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					Encyclopedia of Business and Finance | Consumer and Industrial Goods

The classification of goods—physical products— is essential to business because it
provides a basis for determining the strategies needed to move them through the
marketing system. The two main forms of classifications are consumer goods and
industrial goods.

CONSUMER GOODS

Consumer goods are goods that are bought from retail stores for personal, family, or
household use. They are grouped into three subcategories on the basis of consumer
buying habits: convenience goods, shopping goods, and specialty goods.

Consumer goods can also be differentiated on the basis of durability. Durable goods are
products that have a long life, such as furniture and garden tools. Nondurable goods are
those that are quickly used up, or worn out, or that become outdated, such as food, school
supplies, and disposable cameras.

Convenience Goods Convenience goods are items that buyers want to buy with the least
amount of effort, that is, as conveniently as possible. Most are nondurable goods of low
value that are frequently purchased in small quantities. These goods can be further
divided into two subcategories: staple and impulse items.

Staple convenience goods are basic items that buyers plan to buy before they enter a
store, and include milk, bread, and toilet paper. Impulse items are other convenience
goods that are purchased without prior planning, such as candy bars, soft drinks, and
tabloid newspapers.

Since convenience goods are not actually sought out by consumers, producers attempt to
get as wide a distribution as possible through wholesalers. To extend the distribution,
these items are also frequently made available through vending machines in offices,
factories, schools, and other settings. Within stores, they are placed at checkout stands
and other high-traffic areas.

Shopping Goods Shopping goods are purchased only after the buyer compares the
products of more than one store or looks at more than one assortment of goods before
making a deliberate buying decision. These goods are usually of higher value than
convenience goods, bought infrequently, and are durable. Price, quality, style, and color
are typically factors in the buying decision. Televisions, computers, lawnmowers,
bedding, and camping equipment are all examples of shopping goods.

Because customers are going to shop for these goods, a fundamental strategy in
establishing stores that specialize in them is to locate near similar stores in active
shopping areas. Ongoing strategies for marketing shopping goods include the heavy use
of advertising in local media, including newspapers, radio, and television. Advertising for
shopping goods is often done cooperatively with the manufacturers of the goods.

Specialty Goods Specialty goods are items that are unique or unusual—at least in the
mind of the buyer. Buyers know exactly what they want and are willing to exert
considerable effort to obtain it. These goods are usually, but not necessarily, of high
value, and they may or may not be durable goods. They differ from shopping goods
primarily because price is not the chief consideration. Often the attributes that make them
unique are brand preference (e.g., a certain make of automobile) or personal preference
(e.g., a food dish prepared in a specific way). Other items that fall into this category are
wedding dresses, antiques, fine jewelry, and golf clubs.

Producers and distributors of specialty goods prefer to place their goods only in selected
retail outlets. These outlets are chosen on the basis of their willingness and ability to
provide a high level of advertising and personal selling for the product. Consistency of
image between the product and the store is also a factor in selecting outlets.

The distinction among convenience, shopping, and specialty goods is not always clear. As
noted earlier, these classifications are based on consumers' buying habits. Consequently, a
given item may be a convenience good for one person, a shopping good for another, and
a specialty good for a third. For example, for a person who does not want to spend time
shopping, buying a pair of shoes might be a convenience purchase. In contrast, another
person might buy shoes only after considerable thought and comparison: in this instance,
the shoes are a shopping good. Still another individual who perhaps prefers a certain
brand or has an unusual size will buy individual shoes only from a specific retail location;
for this buyer, the shoes are a specialty good.

INDUSTRIAL GOODS

Industrial goods are products that companies purchase to make other products, which
they then sell. Some are used directly in the production of the products for resale, and
some are used indirectly. Unlike consumer goods, industrial goods are classified on the
basis of their use rather than customer buying habits. These goods are divided into five
subcategories: installations, accessory equipment, raw materials, fabricated parts and
materials, and industrial supplies.

Industrial goods also carry designations related to their durability. Durable industrial
goods that cost large sums of money are referred to as capital items. Nondurable
industrial goods that are used up within a year are called expense items.

Installations Installations are major capital items that are typically used directly in the
production of goods. Some installations, such as conveyor systems, robotics equipment,
and machine tools, are designed and built for specialized situations. Other installations,
such as stamping machines, large commercial ovens, and computerized axial tomography
(CAT) scan machines, are built to a standard design but can be modified to meet
individual requirements.

