol. 11)”, Indus Publishing Company.
22) T K Shandilya Anil Kumar Thakur (2008), “Foreign Direct Investment in
India: Problems and Prospects”, Deep & Deep Publications Pvt. Ltd.
23) Vandana Shajan (2006), “Foreign Institutional Investments: Perspectives Foreign Capital
And Experiences”, Icfai University Press, Hyderabad.
39
UNIT - III NEW DIMENSIONS IN
BUSINESS FINANCE
Unit Structure:
3.0 Objectives
3.1 Lease financing –
3.1.1 Meaning of Lease financing
3.1.2 Importance of Lease financing
3.1.3 Types of Lease financing
3.2 Lease v/s Buy Decision
3.3 Problems and Prospects of Leasing in India
3.3 Venture Capital
3.3.1 Concept of Venture Capital
3.3.2 Process of Venture Capital
3.3.3Methodsof Venture Capital Financing
3.4 Development of Venture Capital in India
3.5 Credit Rating
3.5.1 Meaning of Credit Rating
3.5.1 Need of Credit Rating
3.5.1 Credit Rating Agencies in India
3.5.1 Methodology of Credit Rating
3.6 Summary
3.7 Questions
3.0 OBJECTIVES:
• To understand the concept of management and study its nature.
• To know different levels of management.
• To study the functions of management and different schools of
management thoughts.
• To Enhance the Knowledge of Management Studies
3.1 Lease financing –

A “lease” is defined as a contract between a lessor and a lessee for the hire of a
New Dimensions in particular asset for a particular period on payment of certain rentals. The
40 Business Finance maximum period of lease as per a law is for 99 years. Earlier land or real estate,

quarries and mines were taken on lease. Today even plant and equipment, modem Business Finance - II
civil aircraft and ships are taken.
Lease financing is one of the significant supplies of medium- and long-term
financing where the owner of an asset allots to another person, the right to use that
asset in exchange periodical payments. The proprietor of the asset is known as
lessor and the possessor is called lessee.
Lease rental is the periodical payment made by the lessee to the lessor. Under lease
financing, lessee is given the possession to use the asset but the ownership lies
with the lessor and towards the end of the lease contract, the asset is returned to the
lessor or an alternative is given to the lessee either to acquire the asset or to refresh
the lease agreement.
Definition:
(i) Lessor:
Lessor is the party who is having the ownership of an asset, permitting the
use of the same by the other party on payment of a periodical amount.
(ii) Lessee:
The party who acquires the right to use equipment for which he pays
periodically. He has possession of an asset.
3.1.1 Meaning of Lease financing

According to the Indian Contract Act, 1872 lease contract is the
relationship between the lessor and the lessee as a bailor and a bailee. A
lease is a contract whereby the lessor conveys possession of an asset to the
lessee in return for rent for an agreed period of time. The ownership of the
asset continues to lie with the lessor whereas the lessee enjoys the right and
possession of an asset in consideration of the rent paid to the lessor..
3.1.2 Importance of Lease financing
Lease financing means agreement between proprietor of an asset and
possessor of an asset. In this contract only payment of rent is made at
periodical intervals for using of asset by possessor or user. In case, user of
asset has no funds to pay primary amount of leasing contract, he can also do
contract with third part to pay primary payment or specific period rent of
lease. This is be also lease finance. For businesses, leasing property may
have important financial benefits, which are sketched below:
Ø Leasing is less capital- demanding than acquiring, so if a business has
restrictions on its capital, it can raise more rapidly by leasing an asset
than by acquiring an asset.
Ø Capital assets may alter in value. Leasing transferences risks to the
lessor, but if an asset has shown stable growth over a period, a
business that hangs on leased assets is forgoing capital gains.
Ø Depletion in the value of capital assets in the accounting term
“Depreciation” has different tax and financial reporting dealing from
New Dimensions in
ordinary business expenses. Lease rent payments are considered Business Finance
expenses other than assets, which can be set off versus revenue when 41
Business Finance - II computing taxable profit at the end of the appropriate tax accounting
period.
Ø A small business may desire to open a location in a large office
building within packed location parameters.in that cases, a lease may
be the only practical option.
Ø Leasing may ensure more elasticity to a business which anticipates
growing or moving in the comparatively short term, because a lessee
is not usually forced to renew a lease at the end of its tenure.
Ø Lease finance is easy to acquire than receiving loan for buying all
fixed assets.
Ø Periodical rent payment for lease finance will be part of operating
expenses. It will be allowed to deduct from total income. Then
company gets tax benefits due to lease financing.
Ø It can show as unseen debt of company from its balance sheet. If the
contract did directly with the owner of asset, it can be shown in the
footnote of balance sheet.
3.1.3 Types of Lease financing

