MBF201 – FINANCIAL MANAGEMENT

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ASSIGNMENT

 

DRIVE FALL WINTER 2014
PROGRAM MBA/ MBADS/ MBAFLEX/ MBAHCSN3/ PGDBAN2
SUBJECT CODE & NAME MBF201 – FINANCIAL MANAGEMENT
SEMESTER II
BK ID B1628
CREDITS 4
MARKS 60

 

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

1 Explain the liquidity decisions and its important elements. Write complete information on dividend decisions.

Answer :  Liquidity decisions with its important elements

The liquidity decision is concerned with the management of the current assets, which is a pre-requisite to long-term success of any business firm. This is also called as working capital decision. The main objective of the current assets management is the trade-off between profitability and liquidity, and there is a conflict between these two concepts. The short term liquidity is important to pay off the current liabilities of the company. Where in short run, the company has more current liabilities than current assets, the company can

 

2 Explain about the doubling period and present value. Solve the below given problem:

Under the ABC Bank’s Cash Multiplier Scheme, deposits can be made for periods ranging from 3 months to 5 years and for every quarter, interest is added to the principal. The applicable rate of interest is 9% for deposits less than 23 months and 10% for periods more than 24 months. What will be the amount of Rs. 1000 after 2 years?

 

Answer :

Doubling Period

 

Doubling Period = log (2)/ (log 1 +r). r stands for rate of return

The Doubling Time formula is used in Finance to calculate the length of time required to double an investment or money in an interest bearing account.

It is important to note that r in the doubling time formula is the rate per period. If one wishes to calculate the amount of time to double their money in a

 

3 Write short notes on:

  1. a) Operating Leverage
  2. b) Financial leverage
  3. c) Combined leverage

 

Answer :

3a) Operating Leverage

Operating Leverage is a measurement of the degree to which a firm or project incurs a combination of fixed and variable costs. The higher the degree of operating leverage, the greater is the potential danger from forecasting risk. That is, if a relatively small error is made in forecasting sales, it can be magnified into large errors in cash flow projections. The opposite s true for businesses that are less leveraged. A business that sells millions of products a year, with each contributing slightly to paying for fixed costs, is not as

 

3b) Financial Leverage

Financial leverage is the degree to which a company uses fixed-income securities such as debt and preferred equity. The more debt financing a company uses, the higher its financial leverage. A high degree of financial leverage means high interest payments, which negatively affect the company’s bottom-line earnings per share.

 

Financial risk is the risk to the stockholders that is

 

 

3c) Combined Leverage

A leverage ratio that summarizes the combined effect the degree of operating leverage (DOL), and the degree of financial leverage has on earnings per share (EPS), given a particular change in sales. This ratio can be used to help determine

 

 

 

4 Explain the factors affecting Capital Structure. Solve the below given problem:

Given below are two firms, A and B, which are identical in all aspects except the degree of leverage employed by them. What is the average cost of capital of both firms?

Answer :  

 

Factors affecting capital structure

Capital structure means the proportion of debt and equity used for financing the operations of business.

Factors Determining the Capital Structure:

 

The various factors which influence the decision of

 

 

5 Explain all the sources of risk in capital budgeting with examples.

Solve the below given problem:

Answer :  

Sources of risk in capital budgeting

Risk arises in capital budgeting because the firm cannot predict the occurrence of possible future events with certainty and hence, cannot make any correct forecast about the cash flows. The uncertain economic conditions are the sources of uncertainty in the cash flows. For example, a company wants to produce and market a new product to their prospective customers. The demand is affected by the general economic conditions. Demand may be

 

  1. Explain the objectives of Cash Management. Write about the Baumol model with their assumptions.

 

Answer:

Objectives of Cash Management

 

Cash management is a broad term that refers to the collection, concentration, and disbursement of cash. It encompasses a company’s level of liquidity, its management of cash balance, and its short-term investment strategies. In some ways, managing cash flow is the most important job of business managers. If at any time a company fails to pay an obligation when it is due because of the lack of cash, the company is insolvent. Insolvency is the primary reason firms go bankrupt. Obviously, the prospect of such a dire consequence should compel companies to manage their cash with care. Moreover, efficient cash management means more than just preventing bankruptcy. It improves the profitability and reduces the risk to which the firm

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MBF104 – FINANCIAL AND MANAGEMENT ACCOUNTING

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ASSIGNMENT

 

DRIVE WINTER  2014
PROGRAM MBADS / MBAHCSN3 / MBAN2 / PGDBAN2 / MBAFLEX
SEMESTER I
SUBJECT CODE & NAME MBF104 – FINANCIAL AND MANAGEMENT ACCOUNTING
BK ID B1624
CREDITS 4
MARKS 60

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

Q1. Analyze the following transaction under traditional approach.