The purchase of installations requires extensive research and careful decision making on
the part of the buyer. Manufacturers of installations can make their availability known
through advertising. However, actual sale of installations requires the technical
knowledge and assistance that can best be provided by personal selling.

Accessory Equipment Goods that fall into the subcategory of accessory equipment are
capital items that are less expensive and have shorter lives than installations. Examples
include hand tools, computers, desk calculators, and forklifts. While some types of
accessory equipment, such as hand tools, are involved directly in the production process,
most are only indirectly involved.

The relatively low unit value of accessory equipment, combined with a market made up
of buyers from several different types of businesses, dictates a broad marketing strategy.
Sellers rely heavily on advertisements in trade publications and mailings to purchasing
agents and other business buyers. When personal selling is needed, it is usually done by
intermediaries, such as wholesalers.

Raw Materials Raw materials are products that are purchased in their raw state for the
purpose of processing them into consumer or industrial goods. Examples are iron ore,
crude oil, diamonds, copper, timber, wheat, and leather. Some (e.g., wheat) may be
converted directly into another consumer product (cereal). Others (e.g., timber) may be
converted into an intermediate product (lumber) to be resold for use in another industry
(construction).

Most raw materials are graded according to quality so that there is some assurance of
consistency within each grade. There is, however, little difference between offerings
within a grade. Consequently, sales negotiations focus on price, delivery, and credit
terms. This negotiation plus the fact that raw materials are ordinarily sold in large
quantities make personal selling the principal marketing approach for these goods.

Fabricated Parts and Materials Fabricated parts are items that are purchased to be
placed in the final product without further processing. Fabricated materials, on the other
hand, require additional processing before being placed in the end product. Many
industries, including the auto industry, rely heavily on fabricated parts. Automakers use
such fabricated parts as batteries, sun roofs, windshields, and spark plugs. They also use
several fabricated materials, including steel and upholstery fabric. As a matter of fact,
many industries actually buy more fabricated items than raw materials.

Buyers of fabricated parts and materials have well-defined specifications for their needs.
They may work closely with a company in designing the components or materials they
require, or they may invite bids from several companies. In either case, in order to be in a
position to get the business, personal contact must be maintained with the buyers over
time. Here again, personal selling is a key component in the marketing strategy.

Industrial Supplies Industrial supplies are frequently purchased expense items. They
contribute indirectly to the production of final products or to the administration of the
production process. Supplies include computer paper, light bulbs, lubrication oil, cleaning
supplies, and office supplies.

Buyers of industrial supplies do not spend a great deal of time on their purchasing
decisions unless they are ordering large quantities. As a result, companies marketing
supplies place their emphasis on advertising—particularly in the form of catalogues—to
business buyers. When large orders are at stake, sales representatives may be used.

It is not always clear whether a product is a consumer good or an industrial good. The
key to differentiating them is to identify the use the buyer intends to make of the good.
Goods that are in their final form, are ready to be consumed, and are bought to be resold
to the final consumer are classified as consumer goods. On the other hand, if they are
bought by a business for its own use, they are considered industrial goods. Some items,
such as flour and pick-up trucks, can fall into either classification, depending on how they
are used. Flour purchased by a supermarket for resale would be classified as a consumer
good, but flour purchased by a bakery to make pastries would be classified as an
industrial good. A pickup truck bought for personal use is a consumer good; if purchased
to transport lawnmowers for a lawn service, it is an industrial good.
Vehicle Finance

GREAT SPECIALS
We frequently offer auto loan specials to our members. For
example, right now we're offering both new and used auto
loans starting at the same rate!


INTEREST SAVINGS
Despite the low rates advertised at some places, it is often
best to take the cash rebate and finance with us. Ask a loan
officer to calculate your interest savings.

VEHICLE VALUATION
We can help you determine the trade-in value of your present
vehicle. And we can provide you with the retail value of both
new and used vehicles. This knowledge will ensure that you
get the best deal.

PERSONAL SERVICE
Our loan officers have years of experience helping SRFCU
members obtain the best possible financing. You won't find
individualized service like this at most other places.

In addition, we offer low rates and convenient terms that
are always clearly explained and represent a genuine value.




Facts for Consumers
Understanding Vehicle Financing
With prices averaging more than $28,000 for a new vehicle and $15,000 for a used vehicle, most consumers
need financing or leasing to acquire a vehicle. In some cases, buyers use “direct lending:” they obtain a loan
directly from a finance company, bank or credit union. In direct lending, a buyer agrees to pay the amount
financed, plus an agreed-upon finance charge, over a period of time. Once a buyer and a vehicle dealership
enter into a contract to purchase a vehicle, the buyer uses the loan proceeds from the direct lender to pay
the dealership for the vehicle. Consumers also may arrange for a vehicle loan over the Internet.