Depending upon transmit of risk and rewards to the lessee, the tenure of
lease and the number of parties to the transaction; lease financing can be
divided into two types. First is Finance lease and other one operating lease.
i. Finance Lease:
It is the lease where the lessor conveys significantly all the risks and
rewards of ownership of assets to the lessee for lease rentals. In other
words, it puts the lessee in the same circumstance as he/she would
have been if he/she had acquired the asset. There are two phases of
Finance lease,
The first one is called primary period. This is non-cancellable period
and in this period, the lessor get back his total investment through
lease rental. The primary period may last for unspecified period of
time.
The lease rental for the secondary period is comparatively smaller
than that of primary period.
Ø Features of Finance Lease:
1. A finance lease is a mechanism that gives the lessee a right of
possession and use of an asset.
2. The lease rental charged by the lessor during the initial period of lease
is adequate to recuperate his/her investment.
3. Secondary period lease rental is the much smaller. It is also known as
peppercorn rental.
4. Responsible for the maintenance of asset is passing to Lessee.
New Dimensions in
Business Finance 5. Lessor is not taking asset-based risk and rewards.
42
6. The lessor’s investment is assured due to non-cancellable lease.
ii. Operating Lease: Business Finance - II
Lease except finance lease is called operating lease. Here chances of risks
and rewards accompanying to the ownership of asset are not transmitted by
the lessor to the lessee. The term of such lease is much less than the
economic life of the asset and thus the total investment of the lessor are not
recovered through lease rental during the primary period of lease. This type
of lease is also known as service lease because the lessor generally offers
advice to the lessee for repair, maintenance and technical knowhow of the
leased asset.
Ø Features of Operating Lease:
1. Operatinglease term is comparatively lower than the economic life of
the asset.
2. The lessee has the privilege to terminate the lease by providing a
short notice and no penalty is levied for that.
3. The lessor offers the advice for maintenance and technical knowhow
of the leased asset to the lessee.
4. Risks and rewards accompanying to the ownership of asset are
accepted by the lessor.
5. Lessor has to hang on leasing of an asset to various lessees for
retrieval of his/her investment.
Advantages and Disadvantages of Lease Financing:
Leasing seems to be a cost-effective substitute for using an asset therefore
presently shows an increasing trend. There are certain advantages as well as
disadvantages.
i. Advantages:
Following are the advantages of Lease financing
a. To Lessor:
From the point of view of lessor the advantages of lease financing are as
below:
Ø Guaranteed Regular Income:
Lessor earns lease rent by leasing an asset during the period of lease which
is a guaranteed and regular income.
Ø Protection of Ownership:
In case of finance lease, the lessor transfers all the chances of risk and
rewards accompanying to ownership to the lessee without the transfer of
ownership of asset hence the owner¬ship of lessor is protected.
Ø Tax Benefit:
As ownership remains with the lessor, tax benefit is enjoyed by the lessor
by way of depreciation charge before tax in respect of leased asset.
New Dimensions in
Business Finance
43
Business Finance - II Ø Profitability:
The business of leasing is profitable since the return based on lease
rental, is much higher than the interest payable on financing the asset.
Ø High possibility of Growth:
The demand for leasing is gradually increasing due to its cost
efficient forms of financing. Economic growth can be preserved even
during the period of depression. Thus, the growth possibility of
leasing is much higher as evaluated to other forms of business.
Ø Recovery of Investment:
The lessor can get back the total investment through lease rentals in
case of finance lease,.
b. To Lessee:
From the point of view of lessee the advantages of lease financing are
as below:
Ø Use of Capital Goods:
A business will not have to spend a lot of money for purchasing an
asset but it can utilized an asset by compensating small monthly or
yearly rentals.
Ø Tax Benefits:
A company is able to enjoy the tax benefits on lease rent payments as
lease rent payments can be deducted as a business operating expense.
Ø Cheaper:
As compare to all other sources of financing, Leasing is a cheaper
source of financing.
Ø Technical Assistance:
Lessee gets some type of technical support like technical know-how,
servicing etc. from the lessor in respect of leased asset.
Ø Inflation Friendly:
Leasing is inflation friendly, the lessee has to pay flat amount of
rentals each year even if the cost of the property goes up.
Ø Ownership:
After the expiry of primary tenure, lessor proposes the lessee to
acquire the assets— by compensating a very small sum of money.
ii. Disadvantages:
Lease financing suffers from the following disadvantages
a. To Lessor:
Lessor suffers from certain drawbacks which are as follows:
New Dimensions in Ø Fruitless in Case of Inflation:
44 Business Finance

Lessor gets flat fixed amount of lease rental every month or Business Finance - II
year for a specific tenure and they cannot raise this even if the
cost of asset goes up.
Ø Double Taxation:
There are chances of charging twice of Sales tax, initially at the
time of acquisition of an asset and second at the time of leasing
the asset.
Ø Chance of Damage of Asset:
As ownership is not transmitted, the lessee uses the asset
recklessly and there is a great chance that asset cannot be
functioning after the expiry of primary tenure of lease.
b. To Lessee:
Lessee suffers from certain drawbacks which are as follows:
Ø Mandatory:
Finance lease is non-revocable and even if a company does not
want to use the asset, lessee is required to pay the lease rentals.
Ø Ownership:
Unless the lessee decides to purchase the asset will not become
the owner of the asset at the end of lease agreement.
Ø Costly:
Lease financing is comparatively more costly than other
sources of financing because lessee has to pay lease rental as
well as expenses accompanying to the ownership of the asset.
Ø Understatement of Asset:
As lessee is not having ownership of the asset, so an asset
cannot be mention in the balance sheet which leads to
understatement of lessee’s asset.
Distinguish between Operating Lease and Financial Lease:
New Dimensions in
Business Finance
45
Business Finance - II 3.2 Lease v/s Buy Decision:
A lease is a contractual understanding whereby one party (i.e., the proprietor of an

asset) permits the other party the right to use the asset in return for a rent as a
periodic payment. A lease is fundamentally the renting of an asset for some
specified tenure. The owner or the proprietor of the assets is called the lessor while
the other party that uses the assets is known as the lessee.
The lessee obtains the benefits of the asset for a specific period of time by paying
of fixed lease rent. The other way, the lessee could receive the benefits of the given
asset would be to buy it, and the absolute purchase of the asset would require
sufficient funds. The lessee might have these necessary funds to acquire the assets
outright without taking loans, but the cost of capital and opportunity cost matters.
Therefore, a firm has to decide between two mutually exclusive situations: First,
should the assets be buying and become the owner of the asset and second, should
the asset be used on a lease basis.
If the firm purchased the asset from its own funds, but it may be considered as a
form of borrowing due to the opportunity cost of the funds is at least equal to the
interest rate prevailing on loans. A firm has considering the acquisition of an asset
only to getting the services of the assets, the ownership of which is subsidiary. It
has to decide whether it should acquire the assets on lease or borrow the funds to
buy the assets. This is a financing decision and known as lease-buy decision. In
case of assets on lease the lease rent is payable, which is similar to payment of
interest on loans, which may be needed for generating the funds for purchasing the
asset. This is a financing decision involves a choice between lease financing and
debt funds. The lease or buy decision comprises assessing the comparative
advantages and disadvantages of leasing and of debt funding specially in the form
of effect on lessee’s cash flows.
In the lease or buy decision, the choice hangs upon the present value of the two
series of after tax cash flows to the lessee; and to evaluate the lease or buy
decision, the financial manager has to count only the appropriate cash flows i.e.,
he has to count only those cash flows that alters under the two options. There is
need for an after tax present value judgments of the two alternatives. As per the
capital budgeting.
New Dimensions in
46 Business Finance

3.3 Problems and Prospects of Leasing in India Business Finance - II
Problems of Lease Financing in India:

The exceptional growth of leasing companies, their lease business and its
acceptance as a method of acquiring use of assets then too there are few
problems Attention needs to be given to the following problems of leasing
companies in India:
1. Financial Problems
2. Accounting Problems
3. Rigid procedure for import/cross border leasing
4. Inadequate tax benefits and additional tax burden.
5. Lack of proper legislation.
6. Existence of cutthroat competition.
7. Lack of expertise in the management.
8. Government policies.
Future Prospects of Lease Financing in India!
Lease financing in India has risen up in the eighties but till now, it is
assessed that barely 1% of the industrial investment in India is covered by
the lease finance, as compare to 40%, 30%, and 10% in USA, UK and Japan
respectively. The potentials of leasing in India are sound due to increasing
investment requirements and insufficiency of funds with public financial
institutions. Its rising popularity, there is no doubt that leasing business has
respectable prospects in India.
Growth and attainment in leasing business needs well planned promotional
efforts in ascertaining a suitable and realistic lease proposal and properly
informing the clients on the pros and cons of a lease agreement. The total
consumer (clientele) satisfaction should become the core attentions of
concern and focuses for the leasing industry to grow up in future.
3.3 Venture Capital:

