AHSEC Class 12 Finance 2024 Solved Question Paper

Get AHSEC Class 12 Finance 2024 Solved Question Paper [HS 2nd Year Finance Solved Question Paper 2024], Conducted by Assam Board i.e AHSEC (Assam Higher Secondary Education Council).

AHSEC is a state education regulatory board under the jurisdiction of Ministry of Education, Government of Assam that is responsible to regulate, supervise and develop the system of Higher Secondary Education in the State of Assam.

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An Overview of AHSEC Class 12 Finance 2024 Solved Question Paper

Name of Board	AHSEC (Assam Higher Secondary Education Council)
Class	12th Standard Assam Board
Subject	Finance
Mode of Exam	Offline written exam.
Full Marks	80
Year	2024
Category	AHSEC Preview Year Solved question Papers
Official Website	https://ahsec.assam.gov.in

Assam Board AHSEC Class 12 Finance 2024 Solved Question Paper

2024
FINANCE
FOR NEW COURSE
Full Marks: 80
Pass Marks: 24
Paper Code: 24 T FINC
FOR OLD COURSE STUDENTS IN LIEU OF PROJECT WORKS
Full Marks: 100
Pass Marks: 30
Time: Three hours
[Those who appeared HS Final Exam till 2023 have been treated as Old Course Students]
The figures in the margin indicate full marks for the questions.

1. Answers to the questions carry 1 marks – Q. No. (a) to Q. No. (f):

(a) When was the RBI established?

Answer: April 1, 1935

(b) Which is the first development bank of India?

Answer: Industrial Finance Corporation of India (IFCI)

Answer: True

(d) What is meant by the rate of exchange in foreign exchange market?

Answer: The rate of exchange, or exchange rate, in the foreign exchange market is the price of one currency in terms of another currency.

(e) What is meant by a merchant bank?

Answer: A merchant bank is a financial institution that provides services such as fundraising, advisory services, and investment management to businesses and governments.

(f) Name two subsidiaries of SBI.

Answer: Two subsidiaries of SBI : –

(i). State Bank of Bikaner and Jaipur.

(ii). State Bank of Hyderabad.

Answers to the questions carry 2 marks (Q. No. 2 to Q. No. 5)

2. Write two advantages of underwriting. 2

Answer:

The company is sure of getting the value of shares issued
It enhances goodwill of the company
It facilitates wide distribution of securities
The company gets expert advice from underwriters in the matter of marketing securities
It fulfills requirement of minimum subscription

(Write any two of them)

3. What is meant by the proportional reserve system method of issuing notes? 2

Answer: The proportional reserve system refers to the requirement that the Reserve Bank of India (RBI) maintains a specific proportion of its issued currency in the form of gold and foreign securities. For instance, the RBI needs to keep a minimum reserve of ₹200 crore, of which ₹115 crore should be in gold. This system ensures that the currency issued by the RBI is partially backed by tangible assets, promoting trust and stability in the currency.

4. Write two features of foreign exchange market. 2

Answer: Two features of foreign exchange market:

i. Global Market: It’s a worldwide market where buyers and sellers come from various countries. They connect through global communication networks and geographical boundaries don’t restrict their transactions.

ii. Continuous Operation: The forex market operates 24 hours a day, excluding weekends. It never closes, allowing for constant trading opportunities.

5. Give the meaning of factoring. 2

Answer: Factoring is a financial service where businesses sell their accounts receivable to a third party (the “Factor”) at a discount. This provides the business with immediate cash flow while the Factor collects the payments from the customers. The Factor charges a fee for this service.

Answers to the questions carry 3 marks (Q. No. 6 to Q. No. 9)

6. Write three objectives of IFCI. 3

Answer: Three objectives of IFCI :

i. Industrial Credit: It provides long and medium-term credit to industrial concerns engaged in key sectors like manufacturing, mining, shipping and electricity generation & distribution, driving economic development.

ii. Project Support: It assists in setting up new projects and modernizing existing industrial concerns in the medium & large-scale sector, fostering technological progress.

iii. Cooperative & Backward Areas: It supports projects in cooperative and backward areas, offering financial aid, expert guidance and managerial support to uplift small-scale industries.

7. Write three differences between lease and hire purchase. 3

Answer: The Three differences between lease and hire purchase :

Aspect	Lease	Hire Purchase
Ownership	The ownership remains with the lessor. The lessee only has the right to use the asset.	The ownership transfers to the hirer after the final payment is made.
Payment Structure	Regular lease payments are made for the use of the asset, typically with no option to own.	Payments are made in installments, and ownership is transferred after the final installment.
Maintenance Responsibility	Typically, the lessor is responsible for maintenance and repairs.	The hirer is responsible for maintenance and repairs during the hire period.