 

18.1.2011 Received a cheque from a customer, Sanjay at 5 p.m. Rs.20,000

19.1.2011 Paid Ramu by cheque Rs.1,50,000

20.1.2011 Paid salary Rs. 30,000

20.1.2011 Paid rent by cheque Rs. 8,000

21.1.2011 Goods withdrawn for personal use Rs. 5,000

25.1.2011 Paid an advance to suppliers of goods Rs. 1,00,000

26.1.2011 Received an advance from customers Rs. 3,00,000

31.1.2011 Paid interest on loan Rs. 5,000

31.1.2011 Paid instalment of loan Rs. 25,000

31.1.2011 Interest allowed by bank Rs. 8,000

Analysis of transaction –with accounts involved-nature of account-affects and debit/credit

Answer :

 

Date Accounts Nature of Affects Debit/
  Involved Account Credit
18.1.2011 Cash A/.c Real Cash is coming in Debit
Sanjay A/c. Personal Sanjay is the giver Credit
19.1.2011 Ramu Ac. Personal Ramu is the receiver Debit
Cash A/.c Real Cash is going out Credit

 

 

 

Q2. The trial balance of Nilgiris Co Ltd., as taken on 31st December, 2002 did not tally and the  difference was carried to suspense account. The following errors were detected  subsequently.

 

  1. a) Sales book total for November was under cast by Rs. 1200.
  2. b) Purchase of new equipment costing Rs. 9475 has been posted to Purchases a/c.
  3. c) Discount received Rs.1250 and discount allowed Rs. 850 in September 2002 have been posted to wrong sides of discount account.
  4. d) A cheque received from Mr. Longford for Rs. 1500 for goods sold to him on credit earlier, though entered correctly in the cash book has been posted in his account as Rs. 1050.
  5. e) Stocks worth Rs. 255 taken for use by Mr Dayananda, the Managing Director, have been entered in sales day book.
  6. f) While carrying forward, the total in Returns Inwards Book has been taken as Rs. 674 instead of Rs. 647.
  7. g) An amount paid to cashier, Mr. Ramachandra, Rs. 775 as salary for the month of November has been debited to his personal account as Rs. 757.

(Pass journal entries and draw up the suspense account, Journal entries of all the transactions, Suspense account with Conclusion)

 

Answer :

 

Serial No. Journal Entry Debit Credit
a) Suspense Account 1200
               To Sales 1200
b) No Suspense Account Involved

 

 

 

3 From the given trial balance draft an Adjusted Trial Balance.

Adjustments:

  1. Charge depreciation at 10% on Buildings and Furniture and fittings.
  2. Write off further bad debts 1000
  3. Taxes and Insurance prepaid 2000
  4. Outstanding salaries 5000
  5. Commission received in advance1000

 

 

 Solution;-Ledger accounts Furniture and fittings a/c

Particulars Rs. Particulars Rs.
To bal b/d 500000 By Depreciation

By bal c/d

50000

450000

Total 500000 Total 500000

 

 

 

4 Compute trend ratios and comment on the financial performance of Infosys Technologies Ltd. from the following extract of its income statements of five years. (inRs. Crore)

Preparation of trend analysis

Solution: Infosys Technologies Ltd.

 

Trend Analysis Particulars 2010-11 2009-10 2008-09 2007-08 2006-07
Revenue 27,501 22,742 21,693 16,692 13,893
Operating Profit (PBIDT) 8,968 7,861 7,195 5,238 4,391

 

 

 

 

5 Give the meaning of cash flow analysis and put down the objectives of cash flow analysis. Explain the preparation of cash flow statement.