Venture Capital is provided at early stage to start up companies by private
institutional investments. Venture capital funds are invested by the investors who
pursue private equity stakes in small to medium business which are strong enough
to grow. These investments are generally equity means risk and returns
opportunities are very high. The ventures contain threat of loss in the anticipation
of substantial profit. Financial partners are called venture capitalist (VCs) who
invest their money.
3.3.1 Concept of Venture Capital

New Dimensions in
Venture capital denotes the risk capital contributed to growing companies Business Finance
and it shape as share capital in the business organizations. Whether money 47
Business Finance - II provided as start-up capital or as development capital for small but growing
firms is embraced in this definition.
In developing countries like India, venture capital contains only seed
capital, investment for high technology and finance to convert research and
development into actual product for market. Venture capital denotes to the
assurance of capital (funds) and knowledge (skills) for the establishing and
setting up of business predominantly to those focusing on new ideas or
innovative technologies. Thus, it is not just a dose of funds into a new firm
but also with skills needed to set up the firm. In western countries like the
USA and UK, venture capital not only consists of source of funds for
investment in technology but also supply of capital and skills for nurturing
the growth and development of business.
Characteristics of Venture Capital:
1. Venture capital is basically backing of new ventures through equity
contribution. Such participation may also take the form of long-term
loan, or convertible securities. The main objective for contribution in
equities is to earn capital gains, when the enterprise flourished with
profit.
2. Venture capital makes long-term investment in highly prospective
ventures whose returns may be available after a long period, like 5-10
years.
3. Venture capital does not restrict to investment of equity capital but
also supply of skills for nurturing the growth and development of
organisation. Venture capitalists guarantee active involvement in the
management which is the entrepreneur’s business and offer their
expertise to the firm in various areas like marketing, technology,
planning and management.
4. Venture capital financing comprises high risk return area. Some of
the ventures may produce very high returns to balances for heavy
losses.
In nut shell, a venture capital establishment is a financial arbitrator
between investors looking for high prospective returns and
entrepreneurs who required institutional capital as they are yet not
able to go for initial public offer (IPO).
3.3.2 Process of Venture Capital

Venture Capital financing process is generally done Following Six Main
Steps, Namely:
1. Deal Initiation
2. Screening
3. Evaluation
4. Deal Negotiation
New Dimensions in 5. Post Investment Activity
48 Business Finance
6. Exit Plan
The above-mentioned steps are explained in details below; Business Finance - II
1. Deal Initiation:
Commencing of a deal is the prime step in venture capital financing. An
investment without a deal is not possible, conditions of deal are necessary.
One of the most common sources of such initiation is recommendation
system. In recommendation system deals are transfer to the venture
capitalist by their business partners, parent organisations, friends etc.
2. Screening:
Screening is the procedure by which the venture capitalist examines all the
prospective projects in which he may invest. The projects are classified
under certain standard such as product, market scope, technology, quantum
of investment, geographical location, demographical features, stage of
financing etc. For the procedure of screening the entrepreneurs are asked to
either supply a brief profile of their venture or requested for face-to-face
discussion for pursuing certain explanations.
3. Evaluation:
The deal is evaluated after the screening and a comprehensive study is
done. For details study some of the documents are requires such as
projected outline, background of the entrepreneur, projected turnover, etc.
The process of evaluation is only evaluates the project competence but also
the competence of the entrepreneurs to meet such goals. Certain abilities in
the entrepreneur such as entrepreneurial skills, technical knowledge,
manufacturing and marketing capabilities and experience are consider
during evaluation. After considering all the factors, detail risk management
is done which is then followed by deal initiation.
4. Deal negotiation:
Once the venture capitalist or investor discovers the project is viable he gets
into deal negotiation. Deal negotiation is a procedure by which the
stipulations means conditions of the deal are so prepared so as to make it
mutually advantageous. The bargaining between both the parties is a
negotiation. Both put forward their demands and required to settle the
demands. The areas of negotiation are quantum of investment, profit
sharing ratio held by both the parties, rights and duties of the venture
capitalist and entrepreneur etc.
5. Post investment activity:
Once the deal is locked, the venture capitalists entered in to the venture and
perform certain rights and duties. The capitalist not take part in the day to
day events of the firm; it only concerned during the circumstances of
financial risk. The venture capitalists contribute in the enterprise by a
representation in the Board as Directors and safeguard that the enterprise is
performing as per the plan.
6. Exit plan:
The final stage of venture capital investment is to create the exit plan
New Dimensions in
established on the nature of investment, extent and kind of financial
Business Finance
investment etc. The exit plan is built to make negligible losses and extreme 49
Business Finance - II profits. The venture capitalist may departure through IPOs, purchase of the
venture capitalists share by the promoter or an outsider, acquisition by
another company.
3.3.3 Methods of Venture Capital Financing

Following are Methods of Venture capital financing
• Equity
• participating debentures
• conditional loan
3.4 Development of Venture Capital in India

In, July 1999 the Securities and Exchange Board of India (SEBI) Committee on
venture capital was established to identify the hindrances and recommend
measures to provide incentive to the growth of venture capital activity in India.
KB Chandrasekhar headed the committee which was decided to associate Indian
Entrepreneurs from Silicon Valley for taking into account the need for a global
perspective, these recommendations were further modified in April 2000 with the
objective of strengthening the growth of VC activities in India. The
recommendations were as follows:
a) Need for harmonization and nodal Regulator instead of Multiplicity of
regulations.
b) Need to be avoided Double taxation for Venture Capital Funds
c) Mobilization of Global and Domestic resources
d) Flexibility in Investment and Exit of Venture Capitalists
e) Flexibility in the matter of investment ceiling and sectorial limitations
f) Relaxation in IPO regulations
g) Issue of Shares with Differential Right with respect to voting and dividend.
h) Global integration and opportunities – Incentive for employees; Incentive
for shareholders and Global investment opportunity for Domestic Venture
Capital Funds (DVCF).
i) Development in Infrastructure and R&D
j) Self-Regulatory Organization (SRO)
Examples of venture capital funding