A common type of vehicle financing is “dealership financing.” In this arrangement, a buyer and a dealership
enter into a contract where the buyer agrees to pay the amount financed, plus an agreed-upon finance
charge, over a period of time. The dealership may retain the contract, but usually sells it to an assignee
(such as a bank, finance company or credit union), which services the account and collects the payments.

For the vehicle buyer, dealership financing offers:

    1.   Convenience – Dealers offer buyers vehicles and financing in one place.
    2.   Multiple financing relationships – The dealership’s relationships with a variety of banks and finance
         companies mean it can usually offer buyers a range of financing options.
    3.   Special programs – From time to time, dealerships may offer manufacturer sponsored, low-rate
         programs to buyers.

This booklet explains dealership financing and can serve as a guide as you evaluate your own financial
situation before you finance a new or used vehicle. It will also help you understand vehicle leasing.


Federal Laws

Familiarize yourself with laws that authorize and regulate vehicle dealership financing and leasing.

Truth in Lending Act – requires that, before you sign the agreement, creditors give you written disclosure
of important terms of the credit agreement such as APR, total finance charges, monthly payment amount,
payment due dates, total amount being financed, length of the credit agreement and any charges for late
payment.

Consumer Leasing Act – requires the leasing company (dealership, for example) to disclose certain
information before a lease is signed, including: the amount due at lease signing or delivery; the number and
amounts of monthly payments; all fees charged, including license fees and taxes; and the charges for
default or late payments. For an automobile lease, the lessor must additionally disclose the annual mileage
allowance and charges for excessive mileage; whether the lease can be terminated early; whether the
leased automobile can be purchased at the end of the lease; the price to buy at the end of the lease; and
any extra payments that may be required at the end of the lease.
Credit Practices Rule – requires creditors to provide a written notice to potential co-signers about their
liability if the other person fails to pay; prohibits late charges in some situations; and prohibits creditors from
using certain contract provisions that the government has found to be unfair to consumers.

Equal Credit Opportunity Act – prohibits discrimination related to credit because of your gender, race,
color, marital status, religion, national origin or age. It also prohibits discrimination related to credit based on
the fact that you are receiving public assistance or that you have exercised your rights under the federal
Consumer Credit Protection Act.

Fair Credit Reporting Act – Gives consumers many rights, including the right to one free credit report each
year. It allows consumers to call one number to notify credit reporting agencies and credit card companies of
identify theft. It also provides consumers with a process to dispute information in their credit file that they
believe is inaccurate or incomplete.


State Laws

Your state’s laws may provide you with additional rights. For information on these laws, contact your state’s
consumer protection agency or Attorney General’s office

What About a Co-Signer?

You may be required by the creditor to have a co-signer sign the finance contract with you in order to make
up for any deficiencies in your credit history. A co-signer assumes equal responsibility for the contract, and
the account history will be reflected on the co-signer’s credit history as well. For this reason, you should
exercise caution if asked to co-sign for someone else. Since many co-signers are eventually asked to repay
the obligation, be sure you can afford to do so before agreeing to be someone’s co-signer.

Should I Lease a Vehicle?

If you are considering leasing, there are several things to keep in mind. The monthly payments on a lease
are usually lower than monthly finance payments on the same vehicle because you are paying for the
vehicle’s expected depreciation during the lease term, plus a rent charge, taxes, and fees. But at the end of
a lease, you must return the vehicle unless the lease lets you buy it and you agree to the purchase costs
and terms. To be sure the lease terms fit your situation: Consider the beginning, middle and end of lease
costs. Compare different lease offers and terms, including mileage limits, and also consider how long you
may want to keep the vehicle.

When you lease a vehicle, you have the right to use it for an agreed number of months and miles. At lease
end, you may return the vehicle, pay any end-of-lease fees and charges, and “walk away.” You may buy the
vehicle for the additional agreed-upon price if you have a purchase option, which is a typical provision in
retail lease contracts. Keep in mind that in most cases, you will be responsible for an early termination
charge if you end the lease early. That charge could be substantial.