8. State the minimum reserve system of note issue. 3

Answer: Minimum Reserve System (MRS): The Minimum Reserve System is a widely adopted framework for note issuance across various countries. Under this system, the central bank is mandated to uphold a minimum reserve comprising of gold and foreign securities to facilitate the issuance of currency notes. As long as this minimum reserve requirement is met, the central bank has the flexibility to print and distribute notes based on the country’s economic needs.

9. Write three functions of NABARD. 3

Answer: The following are the Three Objectives of NABARD:

i. Integrated Rural Development Focus: NABARD aims to provide dedicated attention and focused guidance to integrated rural development initiatives.

ii. National Rural Credit Hub: It serves as a central entity for the entire national rural credit system, coordinating its activities effectively. iii. Additional al Funding: NABARD acts as a source of additional funding for rural credit institutions, bolstering their resources.

iii. Support for Rural Industries: The organization facilitates investment credit for small industries, village/cottage industries, handicrafts, artisans and farmers.

Briefly discuss the structure of the Indian money market. 3

Answer:

STRUCTURE OF THE INDIAN MONEY MARKET:

The Indian Money Market has two parts: the organized and the unorganized sectors.

A. Organized Sector:

1. Reserve Bank of India (RBI): Established in 1935, it leads and controls the market.

2. Scheduled Banks: Listed in the 2nd Schedule of the RBI Act, 1934, with a minimum capital of Rs. 5 lakhs. These include:

– Cooperative Banks

– Commercial Banks (Public Sector, Private Sector, Regional Rural Banks, Foreign Banks, Small Finance Banks, Payments Banks)

3. Non-Scheduled Banks: Not listed in the 2nd Schedule of the RBI Act.

4. Development Banks and Financial Institutions: Include institutions like NABARD and LIC, contributing indirectly.

5. Discount and Finance House of India (DFHI): Established in 1988 to provide liquidity and develop a secondary market.

B. Unorganized Sector:

Includes indigenous bankers and money lenders who operate without direct RBI control, often in rural areas.

Defects of the Indian Money Market:

1. Division between Organized and Unorganized Sectors: Limited cooperation between these sectors hinders RBI control.

2. Unorganized Sector: Predominant in rural lending, leading to potential exploitation.

3. Unhealthy Competition: Exists within and between sectors, including between Indian and foreign banks.

4. Inadequate Banking Facilities: Insufficient to meet the country’s needs.

5. Shortage of Funds: Due to low savings, inadequate rural banking, and poor banking habits.

6. Disparity in Interest Rates: Varies across different market segments.

7. Seasonal Fluctuations of Funds: Demand varies seasonally, e.g., high during the harvest season.

8. Underdeveloped Bill Market: Despite efforts, it remains inadequate.

9. Limited Availability of Instruments: Insufficient to meet the diverse needs for short-term funds.

If this question asked for 5 /8 Marks:

Answer: Structure of the Indian Money Market The Indian Money Market is divided into two parts: the organized sector and the unorganized sector.

A. Organized Sector:

1. Reserve Bank of India (RBI): The RBI is like the head of the Indian Money Market. It was started in 1935. It controls and leads the market.

2. Scheduled Banks: Scheduled banks are those listed in the 2nd Schedule of the Reserve Bank of India Act, 1934. They need to have a paid up capital and reserves of at least Rs. 5 lakhs. Their operations must not harm their depositors. They are also required to keep a certain portion of their money as reserves with the RBI.

Scheduled banks are classified as:

a. Cooperative Banks: These are banks run by groups of people to help each other financially. It includes both State Cooperative Banks and Urban Cooperative Banks.

b. Commercial Banks: These banks are very important in the money market. They provide money to the market. (i) Scheduled Public Sector Banks – State Bank of India, Bank of Baroda, Bank of India, Union Bank of India, UCO Bank, Punjab National Bank, Punjab & Sind Bank, Indian Overseas Bank, Indian Bank, Canara Bank and Bank of Maharashtra.

(i) Scheduled Private Sector Banks– Axis Bank Ltd., Bandhan Bank Ltd., Federal Bank Ltd., HDFC Bank Ltd., ICICI Bank Ltd.. YES Bank Ltd., IDBI Bank Ltd., Kotak Mahindra Bank Ltd., IDFC FIRST Bank Ltd, Indusind Bank Ltd., Karnataka Bank Ltd., Jammu & Kashmir Bank Ltd., etc.

(ii) Regional Rural Banks: These banks serve specific regions and are designed to support rural development. Some examples include Assam Gramin Vikash Bank, Arunachal Pradesh Rural Bank, Manipur Rural Bank, Meghalaya Rural Bank and many others.

(iii) Foreign Scheduled Banks: These are banks based in foreign countries that operate in India. Some examples are HSBC Ltd., Barclays Bank Pic, Standard Chartered Bank and Deutsche Bank.

