Page 243 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes  The bill of exchange is an instrument in writing containing an unconditional order, signed
by the maker, directing a certain person to pay a certain sum of money only to, or to the
order of, a certain person, or to the bearer of that instrument.

11.12 Keywords

Account receivables: Any trade debt arising from the sale of goods/ services by the client to the
customer on credit.

Client: He is also known as supplier. It may be a business institution supplying the goods/
services on credit and availing of the factoring arrangements.
Contract: A contract is an agreement enforceable by law.

Contract of indemnity: A contract whereby a person promises to make good the loss caused to
him by the conduct of the promisor himself or any third person.
Customer: A person or business organisation to whom the goods/ services have been supplied
on credit. He may also be called as debtor.
Eligible debt: Debts, which are approved by the factor for making prepayment.
Lease: Lease is a contract conferring a right on one person (called a tenant or lessee) to possess
property belonging to another person (called a landlord or lessor) to the exclusion of the
owner landlord.

Open account sales: Where in an arrangement goods/ services are sold/supplied by the client
to the customer on credit without raising any bill of exchange or promissory note.
Prepayment: An advance payment made by the factor to the client up to a certain percent of the
eligible debts.
Retention: Margin maintained by the factor.

11.13 Review Questions

1. Analyse the regulatory authority that the RBI has been able to exercise over the leasing
companies operating in India for last 5 years.
2. Why do you think has the govt. of India fixed a rigid procedure for import leasing?

3. Present a comparative analysis of the tax benefits that the leasing companies have in
developed countries and their counterparts have here in India.
4. Is there any flaw in the provisions related to Indemnity and Guarantee? Support your
argument with reasons.
5. Which is the most common type of lease that you generally witness across and which is
the rarest? What do you think to be the reasons behind them?

6. How is bills discounting and factoring different from each other?
7. What is more important factoring or forfeiting and why?
8. Discuss the mechanisms of factoring and forfeiting.

9. How do you see the provisions for rediscounting of bills?
10. What makes discounting of bills, a profitable activity?

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