 

Answer : Meaning of cash flow analysis

A cash flow statement is one of the most important financial statements for a project or business. The statement can be as simple as a one page analysis or may involve several schedules that feed information into a central statement.

 

A cash flow statement is a listing of the flows of cash into and out of the business or project. Think of it as your checking account at the bank. Deposits are the cash inflow and withdrawals (checks) are the cash outflows. The balance in your checking account is your net cash flow at a specific point in time.

 

 

6 Write the assumptions of marginal costing. Differentiate between absorption costing and marginal costing.

Answer : The Cost of a product of comprises of materials, labour, and over heads. On the basis of variability they can be broadly classified as fixed and variable costs. Fixed costs are those costs which remain constant at all levels of production within a given period of time. In other words, a cost that does not change in total but become. progressively smaller per unit when the volume of production increases is known as fixed cost. it is also called period cost eg. Rent, Salary, Insurance charges etc. On the other hand variable cost are those cost which very in accordance with the volume of output. To part it in another way. variable costs are uniform per unit. but their total fluctuates in direct position to the total of the related activity or volume

 

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MBF- 407 FINACLE SERVICES

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ASSIGNMENT

 

 

DRIVE WINTER 2014
PROGRAM MBABF
SUBJECT CODE & NAME MBF-407 FINACLE SERVICES
SEMESTER 4
BK ID B 1394
CREDITS 1
MARKS 50

 

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

 

1.     A garnishee Order for Rs.75000/- is received in an account which shows a balance of Rs.475000/- How you will proceed to block the funds?

 

Answer :

 

 

 

2.     Explain the process in Finacle for issuing mass DDs in Finacle

 

Answer:

 

For issuing mass DDs, the below steps are to be followed:

 

·         Select Menu option DDMI and press Enter

·         Press Function A and F4

·         Enter Transaction Type & Sub-type

·         Enter DD issued Account No (use search option)

·         Fill Purchaser Account No.in Pur A/c

 

 

 

3.     Two attachment orders – one IT and One Sales Tax is received in your customer’s account at an interval of 15 minutes on the same day. How will you process the same in Finacle?

 

Answer:

 

  • Select Menu Option AFSM and press Enter
  • Press Function F <Freeze> and F4
  • Input Customer Id (to freeze all accounts of the customer) or Account Id
  • Select

 

  1. What is Credit Freeze in Finacle?

 

Answer:

 

Credit Freeze is when a customer’s account/s is restricted for any credit type of transactions.

 

 

 

 

  1. What is the need for a Standing Instruction?

 

Answer:

 

Standing Instructions (SI) are instructions for transactions which are repetitive in nature (Monthly/Quarterly/Yearly).  Since the parameters for these transactions will remain the same,

 

 

  1. Explain in Detail what is Bank Induced Sis and Customer Induced SIs.

 

Answer:

 

Bank Induced SIs are those which bank defines to the customer’s account.  For example, Loan Installment repayment or Recurring Deposit payment are Bank induced SIs.

 

On the contrary, there are

 

 

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MBF 405 CORPORATE GOVERNANCE, ETHICS AND COMPLIANCE

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ASSIGNMENT

 

PROGRAM MBABF
SEMESTER IV
SUBJECT CODE & NAME MBF 405 CORPORATE GOVERNANCE, ETHICS AND COMPLIANCE
CREDIT 4
BK ID B1411
MAX.MARKS 60

 

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

 

1 Define ethics, morals and values and explain its evolution, principles and benefits.

Answer: Ethics, sometimes known as moral philosophy, is a branch of philosophy that involves systematizing, defending and recommending concepts of right and wrong conduct. The superfield within philosophy known as axiology includes both ethics and aesthetics and is unified by each sub-branch’s concern with value.Philosophical ethics investigates what is the best way for humans to live, and what kinds of actions are right or wrong in particular circumstances. Ethics may be divided into three major areas of study.

 

 

 

 

2 a. Explain the framework of ethical decision making.

 

Answer: Recognize an Ethical Issue

  • Could this decision or situation be damaging to someone or to some group? Does this decision involve a choice between a good and bad alternative, or perhaps between two “goods” or between two “bads”?
  • Is this issue about more than what is legal or what is most efficient? If so, how?