1. Kohlberg Kravis & Roberts (KKR)
One of the top-tier different investment asset managers in the world, has
entered into a decisive promise to invest USD150 million (Rs 962crore) in
Mumbai-based listed polyester maker JBF Industries Ltd. The firm will
purchase 20% investment in JBF Industries and will also invest in zero-
New Dimensions in
coupon compulsorily convertible preference shares with 14.5% voting
50 Business Finance
rights in its Singapore-based fully owned subsidiary JBF Global Pvt. Ltd.
The investment offered by KKR will help JBF to accomplish the ongoing Business Finance - II
projects.
2. Pepperfry.com
India’s major online furniture e-marketplace, has built USD100 million in a
new round of investment led by Goldman Sachs and Zodius Technology
Fund. Pepperfry will use the investment to enlarge its footprint in Tier III
and Tier IV cities by enhancing to its rising fleet of distribution vehicles. It
also exposed new deliver centers and expand its carpenter and assembly
service rendering network. This is the greatest quantum of investment
grown by a sector focused online customers in India.
Conclusion:
In India, the venture capital plays a dynamic role in the expansion and
development of inventive entrepreneurs. Venture capital (VC) deeds were
mostly done by only a few institutions to encourage entities in the private
sector with investments for their business. In India, funds were primarily
raised by public which did not sustain to be productive in the long run to the
small entrepreneurs. The requirement on venture capitals was understood
in the 7th five year plan and long term fiscal policy of the government of
India.
In 1988, ICICI and UTI promoted Technology Development and
Information Company of India Ltd. (TDICI) for VC financing started in
India. The initial private VC fund was supported by Credit Capital Finance
Corporation (CFC) and endorsed by Bank of India, Asian Development
Bank and the Commonwealth Development Corporation viz. Credit
Capital Venture Fund. State level financial institutions were started by the
Gujarat Venture Finance Ltd. and APIDC Venture Capital Ltd. Resources
of these investments were the financial institutions, pension funds, foreign
institutional investors and high net-worth individuals. In India the venture
capital funds are listed in Annexure I.
3.5 Credit Rating

Definition of 'Credit Rating'
Definition: Credit rating is an analysis of the credit risks associated with a
financial instrument or a financial entity. It is a rating given to a particular
entity based on the credentials and the extent to which the financial
statements of the entity are sound, in terms of borrowing and lending that
has been done in the past.
3.5.1 Meaning of Credit Rating

Usually, is in the form of a thorough report based on the financial record of
borrowing or lending and credit value of the entity or the individual
acquired from the records of its assets and liabilities with an aim to decide
their capacity to meet the debt commitments. It helps in examination of the
New Dimensions in
solvency of the particular concern. These scores based on detailed analysis
Business Finance
51
Business Finance - II are issued by various credit rating organizations like Moody's Investors
Service, Standard & Poor's and ICRA.
3.5.1 Need of Credit Rating

Credit Rating – Meaning & Functions
Credit Rating is an examination of the borrower that decides whether the borrower
will be able to pay the loan back on time, as per the agreement. Unnecessary to
say, a good credit rating describes a good history of paying loans on time in the
past. This credit rating impacts the bank’s decision of sanctioning loan application
at a caring rate of interest.
It is normally conveyed in alphabetical indications. Although, it is a fresh thing in
Indian financial market but gradually its acceptance has enlarged. It helps
stakeholders to identify the risk concerned in lending the money and gives a fair
examination of the borrower’s creditability.
Importance of Credit Rating
Here are the benefits of credit rating:
For The Money Lenders
1. Better Investment Decision: Risky borrowers are never the choice of bank
or money lender companies. Credit rating provides an idea about the credit
worthiness of an individual or concern, who is borrowing the money and
the risk elements committed with them. By assessing this, they can make a
better investment choice.
2. Safety Assured: High credit rating gives an assurance about the safety and
security of the money and that it will be return back with interest on time.
For Borrowers
1. Easy Loan Approval: The borrowers, with high credit rating get easy and
fast approval of their loan. The high credit rating assured that they are low
or no risk customers to provide loan.
2. Considerate Rate of Interest: The rate of interest and Credit ratings are
closely related. Every bank offers loan at a certain range of interest rates.
One of the key elements that decide the rate of interest on the borrowing is
the credit history of borrower. Higher the credit rating, lower will the rate of
interest.
3.5.1 Credit Rating Agencies in India

Credit Rating Agencies in India
Credit rating organization is an agency that measures the credit worthiness
of an individual, business or concern who desires to borrow money or
request for a credit card facility in the bank. Following are few credit
agencies operated in India.
New Dimensions in CRISIL

52 Business Finance In 1987 Credit Rating Information Services of India Limited (CRISIL) is

the pioneer credit rating agency of the country was established. It evaluates Business Finance - II
the credit worthiness of entities based on their market share, strengths,
market reputation, goodwill and board. It also evaluates companies, banks
and organizations, assisting investors to make a better decision before
financing in companies’ bonds. It offers 8 categories of credit rating as per
their scores, which are as follows:
• AAA, AA, A – Good Credit Rating
• BBB, BB – Average Credit Rating
• B, C, D – Low Credit Rating
ICRA
In 1991, Investment Information and Credit Rating Agency of India were
formed and it does headquarter at Mumbai. It offers complete ratings to
organizations via a transparent rating system. Its rating system contains
indications which vary with the financial devices. Here are the types of
credit ratings recommended by ICRA:
• Bank Loan Credit Rating
• Corporate Debt Rating
• Corporate Governance Rating
• Financial Sector Rating
• Issuer Rating
• Infrastructure Sector Rating
• Insurance Sector Rating
• Mutual Fund Rating
• Public Finance Rating
• Project Finance Rating
• Structured Finance Rating
• SME Rating
CARE
Credit Analysis and Research Limited (CARE) provides a scope of credit
rating facilities in areas like debt, corporate governance, bank loan,
recovery, financial sector and more. Its rating measure includes two
categories – long term debt tools and short term debt ratings.
ONICRA
In 1993, Onida Individual Credit Rating Agency of India was established,
which deals credit evaluation and credit scoring services to both
individuals and organizations. Along with this, it also provides, risk
measurement reports to individuals, small and medium enterprises and
corporates. Its assessments are based on two factors – Financial Strength
and Performance Capability.
New Dimensions in
Business Finance
53
Business Finance - II SMERA
SME Ratings and Bond Ratings are two divisions of Small Medium
Enterprises Rating Agency Of India Limited. In 2011 SMERA was
established, it is a hub of financial professionals. It presents credit ratings in
the following format:
• AAA, AA, A – Low Credit Risk
• BBB, BB – Moderate Credit Risk
• B, C – High Credit Risk
• D- Defaulted
Brickwork Ratings India Private Limited
It offers different rating system subject to the different financial instrument.
Brickwork Ratings India Private Limited headquartered in Bangalore, this
credit scoring agency is accountable to evaluate Municipal Corporation,
bank loans, capital market instrument and SMEs. Other than this, it is also
accountable to rating real estate investments, NGOs, hospitals, MFI, etc.
3.5.1 Methodology of Credit Rating

