New Financial Products and

Services
Merchant Banking
 It’s a financial intermediary who helps to transfer
capital from those who possess it to those need it.
 Merchant banking includes wide range of activities
i.e. management of customers securities, portfolio
management, project counseling and appraisal,
underwriting of shares and debentures, acting as
banker for refund orders, handling interest and
dividend warrants etc.
 Merchant banker renders a host of services to
corporate and promotes industrial growth.

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Loan Syndication
 Loan arranged by a bank called lead manager for a
borrower who is usually a large corporate customer or
a government department.
 The other banks who are willing to lend can
participate in the loan by contributing an amount
suitable to their own lending policies.
 Since single bank can’t provide huge sum of loan, a
number of banks join together and form a syndicate.
 It also enables the members of the syndicate to share
the credit risk associated with a particular loan
among themselves.
 This is otherwise referred as “Consortium
Financing”.

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LEASING
A “lease” is defined as a contract between
a lessor and a lessee for the hire of a
specific asset for a specific period on
payment of specified rentals.
The maximum period of lease according
to law is for 99 years. Previously land or
real estate, mines and quarries were taken
on lease. But now a day’s plant and
equipment, modem civil aircraft and ships
are taken.

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Mutual Funds
 This refers to fund raised by a financial service
company by pooling the savings of the public.
 It is invested in a diversified portfolio with view to
spreading and minimizing risk.
 The fund provides investment avenue for small
investors who can’t participate in the equities of big
companies.
 It ensures low risk, steady returns, high liquidity
and better capital appreciation in long run.

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Factoring
It refers to managing the process of sales
ledger by financial service company.
It’s an arrangement under which financial
intermediary assumes credit risk in the
collection of book debts for its clients.
A factor provides credit information, collects
debts, monitors sales ledgers, and provides
finance against debts.

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Forfaiting
It’s a technique by which forfaitor (Financing
Agency) discounts an export bill and pay ready
cash to the exporter who can concentrate on the
export front without bothering about the
collection of export bills.

The exporter is protected against the risk of

non-payment of debts by the importers.

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VENTURE CAPITAL
The venture capital world changes
constantly. venture capital funding can help
the investors by:
Connecting investors with potential backers
Making investors proposal as attractive as
possible
Identifying the backers most likely to be
interested
Keeping investors up to date with shifting
investment trends
Suggesting other ways to raise funds.

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Securitisation
It’s a process by which a financial company
converts its ill-liquid, non-negotiable and high
value financial assets into securities of small
value which are made tradable and transferable.
It is best suited for housing finance companies
whose loans are always long-term in nature and
their money is locked up for a considerable
period.
In such cases, securitisation would help the
financial institution to raise cash against such
assets by means of issuing securities of small
values to the public.

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CUSTODIAL SERVICES
A custodian bank holds financial assets for
safekeeping to minimize the risk of theft or loss.
Investment advisors are required to arrange for a
custodian for assets they manage for their clients.
These assets may be stored in physical or
electronic form.
Custodian banks can also manage financial
accounts, handle settlements, and deal with
compliance and tax issues.
Custodian banks can serve as mutual fund
custodians.

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CORPORATE ADVISORY
SERVICES
Corporate Advisory Services  is an
umbrella term that encompasses specialized
advice’s rendered to corporate houses by
professional advisers such as accountants,
investment banks, law practitioners and host
of similar service providers.
It perform a skills gap analysis to outline
your core expertise and understand your
business needs, and advise your organisation
on the specialised skills.
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REVERSE MORTGAGE
Reverse mortgage loan, the amount that
homeowner owes to the lender goes up–not
down–over time. This is because interest and
fees are added to the loan balance each
month. As your loan balance increases, your
home equity decreases. 
A reverse mortgage loan is not free money. It
is a loan where borrowed money + interest +
fees each month = rising loan balance. The
homeowners or their heirs will eventually
have to pay back the loan, usually by selling
the home. 

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NEW REVERSE MORTGAGE
PLAN
Banks have started introducing a new
reverse mortgage plan along with
insurance companies.
This is also known as “Reverse mortgage
enabled annuity’ scheme”.
It requires an insurance company to
undertake the risk of uncertainty of life of
the person availing this scheme.