Get the Facts

  • What are the relevant facts of the case?

 

 

 

  1. Describe the ethical issues faced by the banking professionals.

 

Answer: Ethical issues in the financial services industry affect everyone, because even if you don’t work in the field, you’re a consumer of the services. That was the message of Ronald F. Duska and James A. Mitchell in their presentation at a recent meeting of the Business and Organizational Ethics Partnership.

 

The public seems to have the perception that the financial services sector is more unethical than other areas of business, Mitchell began. For the past five years, he has been Executive Fellow-Leadership at the Center for Ethical Business Cultures,

 

 

3 a. Describe unethical practices in selling financial products.

 

Answer: Ethics can be defined as going beyond what is legal and doing what is right, even when no one is looking! So when we talk about unethical behavior in business, we are talking about actions that don’t conform to the acceptable standards of business operations . . . doing what is right in every situation. In some cases it may be an individual within a business who is unethical in the course of his or her job, and other times we are talking about corporate culture, where the whole business is corrupt from the top down, with disastrous results for society. It is important to realize that what is unethical may not always be illegal (though sometimes it is both). There are many

 

 

 

 

  1. Explain the different operational areas of financial ethics.

 

Answer: Business ethics is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.

Business ethics has normative and descriptive dimensions.

 

As a corporate practice and a career specialization, the

 

 

4 a. Define and describe the types of internal Corporate Governance.

 

Answer: Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed. Governance structures identify the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and includes the rules and procedures for making decisions in corporate affairs. Corporate governance includes the processes through which corporations’ objectives are set and

 

 

 

 

  1. Describe the importance and challenges of internal Corporate Governance.

Answer: In contemporary business corporations, the main external stakeholder groups are shareholders, debtholders, trade creditors and suppliers, customers, and communities affected by the corporation’s activities. Internal stakeholders are the board of directors, executives, and other employees.

 

 

 

 

5 Consider you are the head for compliance in a bank. Explain the principles to be followed for effective functioning of compliance to your staff members.

 

Answer: The Compliance Function has to ensure strict observance of all statutory provisions contained in various legislations such as Banking Regulation Act, Reserve Bank of India Act, Foreign Exchange Management Act, Prevention of Money Laundering Act etc. as well as to ensure observance of other regulatory guidelines issued from time to time; standards and codes prescribed by BCSBI, IBA, FEDAI, FIMMDA etc; and also each bank’s internal policies and fair

 

 

 

6 Refer to any banking websites and analyse the Corporate Governance system followed by that bank.

Answer:

 

 

  • General Shareholders’ Meeting is supreme governing body of Alfa-Bank. General Shareholders’ Meeting pass decisions on principal issues of the Bank’s performance such as amendments to the Bank’s Charter, issue of

 

 

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MBF404 & INTERNATIONAL FINANCIAL MANAGEMENT

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ASSIGNMENT

 

DRIVE WINTER 2014
PROGRAM MBABF (SEM 4)
SUBJECT CODE & NAME MBF404 & INTERNATIONAL FINANCIAL MANAGEMENT
SEMESTER 4
BK ID B1759
CREDITS 4
MARKS 60

 

 

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme

 

  1. Discuss the goals of international financial management

Answer:  All businesses aim to maximize their profits, minimize their expenses and maximize their market share. Here is a look at each of these goals.

Maximize Profits A company’s most important goal is to make money and keep it. Profit-margin ratios are one way to measure how much money a company squeezes from its total revenue or total sales.

There are three key profit-margin ratios: gross profit margin, operating profit margin and net profit margin.

1. Gross Profit Margin 

The gross profit margin tells us the profit a company makes on its cost of sales or cost of goods sold. In other words, it indicates how efficiently management uses labor and supplies in the production process.

Gross Profit Margin = (Sales – Cost of Goods Sold)/Sales

 

 

2 The key component of the financial system is the money market that acts as a fulcrum of monetary operations.

Write down the important points under each category mentioned below.

 

  1. a) Functions performed by money market

Answer : There are two types of financial markets viz., the money market and the capital market. The money market in that part of a financial market which deals in the borrowing and lending of short term loans generally for a period of less than or equal to 365 days. It is a mechanism to clear short term monetary transactions in an economy.