Another important consideration is the mileage limit – most standard leases are calculated based on a
specified number of miles you can drive, typically 15,000 or fewer per year. You can negotiate a higher
mileage limit, but you will normally have an increased monthly payment since the vehicle’s depreciation will
be greater during your lease term. If you exceed the mileage limit set in the lease agreement, you’ll probably
have to pay additional charges when you return the vehicle.

When you lease, you are also responsible for excess wear and damage, and missing equipment. You must
also service the vehicle in accordance with the manufacturer’s recommendations.

Finally, you will have to maintain insurance that meets the leasing company’s standards. Be sure to find out


Determining How Much You Can Afford
Before financing or leasing a vehicle, make sure you have enough income to cover your current monthly
living expenses. Then, finance new purchases only when you can afford to take on a new monthly payment.
The “Monthly Spending Plan” is a tool to help determine an affordable payment for you.

The only time to consider taking on additional debt is when you’re spending less each month than you take
home. The additional debt load should not cut into the amount you’ve committed to saving for emergencies
and other top priorities or life goals. Saving money for a down payment or trading in a vehicle can reduce the
amount you need to finance. In some cases, your trade-in vehicle will take care of the down payment on
your vehicle.


Sample Comparison

This example will help you compare the difference in the monthly payment amount and the total payment
amount for a 3-year and a 5-year credit transaction. Generally, longer terms mean lower monthly payments
and higher finance charges. Make sure you have enough income available to make the monthly payment by
reviewing your monthly spending plan. You’ll also need to factor in the cost of car insurance, which may vary
depending upon the type of vehicle.

Note: All dollars have been rounded for this illustration. The numbers in this sample are for example
purposes only. Actual finance terms may be different and will depend on many factors, including your credit
worthiness.


                                      3 years (36 months)         5 years (60 months)

                                      $ 20,000                    $ 20,000
Amount Financed
Contract Rate (APR)                   8.00%                       8.00%
Finance Charges                       $ 2,562                     $ 4,332
Monthly Payment Amount                $ 627                       $ 406
Total of Payments                     $ 22,562                    $ 24,332
Down Payment                          10%                         10%




Know the Terms of Financing Before You Sign

Negotiated Price of the Vehicle – The purchase price of the vehicle agreed upon by the buyer and the
dealer.

Down Payment – An initial amount paid to reduce the amount financed.

Extended Service Contract – Optional protection on specified mechanical and electrical components of the
vehicle available for purchase to supplement any warranty coverage provided with the new or used vehicle.

Credit Insurance – Optional insurance that pays the scheduled unpaid balance if you die or scheduled
monthly payments if you become disabled. As with most contract terms, the cost of optional credit insurance
must be disclosed in writing, and, if you want it, you must agree to it and sign for it.

Guaranteed Auto Protection (GAP) – Optional protection that pays the difference between the amount you
owe on your vehicle and the amount you receive from your insurance company if the vehicle is stolen or
destroyed before you have satisfied your credit obligation.

Amount Financed – The dollar amount of the credit that is provided to you.

Annual Percentage Rate or “APR” – The cost of credit expressed as a percentage.

Finance Charge – The total dollar amount you pay to use credit.
Fixed Rate Financing – The finance rate remains the same over the life of the contract.

Variable Rate Financing – The finance rate varies and the amount you must pay changes over the life of
the contract.

Monthly Payment Amount – The dollar amount due each month to repay the credit agreement.

Assignee – The bank, finance company or credit union that purchases the contract from the dealer.


Getting a Copy of Your Credit Report

It’s a good idea to check your credit report, which you can do every twelve months for free. To request a
copy of your report. In some situations, such as when you are denied credit, you may be able to obtain
additional copies for free.


Remember...
Before Visiting the Dealership:
    •    Evaluate your financial situation and determine how much you can afford to pay each month. A
         longer-term finance contract may mean smaller monthly payments than a shorter-term finance
         contract (if all other terms are the same) – but will result in more money paid over time on your
         contract.

    •    Determine the price range of the vehicle you’re thinking of buying. Check newspaper ads, the
         Internet, and other publications.

    •    Understand the value and cost of optional credit insurance if you agree to purchase.

    •    Know the difference between buying and leasing a vehicle.

    •    Be aware that your credit history may affect the finance rate you are able to negotiate. Generally,
         you’ll be able to get a lower rate if you’ve paid your monthly credit obligations on time.

    •    Compare annual percentage rates and financing terms from multiple finance sources such as a
         bank, finance company and credit union. This information may also be available from the finance
         sources’ and vehicle manufacturers’ Web sites.