(iv) Scheduled Small Finance Banks: These are smaller banks that focus on providing financial services to specific areas. Examples include North East Small Finance Bank Ltd., Ujjivan Small Finance Bank Ltd. and Utkarsh Small Finance Bank Ltd.

v) Scheduled Payments Banks: These banks offer limited banking services, especially focusing on digital and electronic payments. Examples are India Post Payments Bank Ltd., Fino Payments Bank Ltd. and Paytm Payments Bank Ltd. their

3. Non-Scheduled Banks: These banks are not included in the 2nd Schedule of the RBI Act, 1934, and number is decreaseing now a days.

4. Development Banks and Other Financial Institutions: Development banks and financial institutions like Industrial Finance Corporation of India, State Financial Corporations, Small Industries Development Corporation, National Bank for Agriculture and Rural Development, Life Insurance Corporation of India and General Insurance Corporation of India also play a role in the Indian Money Market, often indirectly through banks.

5. Discount and Finance House of India (DFHI): The Discount and Finance House of India (DFHI) was set up on March 9, 1988, as a special institution for the money market. It was created to achieve two main goals: (i) providing liquidity to money market instruments and

(ii) developing a secondary market.

B. Unorganised Sector:

The unorganized sector of the Indian Money Market includes indigenous banks and money lenders. This sector is not structured/ organised because it operates without direct control and coordination of the RBI.

i. Indigenous Bankers: Indigenous bankers are part of India’s ancient banking system. An indigenous bank or banker is an individual or private company that takes deposits, deals with documents called “HUNDIES,” or lends money. According to the Indian Central Banking Enquiry Committee, these bankers are people or firms that accept deposits and are involved in lending money using “HUNDIES.”

ii. Money Lenders: Money lenders primarily lend money from their own funds. They usually don’t take deposits. Their business is mainly in rural areas. Money lenders work with cash and lend money for various purposes, including personal spending. So, the Indian Money Market has organized and unorganized parts, each with its own way of working.

Answers to the questions carry 5 marks (Q. No. 10 to Q. No. 17)

10. Write five advantages of credit rating. 5

Answer: Credit Rating involves rating agencies evaluating how trustworthy borrowers are. They consider if borrowers can pay back interest and loan amounts on time. This evaluation can be for overall trustworthiness or for a specific debt or financial responsibility. The purpose of credit rating is to assist investors in deciding whether to invest in debt instruments issued by borrowing companies.In other words, credit rating is like a grade given by rating agencies to show how well a company can manage its debts.

Following are the five Advantages of credit rating:

(a) Informed Risk-taking: Investors in debt investments can make smarter decisions as credit ratings provide them with information to understand and manage risks.

(b) Affordable High-Quality Information: Credit rating agencies offer excellent information to investors at a reasonable cost.

(d) Reduced Dependence: Investors don’t have to rely heavily on brokers or merchant bankers for information.

(e) Quick Decision-Making: Investors can swiftly decide where to invest based on the rating information.

Write the advantages of investing in mutual funds.

Answer: Advantages / Benefits of Investing in Mutual Funds:

(i) Liquidity: Mutual funds offer easy ways to sell your investment. Open-end funds can be sold back to the Fund company, while closed-end funds can be sold on the stock exchange where they’re listed.

(ii) Risk Diversification: Mutual funds spread investments across many companies and types, reducing risk because not all stocks drop in value together.

(iii) Returns: Skilled professionals manage mutual funds, aiming for good returns by picking carefully chosen investments.

(iv) Expert Management: Experienced professionals manage mutual funds, knowing how to choose the right investments.

(v) Convenience: Investing in mutual funds is easy and doesn’t involve much paperwork. It avoids problems like late payments, incorrect deliveries and hassles with brokers.

(vi) Cost Efficiency: Large-scale investments in mutual funds reduce costs like brokerage, paperwork and other charges, making it less expensive for investors.

(vi) Protection: All mutual funds are registered and regulated by SEBI to safeguard investors’ interests.

(vill) Tax Benefits: Many mutual funds offer tax exemptions to investors under the Income Tax Act.

11. What are the promotional functions of RBI. 5

Answer: The RBI also plays a role in promoting various aspects of the financial sector through the following functions:

a. Fostering Banking Habits: The RBI encourages the adoption of banking habits among the populace.

b. Banking System Expansion: It contributes to the growth and expansion of the banking system.

c. Export Refinancing: The RBI provides refinance facilities to support export promotion.

d. Agricultural Credit Enhancement: Through institutions like NABARD, it aids in expanding agricultural credit facilities.

e. Support for Small-scale Industries: The RBI helps extend financial facilities to small-scale industries.

f. Cooperative Sector Development: It contributes to the development of the cooperative sector.

g. Innovations in Banking: The RBI promotes innovation within the banking industry.

