NEW FINANCIAL PRODUCTS

AND SERVICES
INTRODUCTION………
Mobilizing and allocating savings.
Financial intermediation – process by which funds
are mobilized from a large number of savers and
make them available to all those who are in need of
it.
Vital for industrial developments.
CAUSES OF FINANCIAL
INNOVATION
NEW FINANCIAL SERVICES
MERCHANT BANKING
 Financial intermediary.

 Transfer of capital.

 Helps in –

o Management of customers securities

o Portfolio management

o Underwriting of shares and debentures

o Handling interest and dividend warrants

 Renders a host of services to corporate.

LOAN SYNDICATION
Similar to consortium financing.
Loan arranged by bank for corporate
or government department.
Number of banks join together and
form syndicate.
Other banks can participate by
pooling their money.
Share the credit risk .
LOAN SYNDICATION- example
Citigroup
Global Markets
Singapore

Bank of
Tokyo
Mizhuo
Corporate
syndicated Bank
term loan Maybank
of $750
million
Sumitomo
Mitsui
Banking
Corporation
LOAN SYNDICATION

raises $107 m via syndicated loan

BA Asia DBS
BNP Paribas
 VENTURE CAPITAL
 Method of financing in the form of
equity.
 Much thrust is given to new innovations and ideas.

 Financing is done for both –

Start up capital Development capital

 SECURITISATION
 Financial company converts its ill-liquid, non
negotiable and high value financial assets into
securities of small values.
 Tradable and transferable.

 Helps to raise cash against such assets.

 Best suited to housing finance companies whose

loans are long term.
LEASING
An agreement by which a company acquires right to
make use of capital asset- machinery.
Prescribed fee – rental charges.
No ownership, but full control over asset.
Lessee pays maintenance charges , repairs and
operating costs.
In India, many companies have started equipment
leasing business.
CUSTODIAL SERVICES
 A financial intermediary provides services to clients for a
prescribed fee.
 Services like –

o Safe keeping of shares and debentures

o Collection of interest and dividend

o Reporting of matters on corporate developments

 Customers are mainly foreign investors.

CORPORATE ADVISORY
SERVICES
 Banks set up CAS for their corporate customers.

 Facilitates- for example, some banks have provided

computer terminals so that important banking
transactions can be made from their office.
 Provides facilities like Euro loans. GDRs etc.
MUTUAL FUNDS
 Fund raised by financial service company by
pooling the savings of public
 Invested in diversified portfolio( risk)
 Investment avenue for small investors

who cannot participate in equities of big companies

 Ensures
FACTORING
 Process of selling trade debts of a company to a
financial institution.
 Service of financial nature involving the conversion
of credit bills into cash.
 Different from discounting.
Factor purchase entire trade debts and becomes
holder for value not an agent.
Once debts are purchased, Collection of those debts
become his duty.
FORFAITING
 A technique by which a forfaiter(financing agency)

discounts an export bill and pay cash to exporter.

 Exporter can concentrate on export front without

botheration.
Exporter is protected against the risk of non payment
of debts.
Exporter gets 100% of the bill amount minus service
charges.
FACTORING Vs FORFAITTING
FACTORING FORFAITING
 Short term financing.  Medium term financing.
 Employed for domestic and  Export only.
export business.
 Client gets 80% of the total
 Client gets 100% of the
value.
value of export bill.
 Bulk finance is provided
 It is based on single export
against a number of unpaid
bill.
invoices.
DERIVATIVE SECURITY
 A security whose value depends upon the values of
other basic variables backing the security.
 These variables are the prices of the traded
securities.
 It is used as risk management tool.

 Examples –
• Forward contracts
• Options and futures.