How is the credit rating set?
The credit rating agencies rate short term debt, long term debt, local currency debt
and foreign currency debt differently. Short term debt is rated on a different scale
than long tenor debt, because the ability of the issuer to meet obligations in the
short term is related to different parameters than the ability to repay in the long
term. Thus, the ability to repay short tenor obligations is based more on financial
liquidity than the issuer's growth or risk potential.
The rating scale is divided into "Investment Grade" and "Speculative Grade," with
both categories divided into three sub-levels. For example, an "A" rating is
divided into: A-, A, A+ by S&P and Fitch, and A3, A2, A1 by Moody's.
In addition to the rating decision the rating agencies comment on the credit
outlook. This judgment predicts future development trends in the credit rating.
Outlooks are divided into three types as well: negative, stable and positive. Each
outlook reflects the probability for nonpayment of debt; it relies on financial and
accounting parameters and data analysis.
3.6 Summary:
Considering the high risk concerned within the capital investments
complimenting the high returns expected, one ought to do an intensive study of the
project being thought-about, advisement the danger come magnitude relation
expected. One has to do the preparation each on the capital being targeted and on
the business needs. Depending upon transmit of risk and rewards to the lessee, the
tenure of lease and the number of parties to the transaction; lease financing can be
divided into two types, Finance lease and Operating lease.
New Dimensions in The exceptional growth of leasing companies, their lease business and its
54 Business Finance acceptance as a method of acquiring use of assets then too there are few problems

of leasing companies in India, like financial, accounting, rigid procedure for Business Finance - II
import/cross border leasing, inadequate tax benefits and additional tax burden,
lack of proper legislation, existence of cutthroat competition, lack of expertise in
the management and government policies.
In developing countries like India, venture capital contains only seed capital,
investment for high technology and finance to convert research and development
into actual product for market. Venture capital denotes to the assurance of capital
(funds) and knowledge (skills) for the establishing and setting up of business
predominantly to those focusing on new ideas or innovative technologies. Venture
Capital financing process is generally explain as Deal Initiation, Screening,
Evaluation, Deal Negotiation, Post Investment Activity and Exit Plan
Credit Rating is an examination of the borrower that decides whether the borrower
will be able to pay the loan back on time, as per the agreement. Unnecessary to
say, a good credit rating describes a good history of paying loans on time in the
past. This credit rating impacts the bank’s decision of sanctioning loan application
at a caring rate of interest.
Credit rating organization is an agency that measures the credit worthiness of an
individual, business or concern who desires to borrow money or request for a
credit card facility in the bank. CRISIL, ICRA, CARE, ONICRA, SMERA,
Brickwork Ratings India Private Limited credit agencies operated in India.
3.7 Questions:
Q.1. FILL IN THE BLANKS:
1. The periodical payment made by the lessee to the lessor is known as
…………..
2. Leasing is a source of financing which is …………. than almost all other
sources of financing
3. ……………. is a private institutional investment made to start up
companies at early stage.
4. CRISIL stands for …………
5. ………………. Agency is an organization that evaluates the credit
worthiness of an individual, business or company
[ ANSWERS: 1. Lease rental , 2. Cheaper , 3. Venture capital , 4. Credit
rating information services of India Ltd. , 5. Credit rating]
Q.2. MATCH THE FOLLOWING:

“A” “B”
1. Lease other than finance lease a. Deal negotiation
2. Risk capital supplied to growing companies b. 1993
3. Terms and conditions c. Operating lease
4. BCD d. Finance lease
5. ONICRA e. Venture capital New Dimensions in
f. Low credit rating Business Finance
55
Business Finance - II [ ANSWERS: 1. (c) , 2. (e) , 3. (a) , 4. (f) , 5. (b) ]
Q.3. Explain the meaning & importance of lease financing.

Q.4. Explain the types of lease financing.
Q.5. Difference between operating lease & financial lease.
Q.6. Explain the concept & characteristics of venture capital.
Q.7. Explain the process of venture capital.
Q.8. Explain meaning & importance of credit rating .
Q.9. Explain briefly credit rating agencies in India.

1) P.V.Kulkarni : Business Finance, Himalaya Publishing House.
2) K.R.Javeri : Capital Issue -Law and Methodology, M.N.Tripathi
Pvt. Ltd.
3) I.M.Bholey : Financial Methods and Institutions, McGraw
Hills ,Delhi.
4) K. Bhalla : Invest Management, S.Chand , New Delhi.
5) M.Pandey : Financial Management, Vikas Publishing House.
6) S.C. Kucchal : Corporation Finance, Chaitanya Publishing House,
Allahabad.
7) F.W.Paish : Business Finance.
8) Dr.M.A.Kohok : Financial Services in India, Digvijay Prakashan ,
Pimpalgaon-Baswant, Dist :Nasik.
9) Dr.M.A.Kohok : Readings in Indian Financial Services, Digvijay
Prakashan, 1070, Shivajinagar, Pimpalgaon-
Baswant, Dist :Nasik.
10) Richard Brealex , : Fundamentals of Corporation Finance Satewart
Myres and (Latest Edition, McGraw Hill Inc.)
Alen Marcus
New Dimensions in
56 Business Finance

UNIT - IV
CORPORATE RESTRUCTURING AND FINANCE
Unit Structure:
4.0 Objectives
4.1 Forms of Expansion and diversification
4.2 Meaning of Acquisition, Takeover, Mergers and Amalgamation
4.3 Importance of Acquisition, Takeover, Mergers and Amalgamation
4.4 Reasons for Mergers & Amalgamation
4.5 Benefits of Mergers & Amalgamation
4.6 Summary
4.7 Questions
4.0 Objectives:
• To understand the concept and nature of Corporate Restructuring.
• To know different Forms of Expansion and diversification
• To study the concepts of Acquisition, Takeover & Mergers and
Amalgamation.
• To Know the Reasons and Benefits of Mergers & Amalgamation
• To Enhance the Knowledge of Corporate Restructuring and Finance
4.1 Forms of Expansion and diversification