When Visiting the Dealership:
Stay within the price range that you can afford.
    •    Negotiate your finance or lease arrangements and terms.

    •    Consider carefully whether the transaction is best for your budget and transportation needs.

    •    Understand the value and cost of optional products such as an extended service contract, credit
         insurance or guaranteed auto protection, if you agree to purchase. If you don’t want these products,
         don’t sign for them.

    •    Read the contract carefully before you sign.You are obligated once you have signed a contract.

    •    After Completing the Vehicle Purchase or Lease
         Be aware that if you financed the vehicle, the assignee (bank, finance company or credit union that
         purchases the contract) holds a lien on the vehicle’s title (and in some cases the actual title) until
         you have paid the contract in full.

    •    Make your payments on time. Late or missed payments incur late fees, appear on your credit report
         and impact your ability to get credit in the future.

If You Encounter Financial Difficulty:
    •    Talk to your creditors if you experience difficulties making your monthly payments. Explain your
         situation and the reason your payment will be late. Work out a repayment schedule with your
         creditors and, if necessary, seek the services of a reputable non-profit credit counseling agency.

    •    Know your obligations. Repossession can occur if you fail to make timely payments. Creditor or
         assignee may take the vehicle in full satisfaction of the credit agreement or may sell the vehicle and
         apply the proceeds from the sale to the outstanding balance on the credit agreement. This second
         option is more common. If the vehicle is sold for less than what is owed, you may be responsible
         for the difference.

    •    Be aware that the law in some states allows the creditor or assignee to repossess your vehicle
         without going to court.

    •    Before You Arrive at a Dealership

Do some research:
    •    Determine how much you can afford to finance and spend on a monthly payment by using the
         “Monthly Spending Plan” worksheet in this booklet.

    •    Get a copy of your credit report so you are aware of what creditors will see. Errors or accurate
         negative information can impact your ability to get credit and/or your finance rate.

    •    Identify your transportation needs.

    •    Check auto buying guides, the Internet and other sources to find out the price range and other
         information for the vehicle you want to buy.

    •    Compare current finance rates being offered by contacting various banks, credit unions or other
         lenders. Compare bank quotes and dealer quotes; there may be restrictions on the most attractive
         rates or terms from any credit source.




What Happens When You Apply for Financing

Most dealerships have a Finance and Insurance (F&I) Department, which provides one-stop shopping for
financing. The F&I Department manager will ask you to complete a credit application. Information on this
application may include: your name; Social Security number; date of birth; current and previous addresses
and length of stay; current and previous employers and length of employment; occupation; sources of
income; total gross monthly income; and financial information on existing credit accounts.

The dealership will obtain a copy of your credit report, which contains information about current and past
credit obligations, your payment record and data from public records (for example, a bankruptcy filing
obtained from court documents). For each account, the credit report shows your account number, the type
and terms of the account, the credit limit, the most recent balance and the most recent payment. The
comments section describes the current status of your account, including the creditor’s summary of past due
information and any legal steps that may have been taken to collect.

Dealers typically sell your contract to an assignee, such as a bank, finance company or credit union. The
dealership submits your credit application to one or more of these potential assignees to determine their
willingness to purchase your contract from the dealer.

These finance companies or other potential assignees will usually evaluate your credit application using
automated techniques such as credit scoring, where a variety of factors, like your credit history, length of
employment, income and expenses may be weighted and scored.

Since the bank, finance company or credit union does not deal directly with the prospective vehicle
purchaser, it bases its evaluation upon what appears on the individual’s credit report and score, the
completed credit application, and the terms of the sale, such as the amount of the down payment. Each
finance company or other potential assignee decides whether it is willing to buy the contract, notifies the
          dealership of its decision and, if applicable, offers the dealership a wholesale rate at which the assignee will
          buy the contract, often called the “buy rate.”

          Your dealer may be able to offer manufacturer incentives, such as reduced finance rates or cash back on
          certain models. You may see these specials advertised in your area. Make sure you ask your dealer if the
          model you are interested in has any special financing offers or rebates. Generally, these discounted rates
          are not negotiable, may be limited by a consumer’s credit history, and are available only for certain models,
          makes or model-year vehicles.

          When there are no special financing offers available, you can negotiate the annual percentage rate (APR)
          and the terms for payment with the dealership, just as you negotiate the price of the vehicle. The APR that
          you negotiate with the dealer is usually higher than the wholesale rate described earlier. This negotiation can
          occur before or after the dealership accepts and processes your credit application.