 

Money market is an important part of the

 

 

  1. b) International interest rates

Answer : In many industrial countries the domestic impact of interest rate developments abroad has become an increasingly sensitive question. Outside the United States the issue has centred on the possible influence of high or rising interest rates on a still fragile economic recovery. When inflation expectations are unknown, interest rate levels are, of course, difficult to interpret, and partly for this reason interest rates have come to play a smaller role as explicit objectives of monetary policy. In some – though not all – countries nominal interest rates are nevertheless felt to be uncomfortably high in relation to rates of inflation. Moreover,

 

 

  1. c) Standardized Global Market regulations.

Answer : The financial crisis of 2007 revealed fundamental weaknesses in the structure of financial regulation. In response, policymakers and regulators have embarked on an ambitious regulatory reform agenda that aims to achieve as much global co-ordination and consistency between regional reform efforts as possible.

How successful attempts at

 

 

 

3 Thousands of years back the concept of bartering between parties was prevalent, when the concept of money had not evolved. Explain  counter trade with examples

 

Answer :  Trading between nations has been happening since time began. In ancient time nations traded silk, spices, cloth and animals of all kinds. Today nation trade food items, defense equipment, metals, electronics etc. The products might have changed but the basic concept is still the same as the underlining need which brings together two nations in a trade relationship still exists.

 

One such method of trading between nations is

 

 

4 There are different techniques of exposure management. One is the Managing Transaction Exposure and the other one is the managing operating exposure So you have to explain on both Managing Transaction Exposure and Managing Operating Exposure.

 

Answer : ‘Transaction Exposure’ is a risk which is faced by the organizations which are involved in international trade especially when they enter into the financial obligations. The risk which is faced by the companies is about the changes occurring in the currency exchange rates after they have entered into trade obligations in the international market. Many companies which face such a situation adopt hedging strategy which

 

 

5 Every firm is going on concern, whether domestic or MNC. Explain the techniques of capital budgeting and the steps to determine cash flows.

 

Answer : Capital investments are long-term investments in which the assets involved have useful lives of multiple years. For example, constructing a new production facility and investing in machinery and equipment are capital investments. Capital budgeting is a method of estimating the financial viability of a capital investment over the life of the investment.

 

 

 

6 Write short note on:

 

American Depository Receipts(ADR)

Answer : An American Depository Receipt, or ADR, is a security issued by a U.S. depository bank to domestic buyers as a substitute for direct ownership of stock in foreign companies. An ADR can represent one or more shares, or a fraction of a share, of a non-U.S. company. Individual shares of a foreign corporation represented by an ADR are called American Depositary Shares (ADSs).

 

 

 

Global Depository Receipts(GDR)

Answer : Global Depositary Receipts (GDRs) are negotiable certificates issued by depositary banks which represent ownership of a given number of a company’s shares which can be listed and traded independently from the underlying shares. These instruments are typically used by companies from emerging markets and marketed to professional investors only.

 

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MBF 403 CRM AND IT IN BANKING

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ASSIGNMENT

 

PROGRAM MBABF
SEMESTER IV
SUBJECT CODE & NAME MBF 403 CRM AND IT IN BANKING
CREDIT 4
BK ID B 1410
MAX.MARKS 60

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

 

1 a. Explain the stages of CRM implementation.

Answer: Here are the 5 steps to a successful implementation:

  • Plan and prepare
  • Set up and customize
  • Deploy Salesforce CRM
  • Drive adoption
  • Continuously improve.

 

  1. Describe CRM integration.

Answer: Customer relationship management (CRM) is a system for managing a company’s interactions with current and future customers. It often involves using technology to organize, automate, and synchronize sales, marketing, customer service, and technical support.

 

CRM products:

CRM products come with many features and tools and it is important for a company to choose a product based on their specific organizational needs. Most vendors will present information on their respective websites.

 

 

  1. Explain CRM workflow

Answer: workflow in CRM provides the facility to automate your business processes. Workflows are triggered when a specified event occurs in the system, such as a record being created or field being updated, and can be set to automatically perform actions including sending emails and creating or updating other records in CRM.