Write the defects of the Indian money market. 5

Answer: The Indian Money Market suffers from several shortcomings that hinder its optimal functioning and effectiveness.

The main defects in the Indian Money Market are as follows:

1. Presence of Unorganized Sector: One of the major drawbacks is the existence of the unorganized sector, primarily composed of indigenous bankers and money lenders. This sector holds a prominent position in lending, particularly in rural regions. Its activities are not directly regulated by the RBI, leading to potential exploitation and debt-related issues for borrowers.

2. Inadequate Banking Facilities: The availability of banking facilities in India is not commensurate with the country’s size and population. This inadequacy hampers the Indian Money Market’s ability to meet the diverse financial needs of the economy.

3. Division between Organized and Unorganized Sectors: The Indian Money Market is split into two sectors, namely the organized sector and the unorganized sector. This division poses a significant challenge as there is limited cooperation and coordination between these sectors. This lack of synchronization makes it difficult for the Reserve Bank of India (RBI) to exert consistent control over both sectors.

4. Shortage of Funds: Several factors contribute to a shortage of capital funds in the Indian Money Market. These factors include low saving capacity among the population, inadequate banking services.

5. Unhealthy Competition: Unhealthy competition exists not only between the organized and unorganized sectors but also within each sector. For instance, commercial banks, including prominent ones like State Bank of India, compete among themselves. Additionally, there is competition between Indian commercial banks and foreign banks.

12. Write a note on the wholesale market of foreign exchange market. 5

Answer: Wholesale Market: This market exists to help individual banks manage large purchases or sales. The wholesale market can be further categorized based on how it operates: a. Interbank Market: This is essentially the core of the wholesale market. Banks trade in currencies held in different currency-dominated bank accounts. They assist in transferring bank deposits from the seller’s account to the buyer’s account. No physical exchange of currency occurs; instead, it involves accounting entries in the customer’s deposit accounts with the bank. While there are only a few traders in the interbank market, the transaction volumes are very high. Banks don’t charge commissions for currency transactions but profit from the differences between buying and selling rates.

What are the advantages of the private placement method of new issue market? 5

Answer: Private Placement: Private placement is a method of issuing securities without the need for a formal prospectus. Instead, shares are offered privately to issue houses or brokers. Typically, issue houses acquire shares or securities from a specific company first and then sell them to individual and Institutional investors. These intermediaries maintain their own lists of clients and transfer shares to Investors with a margin. Private placement is cost-effective because it avoids various expenses such as brokerage, underwriting, advertising and printing costs.

Advantages of Private Placement:

a. Suitable for smaller companies locking to issue shares.

b. Eliminates the delays associated with public offerings.

c. Low issuance expenses compared to public offerings.

d. Faster process than public issuance.

e. Appropriate for first-time entrepreneurs.

f. No entry barriers for companies seeking access to the private placement market.

g. A suitable option when a public response to a prospectus is uncertain.

13. Write the functions of merchant banking. 5

Answer: Merchant banking goes back to the 13th century when family businesses combined banking with buying and selling goods. A merchant bank is like a financial helper for big companies and rich people. It helps them with things like finding money, giving advice about money and raising funds. In the past, these banks helped trade goods, so they’re called “merchant” banks.

The Following are the functions of merchant banking;

(a) Assisting in Project Development: Merchant bankers provide valuable guidance in finding promising projects, creating feasibility studies, aiding investors in obtaining necessary licenses and helping with capital structure planning. They also support in forming foreign collaborations, provide insights into amalgamations, mergers and takeovers.

(b) Corporate Advice: Merchant bankers offer advice to corporations to enhance their performance and build a positive reputation among investors. They provide opinions, suggestions and detailed analyses of corporate laws applicable to businesses.

(c) Arranging Loans and Project Funding: Once a project is approved, merchant bankers assist in applying for Financial support from institutions. They offer expert advice on government policies, raw material availability, production planning and machinery requirements.

(d) Issue management: Merchant bankers aid corporate clients in conducting public share and debenture offerings. They help decide the size and timing of the offerings, assist in selecting bankers and brokers, manage the issuance process and prepare necessary documents and promotional materials.

(e) Providing Working Capital Support: Merchant bankers assist clients in obtaining financial support for meeting working capital needs from financial institutions. They help estimate the required working capital, aid in preparing applications and expedite documentation and formalities.

(f) Lease Financing: Some merchant bankers also offer lease financing services. Lease finance involves an arrangement between a lessor (banker) and a lessee (customer) where the banker provides equipment for the lessee’s use. Payments are made as rent at an agreed-upon rate and the equipment is returned to the lessor after the agreement term ends.

14. Discuss the objectives of State Finance Corporations (SFC). 5