A life cycle analysis of a company provides an interesting case of growth or
development. Business is all about searching for new avenues and harnessing
available business opportunities. In this chapter let’s discuss the role of
Acquisition, Merger, Takeover and Amalgamation in the journey of the growth of
an enterprise.
Definition: The Expansion Strategy is adopted by an organization with an attempt
to achieve a high growth as compared to its past achievements.
Expansion and Diversification of Business implies extending the company's
activities. This system may take place without altering the type of products or the
main occupation, just by advancing production processes and growing sales
(expansion) or by expanding the scope of activities is diversification.
4.1.1 Expansion strategies

Expansion is a form of business development where in efforts are put to Corporate Restructuring
increase the level of the current activity either through introduction of new and Finance
line of products or entering a new market. The following are the common 57
expansion strategies.
Business Finance - II 1. Market penetration:
Market penetration leads to devising strategy to capture new customers and
to increase the sales. Penetration helps to capture market share as much as
possible.
2. Market development:
Market development means entering new markets or searching new market
for the product. It can be inside the country or in other countries.
3. Development of Products:
Development of product means improving the present offering to the
consumer. Over a period of time new development take place in the market.
Customer preference may change. The product offered to the consumer
therefore should also remain relevant.
4. Expansion through Concentration:
The firms favour expansion through concentration because they are
expected to do things what they are previously doing. Due to the awareness
with the industry the firm likes to finance in the known businesses rather
than a fresh one. Also, through concentration strategy, no major alterations
are made in the organizational structure, and proficiency is gained due to an
in-depth knowledge about one or more businesses.
However, the expansion through concentration is hazardous since these
approaches are highly related on the industry, so any unfavourable
circumstances in the industry can affect the business significantly. Also, the
giant finance made in a particular business may experience losses due the
innovation of new technology, market changeability, and product
obsolescence.
4.1.2 Diversification strategies

Expansion strategies maintain the product line of the company. There are some
change improvements done from time to time. Over a period of time the product
needs to be replaced. Hence we need diversification strategies to move forward
Diversification strategies mean entering new markets, offering new products for a
different field of activity. For example a company that distributes
clothes/garments could extend its scope of activities to the distribution of
furniture, either for companies or for private individuals. In this case, the company
would be diversifying its activity.
Thanks to diversification, companies can take full advantage of their production
resources: for example, a distributor of garments can use its warehouse and its
staff to distribute furniture, given that the activities are similar. Moreover, it can
offer these products to its current customers, as they are also companies and, in the
same way that they need the material, they may also need to renew their furniture.
Case in point is diet drinks offered by the cola companies. This is an example of
Corporate Restructuring homogeneous diversification. There is also heterogeneous diversification in
and Finance which the organization may offer products unrelated to the original offering like
58 bundling Health checkup activity by the cola companies. Then there is vertical

diversification where the company takes total control of the supply chain from raw Business Finance - II
material procurement to distribution and marketing of the product.
4.1.3 TYPES OF DIVERSIFICATION STRATEGIES

The following are the types of diversification strategies:
1. HORIZONTAL DIVERSIFICATION
Horizontal Diversification aims to offer new services to its current
consumers. The consumer base created by the consumer is being offered
new products often related or unrelated products or services to the current
activity. For example, a dairy company producing cheese adds a new
variety of cheese to its product line. This is a risk free strategy because the
firm is already familiar with its customer. For example Park Avenue a
traditionally garment oriented company also offering cosmetics to its
consumers.
2. VERTICAL DIVERSIFICATION
In vertical diversification the company diversifies into the back end process
of manufacturing Like potato chips making company starts growing
potatoes. Or a company involved in the reconstruction of houses starts
selling construction materials and paints.
3. CONCENTRIC DIVERSIFICATION
In Concentric diversification the entity the entity introduces new products
with an aim to fully utilize the potential of the prevailing technologies and
marketing system. For example, a bakery making bread starts producing
biscuits.
Corporate Restructuring
and Finance
59
4. CONGLOMERATE DIVERSIFICATION
In Conglomerate diversification the entity launches a new product or
service having no relation to its previous offering. For example, ITC an
Indian cigarette making company moving into hotel industry of FMCG
markets. This is done to appeal to a all-new set of customers. It is done to
get better return on investment and to capitalize on the opportunity
available for growth.
CONCLUSION:
A diversification must be a well thought out action for an enterprise. It can enhance
the growth of the firm thereby escorting it towards wealth maximization.
However, it can also prove to be an expensive failure for particular entities. A
detailed analysis of the impending market must be accomplished before opting for
diversification.
and Finance
60

4.2 Meaning of Acquisition, Takeover and Merger, Amalgamation: Business Finance - II
Acquisition, Merger, Takeover and Amalgamation are used interchangeably. It all

means consolidation of companies.
The combination of two companies to form one is called Merger. When one
company is taken over by the other it is called Acquisition. They form one of the
major aspects of corporate finance world. It is because two separate companies
together create more value compared to them being on an individual stand. The
objectives of the companies are wealth maximization and seeking different
opportunities through merger or acquisition.
4.2.1 Acquisitions:
An acquisition is the purchase of corporate asset of one company by
another company. The purchasing company only remains into existence.
No new company is formed as it happens in Merger .For Example
Company ‘B’ is Acquired by Company ‘A’. Company ‘A’ will dissolve
Company ‘B’ and the activities will be carried forward in the name of
Company ‘A’. Acquisitions are made by using mode of cash or debt to
purchase outstanding stock, but companies can also use their own stock by
exchanging it for the vendor firm's stock. Acquisitions can be done in a
hostile or friendly manner.
4.2.2 Takeover:
Purchasing of a company is called as takeover. Takeovers creates a bigger,
more competitive, more cost-efficient entities. The synergy created by
coming together of two companies is to increase the shareholders worth. It
is similar to Acquisition.
4.2.3 Merger:
In merger, different entities are combined together and a new entity is
created. For example Company ‘A’ and Company ‘B’ merger together to
create a new Company ‘AB’. Company ‘A’ and Company ‘B’ are
dissolved and a New Company ’AB’ carry forwards its activities. Merger
helps to improve the financial and operational strength of the organization.
The ownership gets transferred by cash payment or stock swap between the
two companies. The New Company issues its stock to the shareholders of
the seller company.
4.2.4 Amalgamation:
In Amalgamation entities doing similar business are combined together and
a new company is formed. It is done to get benefit of economies of scale.
The shareholder of the vendor company becomes the shareholder of the
new or purchasing company. It is mostly done through share transfer.
4.3 Importance of Acquisition, Takeover and Merger, Amalgamation.