 

Some simple examples of CRM workflow:

 

 

 

2 a. Explain the various CRM initiatives in Banks.

Answer: Customer relationship management is a broad approach for creating, maintaining and expanding customer relationships. CRM is the business strategy that aims to understand, anticipate, manage and personalize the needs of an organization’s current and potential customers. At the heart of a perfect strategy is the creation of mutual value for all parties involved in the business process. It is about creating a sustainable

 

 

 

  1. Explain Analytical CRM.

Answer: Analytical CRM supports organizational back-office operations and analysis. It deals with all the operations and processes that do not directly deal with customers. Hence, there is a key difference between operational CRM and Analytical CRM. Unlike from operational CRM, where automation of marketing, sales-force and services are done by direct interaction with customers and determining customer’s needs, analytical CRM is designed to analyze deeply the customer’s information and data and unwrap or disclose the essential convention and intension of behavior of customers on which capitalization can be done by the organization.

 

 

 

3 a. What is core banking?

 

Answer: Core banking is a banking service provided by a group of networked bank branches where customers may access their bank account and perform basic transactions from any of the member branch offices. Core banking is often associated with retail banking and many banks treat the retail customers as their core banking customers. Businesses are usually managed via the Corporate banking division of the institution. Core banking covers basic depositing and lending of money.

 

Normal core banking functions will include

 

 

 

  1. Explain the significance of core banking.

Answer: A core banking system is the software used to support a bank’s most common transactions.

 

Elements of core banking include:

  • Making and servicing loans.
  • Opening new accounts.
  • Processing cash deposits and withdrawals.
  • Processing payments and cheques.
  • Calculating interest.

 

 

 

4 With the help of a flowchart diagram discuss the working of E-pins.

Answer: E-PINs are similar to Call and Text Cards but are given via secured paper slips or via text message. Each E-PIN has a card number and a PIN number which you can use to reload.

 

 

 

5 a. Explain the role of technology in banks.

 

Answer: The banking sector has embraced the use of technology to serve its client’s faster and also to do more with less. Emerging technologies have changed the banking industry from paper and branch based banks to ”digitized and networked banking services. Unlike before, broadband internet is cheap and it makes the transfer of data easy and first. Technology has changed the accounting and management system of all banks. And it is now changing the way how banks are delivering services to their customers.

 

 

 

 

  1. Describe cheque clearing using MICR technology.

 

Answer: Cheque truncation is the conversion of a physical cheque into a substitute electronic form for transmission to the paying bank.  Cheque truncation eliminates cumbersome physical presentation of the cheque and saves time and processing costs. To settle a cheque, it has to be presented to the drawee bank for payment. Originally this was done by taking the cheque to the drawee bank, however as cheque usage increased this became cumbersome and banks arranged to meet each day at a central location to exchange cheques and settle the money.

 

 

 

6 Define disaster recovery and contingency operations planning.

 

Answer: Disaster recovery is the area of security planning that deals with protecting an organization from the effects of significant negative events. Significant negative events, in this context, can include anything that puts an organization’s operations at risk: crippling cyberattacks and equipment failures, for example, as well as hurricanes, earthquakes and other natural disasters.

A disaster recovery plan (DRP) documents policies,

 

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MBF402 & TREASURY MANAGEMENT

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ASSIGNMENT

 

DRIVE WINTER 2014
PROGRAM MBADS (SEM 4/SEM 6)MBAFLEX/ MBA (SEM 4)

PGDBMN (SEM 2)

SUBJECT CODE & NAME MBF402 & TREASURY MANAGEMENT
BK ID B1813
CREDITS 4
MARKS 60

 

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

Q.1. Write the role of financial system in economic development. Explain the functioning of financial system.

 

Answer:The economic development of any country is dependent on its financial system — its banks, stock markets, insurance sector, pension funds and a government-run central bank with authority — or at least influence — over currency and interest rates. In developed countries, these two sides of the economic coin work together to promote growth and avoid runaway price inflation. When a country is still in a developing stage, the lack of a strong, sound financial system generally works against the national economy.