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Derivative Security
It’s a security whose value depends on the value
of other basic variables backing the security.
A derivative security is basically used as risk
management tool and it is resorted to cover the
risks due to price fluctuations by the investments
manager.
It helps to break the risks into various components
such as credit risk, interest rates risk, exchange
rates risk and so on.
In India some forms of derivatives are in
operation namely forwards in forex market

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 Letter of Credit (LOC)
An innovative funding mechanism for the import of
goods and services on deferred payment terms.
LOC is an arrangement of a financing institution / bank
of one country with another institution / bank / agent to
support the export of goods and services so as to enable
the importers to import on deferred payment terms.
This is backed by a guarantee furnished by the
institution / bank in the importing country.
This helps the exporter to get payment immediately as
soon as the goods are shipped.

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 New Products in the FOREX Market
1. Forward Contract – In a forward transaction the delivery
of foreign currency takes place at a specified future date for
a specified price.
 Obligation is there to honour this contract at any cost else
penalty will be levied i.e. genuine business.
 It is having a fixed or flexible maturity features i.e. 30th.
Sept’08 or 1-30th. Sept’08.
 These are traded over the counter (OTCEI) or simply be a
signed contract between two parties.
 Forwards transact only when purchased and on the
settlement date.
 In the case of physical delivery, the forward contract
specifies to whom to make the delivery

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 Options
Buyer of the option has a right to buy or sell a fixed
amount of currency against another currency at a fixed
rate on a future date according to his option.
There is no obligation to buy or sell, but it is
completely left to his option.
Options are of two types, namely 1. Call Options
(Option to buy) 2. Put options (Option to sell)
Option trading leads to speculations and legal
restrictions are imposed in India.

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 Futures
 It’sa legal contract where there is an agreement to buy or sell
a stated quantity of foreign exchange at a future date at an
agreed price on a stated stock exchange.
 The future date is called the delivery date or final settlement
date. The pre-set price is called the futures price. The price
of the underlying asset on the delivery date is called
the settlement price.
 Futures are rebalanced, or "marked to market," every day to
the daily spot price of a forward with the same agreed-upon
delivery price and underlying asset.
 The counterparty for delivery on a futures contract is chosen
by the clearing house.

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 SWAPS
 Transaction wherein a financial intermediary buys and sells a
specified foreign currency simultaneously for different
maturity dates.
 It results into simultaneous buying and selling of same foreign
currency of the same value for the different maturities to
eliminate risk.
 It is also used to enter into arbitrage operations i.e.
arbitrage is the practice of taking advantage of a price
differential between two or more markets.

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 New innovative financial
instruments
The term “innovative financial instruments”
is generally taken to mean financial
derivatives. A financial derivative
(henceforth, simply derivative) is a
financial instrument whose price depends
on, or is derived from, the price of another
asset.

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COMMERCIAL PAPER
Commercial paper is an unsecured, short-
term debt instrument issued by
corporations.
 It's typically used to finance short-term
liabilities such as payroll, accounts
payable, and inventories.
Commercial paper is usually issued at a
discount from face value.

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Treasury Bill
Treasury Bill is a money market instrument is
issued by the Government of India. The bill is
issued as a promissory note of repayment in the
future. The purpose of a treasury note is to
secure funds to meet the short-term fund
requirements of the government.

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CERTIFICATE OF DEPOSITS
A certificate of deposit (CD) is a savings
product that earns interest on a lump sum for
a fixed period of time. 
It differs from saving account  because the
money must remain untouched for the
entirety of their term or risk penalty fees or
lost interest.
 CDs usually have higher interest rates than
savings accounts as an incentive for lost
liquidity.
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Inter bank participations
IBPC is another short-term money
market instrument whereby the banks can
raise money short-term surplus.
In the case of IBPC the borrowing bank
passes/sells on the loans and credit that it
has in its book, for a temporary period, to
the lending bank.

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Zero interest convertible
debentures/bonds
A zero-coupon convertible is a
convertible bond issued by a corporation
that pays no regular interest to
bondholders. Because of the zero-coupon
feature, these convertibles are sold at a
discount and will instead mature to face
value if they are not converted prior to the
maturity date.

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Deep discount bonds
A deep-discount bond is a bond that sells
at a significantly lesser value than its par
value. In particular, these bonds sell at a
discount of 20% or more to par and has a
yield that is significantly higher than the
prevailing rates of fixed-income securities
with a similar profiles.

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Index linked gilt bonds
An index-linked bond is a bond which has
its coupon payments adjusted for inflation
by linking the payments to some inflation
indicator, such as the Consumer Price
Index (CPI) or Retail Price Index (RPI).

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Option bonds
A bond option is an option contract in
which the underlying asset is a bond. Like
all standard option contracts, an investor
can take many speculative positions
through either bond call or bond put
options

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