Merger and Acquisition are important for the following reasons: Corporate Restructuring
and Finance
61
Business Finance - II 1. Economies of Scale
2. Operating Economies
3. Synergy
4. Growth
5. Diversification
6. Utilization of Tax Shields
7. Increase in Value
8. Eliminations of Competition
9. Better Financial Planning
10. Economic Necessity.
Let’s explain it in detail.
1. Economies of Scale:
An Amalgamated organization is bigger than the previous self. It has
more resources at its disposal and so can achieve large scale
production. It gets the benefit of economies of scale and leads to cost
reduction. Its improved production facilities, distribution network,
research and development facility add to its economies of scale.
Horizontal and vertical mergers lead to optimal use of resources and
competitive pricing. The economy of scale leads to decrease in per
unit cost and improves revenue.
2. Operating Economies:
The operating economies like facilities in accounting, purchasing,
marketing etc of the best organization will be kept and few
unproductive processes will be eliminated .The operating
inefficiencies of one entity will be controlled and trained by the team
of the entity having superiority. The amalgamated firm will have a
better leverage in terms of operating efficiency.
3. Synergy:
The firms that have merged together get benefits of economies of
scale and operating synergy. The leveraging of the strong Research
and Development team of the superior entity, the managerial
capabilities, the financial resources, the investment opportunities
etc. help develop synergy in the operation of the merged entity.
4. Growth:
Merger and Acquisition is a cheaper and less risky method of growth.
The entity which increases its internal strength due to merger has a
chance of growth. It leads to satisfactory and balance growth. The
firm doesn’t have to go through the route of developing new product
Corporate Restructuring line as due to merger new line of product are acquired and marketing
and Finance can be started quickly.
62

5. Diversification:
An entity which tries to enter a new lines of activities has to face a
number of problems in production, marketing etc. Amalgamation or
Merger with an organization working in that particular .line of
activity help in diversification of business .Amalgamation will bring
together different expertise of different persons in varied activities.
So amalgamation is a tool of diversification.
6. Utilisation of Tax Shields:
When a merger takes place between a company with accumulated
losses and a profit making company it is able to utilize tax shields.
After merger the accumulated losses of one unit can be set-off against
the future profits of the merged entity. In this manner merger or
amalgamation will enable the concerned to avail tax benefits.
7. Increase in value:
The main reasons of merger or amalgamation is to increase the value
of the merged entity.. The value of the merged entity is greater than
the sum of the independent values of the merged companies. For
example, if A Ld. and B Ltd. merge and form AB Ltd., the value of AB
Ltd. is expected to be greater than the sum of the independent values
of A Ltd. and B Ltd.
8. Eliminations of Competition:
One of the aims of merger or amalgamation of two or more
companies is to eliminate competition among them. The companies
will be saving on operational expenses thus enabling them to reduce
their prices. The consumers will get goods at cheaper rates as there is
less spending on advertising to beat the competition.
9. Better Financial Planning:
The merged companies will be financially stronger and will be able to
plan their resources in a better way. The collective finances of
merged companies will be huge and its utilization will lead to better
returns. The profits of the company with short gestation period will
be utilized to finance the entity having long gestation period. The
entity which has a longer gestation period starts earning profits then it
will improve financial position as a whole.
10. Economic Necessity:
Rehabilitation of sick units can be done my merging them with
profitable entities. The merging of the sick units with a healthy unit,
results the proper utilization of the resources, improving returns.
4.4 Reasons for Merger and Amalgamation

Every company has its unique characteristics. Some are very good at Corporate Restructuring
administration while some other company is good at marketing strategies or in and Finance
operations. These unique strong points when they come together lead to merger 63
Business Finance - II and amalgamation. The benefit of their expertise leads to synergy in their
operations. The new company so formed has a potential much higher and superior
to the previous ones. Merger leads to removing the bottleneck in the path of
progress and leads to the path of success of the organization.
The following are the reasons for amalgamation.
Improving Companies productivity:
A merged entity has an enhanced production capacity. It improves in
planning and the synergy leads to better productivity for the new entity.
Political factors:
Good relations are developed between countries having mutual partnership
in business. It leads to greater respect among the people and the political
class. The success of the relationship is measured in the way the countries
complement each other as business partners.
Reduction of expenses and Increase in revenue:
The merged entity leads cutting down of unnecessary expenses and
increasing the revenue of the organization. Expenses once incurred due to
outsourcing are now done in house at a lower budget and the markets not
available before merger are now available for marketing. The new entity
looks self-sufficient to operate on its own. It has now overcome bottlenecks
like insufficient funds, excessive competition etc. The new synergy leads to
less waste of resources and optimum utilization of its capacity. This leads to
cost cutting and improvement in revenue.
4.5 Benefits of Merger and Amalgamation:

The merged entity is a better version of its previous self. The benefits of
Merger and Acquisition are as follows:
1. There is improvement in the quality of the staff as the merger takes
place after identification of the skills and knowledge level of the staff
as well as the management.
2. The merged entity has a better processing model than its competitors.
3. There is benefit of the scale of the entity after merger.
4. Since the merged entities are complementary to each other it leads to
synergy of scale .Upward and downward mobility of the process is
achieved and the organization becomes more agile to face the
competition.
5. The merger gives an opportunity to access funds or valuable assets
for the new development of the organization.
6. Better production and distribution synergy is achieved because of the
merger.
7. Full use of the installed capacity is possible because of the merger.
Corporate Restructuring 8. Market share of the merged entity is greater than the previous entity
and Finance
and so cost reduction due to scale of production is possible.
64