 

Banking Systems: Banks are the cornerstone of a national financial system. Their key services are to provide a safe haven for the earnings of individuals and loans to companies in need of capital, either to start operating or to stay in business. Without this source of available capital, businesses would be hard-pressed to continue growing and

 

 

 

Q.2.Under the foreign exchange exposure management explain the transaction exposure with an example and analysis. Explain translation exposure with example and also economic exposure with example.

 

Answer:Transaction exposure:The risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms. Often, when a company identifies such exposure to changing exchange rates, it will choose to implement a hedging strategy, using forward rates to lock in an exchange rate and thus eliminate the exposure to the risk.

 

A firm has transaction exposure whenever it has contractual cash flows (receivables and payables) whose values are subject to unanticipated changes in exchange rates due to a contract being denominated in a foreign currency. To realize the domestic value of its foreign-denominated cash flows, the firm must exchange foreign currency for domestic currency. As firms negotiate contracts with set prices and delivery dates in the face of a volatile foreign exchange market with exchange rates constantly fluctuating, the firms face

 

 

 

Q.3.Explain the individual currency limits with individual gap limit and aggregate gap limit. Write about the value at risk.

 

Answer:Using unique online currency transactions, we examine the performance, trading activity, drawdown, and timing abilities of individual currency traders. Evidence from 428 currency accounts during the 2004–2009 period shows that currency traders earn positive abnormal returns, even after accounting for transaction costs. The results also show that day traders not only trade more frequently than non-day traders, but also outperform them in terms of raw, a passive benchmark and risk-adjusted returns.

 

Using a unique online currency transactions dataset, we examine the performance, trading activity, drawdown, and timing abilities of individual currency traders. Evidence from 428 accounts during the 2004–2009 period shows that currency

 

 

 

 

Q.4 Write short notes on:

 

  1. a) Methods of cash-flow forecasting

 

Cash flow forecasting or cash flow management is a key aspect of financial management of a business, planning its future cash requirements to avoid a crisis of liquidity.  Cash flow forecasting is important because if a business runs out of cash and is not able to obtain new finance, it will become insolvent. Cash flow is the life-blood of all businesses—particularly start-ups and small enterprises. As a result, it is essential that management forecast (predict) what is going to happen to cash flow to make sure the business has enough to survive.

 

 

 

 

b)Liquidity forecasting

 

For market operations to be effective, the Reserve Bank must construct forecasts of exogenous liquidity movements. Each morning, forecasts of that day’s flows are needed to guide the direction and size of market operations. Forecasts of future system cash movements are also required, to ensure appropriate preferred terms are selected so that unwinding repos smooth rather than exacerbate system cash movements.

 

To construct its liquidity forecasts, the Reserve Bank gathers information from a wide variety of sources. Extensive liaison is conducted with many departments and agencies within the Australian Government and other clients to ascertain the timing and size of their payments and receipts. Longer-term information is available from Australian Government Budget papers, and observed historical patterns provide important

 

 

 

  1. c) Market instruments

 

In the financial marketplace, a distinction is made between the capital markets and the money markets. The capital market is a source of intermediate-term to long-term financing in the form of equity or debt securities with maturities of more than one year. The money market provides very short-term funds to corporations, municipalities and the United States government. Money market securities are debt issues with

 

 

 

Q.5.Capital adequacy is one of the major indicators of the financial health of a banking entity. Explain about capital adequacy and its ratio measures.

Also explain the ratios that are necessary under the assets quality.

 

Capital adequacy and its ratio measures

Explanation of ratio under assets quality

 

Answer:Capital Adequacy Ratio (CAR), also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank’s capital to its risk. National regulators track a bank’s CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements.  It is a measure of a bank’s capital. It is expressed as a percentage of a bank’s risk weighted credit exposures.  This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.  Two types o

 

 

Q.6.Treasury has become an integral part of all business functions. Explain the areas in which Information technology plays an effective role. Write about cloud technology and treasury applications.

 

Answer:Information technology (IT) has become a vital and integral part of every business plan. From multi-national corporations who maintain mainframe systems and databases to small businesses that own a single computer, IT plays a role. The reasons for the omnipresent use of computer technology in business can best be determined by looking at how it is being used across the business world.

 

  • Communication: For many companies, email is the principal means of communication between employees, suppliers and customers. Email was one of the early drivers of the Internet, providing a simple and

 

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