9. The new entities bring to the table diversified products of each other Business Finance - II
and the use of the distribution channels to market it.
10. The cost efficiency is achieved due to the sharing of the marketing
budget, increasing purchasing power and low cost.
11. The merger of competitors kills the competition and focus is back on
production and generation of revenue.
12. It accelerates the growth of the organization as competition is
reduced and duplication of the facilities available can be removed.
13. It leads the entry of the merged entity into new markets.
14. It boosts the research and development capability of the new merged
entity.
15. The financial help required restarts when there is a merged entity.
16. It leads to improvement in shareholders’ value.
4.6 Summary:
Acquisition, Merger, Takeover and Amalgamation are used interchangeably. It all
means consolidation of companies.
The combination of two companies to form one is called Merger. When one
company is taken over by the other it is called Acquisition. They form one of the
major aspects of corporate finance world. It is because two separate companies
together create more value compared to them being on an individual stand. The
objectives of the companies are wealth maximization and seeking different
opportunities through merger or acquisition.
A life cycle analysis of a company provides an interesting case of growth or
development. Business is all about searching for new avenues and harnessing
available business opportunities. Merger and Acquisition Trends are necessary to
study in order to evaluate the market movements of any precise economy. Not
only the markets of specific countries, but also the Worldwide Market gets Corporate Restructuring
inspired by the substantial Mergers and Acquisitions. and Finance
65
Business Finance - II So, it can easily identify how influential the Merger and Acquisition Trends are in
the overall development and growth of any economy. In the years 2006 and 2007,
the world has seen several mergers and acquisitions. Most of these merger and
acquisitions essentially led to decrease in number of public enterprises and
enhance in number of private entities. This occurred as many public enterprises all
over the world, were either merged into or acquired by big private organisations.
According to professionals this trend of going private through mergers and
acquisitions will maintain in the future. As the Private Equity Funds are tackling
the target of deploying the raised capital, acquisition of large public organizations
is definitely in the pipeline.
Every company has its unique characteristics. Some are very good at
administration while some other company is good at marketing strategies or in
operations. The benefit of their expertise leads to synergy in their operations. The
new company so formed has a potential much higher and superior to the previous
ones. Merger leads to removing the bottleneck in the path of progress and leads to
the path of success of the organization.
4.7 Questions:
Q. 1. A] SELETE THE CORRECT ALTERNATIVE:
1. Corporate restructuring is done to increase
(a) Long term profitability (c) Long term solvency
(b) Long term business relations (d) None of the above
2. Corporate Restructuring helps to achieve
(a) Economies of scale (c) Global competitiveness
(b) Cost reduction (d) All of the above
3. Different forms of restructuring include
(a) Merger (c) Acquisition
(b) Takeover (d) All of the above
4. Acquisition takes place by
(a) Entering into agreement (c) Subscription to new shares of other
co.
(b) Purchasing share of the company (d) All of the above
5. The object of takeover is
(a) To reduce cost (c) To increase market share
(b) To improve (d) All of above
6. Takeover may be
(a) Hostile (c) Friendly
(b) Bailout (d) All of the above
and Finance
66

7. Reverse takeover may be
(a) Horizontal only (c) Vertical only
(b) Conglomerate only (d) All of the above
[ ANSWERS: (1) – d , (2) – d , (3) – d , (4) – d , (5) – d , (6) – d , (7) – d ]
Q. 1. B] TRUE OR FALSE:
1. Merger is a form of restructuring.
2. The object of takeover is to reduce cost
3. The object of takeover is to achieve economy of operations
[ANSWERS: (1) – TRUE (2) – TRUE (3) – TRUE ]
Q. 3] Write a note on “Corporate Restructuring as a strategy”

Q. 4] Write a note on merger and acquisition.
Q. 5] Explain the term Takeover and its types?

1) P.V.Kulkarni : Business Finance , Himalaya Publishing House.
2) K.R.Javeri : Capital Issue -Law and Methodology,
M.N.Tripathi Pvt. Ltd.
3) I.M.Bholey : Financial Methods and Institutions , McGraw Hills
, Delhi.
4) K. Bhalla : Invest Management, S.Chand , New Delhi.
5) M.Pandey : Financial Management, Vikas Publishing House.
6) S.C. Kucchal : Corporation Finance ,Chaitanya Publishing House
, Allahabad.
7) F.W.Paish : Business Finance.
8) Dr.M.A.Kohok : Financial Services in India, Digvijay Prakashan ,
Pimpalgaon-Baswant ,Dist :Nasik.
9) Dr.M.A.Kohok : Readings in Indian Financial Services, Digvijay
Prakashan , 1070, Shivajinagar,Pimpalgaon-Baswant
, Dist :Nasik.
10) Richard Brealex , : Fundamentals of Corporation Finance
Satewart Myres and (Latest Edition, McGraw Hill
Inc.) Alen Marcus
and Finance
67

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CONTENTS

Unit Contents Page No.

1 Stock Exchange 1-20

2 Foreign Capital 21-39

3 New Dimensions in Business Finance 40-56

4 Corporate Restructuring and Finance 57-67

UNIT - I STOCK EXCHANGE

1.1 Stock Exchange –

“Only for Private Circulation”

“Only for Private Circulation”

1.1.3 Functions of Stock Exchange Stock Exchange

“Only for Private Circulation”

1.2 Stock Exchanges in India

Bombay Stock Exchange (BSE)

Bombay Stock Exchange was founded by Premchand Roychand. He was 5

NSE IFSC Limited

“Only for Private Circulation”

Metropolitan Stock Exchange of India Limited (MSE)

1.3 Working of BSE and NSE

“Only for Private Circulation”

1.4 Trading Mechanism

Special Terms Book

Qualified Foreign Investor (QFI) segment

Fortnightly Review for Shifting Securities to Trade to Trade:

Units of Mutual Funds

WAP trading at NSE

Services provided by Depository

Stock Exchange Number of Depository in the country

“Only for Private Circulation”

“Only for Private Circulation”

1. The Stock Exchange facilitates.

Match the following:

[Answer: (1-e), (2-c), (3-a), (4-b), (5-d)]

1.8 Suggested/Further Readings:

“Only for Private Circulation”

UNIT - II FOREIGN CAPITAL

2.1 Role and Importance of Foreign Capital

“Only for Private Circulation”

Ø Crowds out local Capital and Entrepreneurial Growth:

2. Forms of Foreign Capital:

2.2 Sources of Foreign Capital

(A) Foreign Capital Investments:

“Only for Private Circulation”

“Only for Private Circulation”

Further, official aid (Bilateral or Multilateral) can be Government

(C) External Commercial Borrowings (ECBs):

2.3 Foreign Direct Investment

“Only for Private Circulation”

2.4 NRI fund, GDR and ADR issues

The following are the main three categories of NRIs:-

Foreign Capital Real estate

30 There is no restriction on the residential or commercial properties NRIs can

“Only for Private Circulation”

Depositary Receipt (DR)

2.5 Foreign Collaborations:

Foreign collaboration is now recognized as an important driver of growth in the

Foreign collaboration facilitates availability of the scarce resources. Resources

“Only for Private Circulation”

Multiple choice questions:

Match the following:

[Answer: (1-e), (2-c), (3-a), (4-b), (5-d)]

“Only for Private Circulation”

3.1 Lease financing –