                                                Inter-corporate loans


No company will make any loan guarantee to any other body/corporate exceeding 60% of its paid-up
capital and free reserves, or 100% of free reserves.

Companies that have defaulted on repayment of loans or deposits will not be allowed to extend any
loans.

No loan may be allowed at a rate of interest lower than the prevailing bank rate.



Stock-broking companies may soon be able to receive or make inter-corporate loans or deposits
without any specific restriction on their investment. The revamped Company Law, which is likely to
allow public companies to self-regulate inter-corporate loans and investments, is silent on caps, if any,
on such class of companies.

Sources told Business Line that the Ministry of Corporate Affairs is likely to retain the current
provisions of the Companies Act pertaining to inter-corporate loans/deposits instead of what was
proposed in the draft Company Law (based on the Concept Paper). The draft proposal stipulated that
the Government may prescribe limits on inter-corporate loans/deposits for a class or classes of
companies registered as stockbroker or any other intermediary.

Safeguards

However, to prevent misuse of this provision for price-rigging or funds diversion, the revamped law is
likely to propose some safeguards.

These include stipulating that no company will directly or indirectly make any loan or guarantee to any
other body/corporate exceeding 60 per cent of its paid-up share capital and free reserves, or 100 per
cent of free reserves, whichever is more.

If the amount exceeds the prescribed percentage then the entity should get it authorised by a special
resolution passed in a general meeting and approved by its Board.

Prior approval of the public financial institution, if the amount exceeds 60 per cent, may also be
proposed.

Companies that have defaulted on repayment of loans or deposits will not be allowed to extend any
loans. It is also likely that no loan would be allowed at a rate of interest lower than the prevailing bank
rate.

Self-regulation

“Necessary checks and balances were required to be put, so that the purpose of self-regulation is not
defeated. Besides, Indian corporates should not be placed at a disadvantage vis-À-vis companies
incorporated in other jurisdiction in any international competitive bidding situation for acquisition,”
sources said.

The misuse of inter-corporate loans came to the forefront during the stock market scam of 2001.

It was found that large amounts of corporate funds were being diverted to the stock market for price
rigging. The Joint Parliamentary Committee on Stock Market Scam had recommended that a suitable
mechanism be devised to check the same.

The JJ Irani Committee on Company Law had proposed that the provisions of the current Act, which
prescribes for such loans, may be strengthened to ensure that there is no misuse of these exemptions
by corporates. It had also suggested a prohibition on companies making such loans to stockbrokers
and stock-broking firms/companies subject to exemptions currently provided in the Act.
Inter Corporate Loans and Investments

A company cannot :-

   i.   make any loan to any other body corporate
  ii.   give guarantee or security in connection with any loan made by any person to
        another body corporate
 iii.   acquire, by subscription, purchase or in any other manner, securities in any
        other body corporate

exceeding 60 % of its paid up share capital and free reserves or 100 % of its free
reserves, whichever is more, unless approved by a special resolution passed at a
general meeting of members.

The Board of the company may give a guarantee without being previously authorised
by a special resolution of members if all the following conditions are satisfied :-

   i.   a Board resolution is passed to this effect
  ii.   there exist exceptional circumstances which prevent the company from
        obtaining previous authorisation by special resolution
 iii.   the Board resolution is confirmed within 12 months in a general meeting or its
        next Annual general meeting, whichever is earlier.

Notice of such resolution must clearly indicate the specific limits, the particulars of
the body corporate in which the investment / loan / guarantee / security is proposed,
the purpose of the investment / loan / guarantee / security, sources of funding, etc.

No investment / loan / guarantee / security may be made or given unless the Board
resolution sanctioning it is with the consent of all directors present at the meeting
and prior approval of the public financial institution ( if any term loan is outstanding )
is obtained.

Approval of the public financial institution is not required if the investment / loan /
guarantee / security is with the 60 % limit as mentioned above and there has been no
default in repaying the term loan and / or interest thereon.

No loan can be made at a rate of interest lower than the bank rate prescribed by the
Reserve Bank of India.

A company which has defaulted in repaying public fixed deposits cannot make or give
any investment / loan / guarantee / security unless the fixed deposit is fully repaid
along with interest due as per the terms and conditions of the fixed deposit.

A register of such inter-corporate loans and investments must be maintained giving
the relevant details.

The above provisions do not apply to :-

   i.   Any loan / guarantee / security made or given by :-
           a. a banking company or an insurance company or a housing finance
                company in the ordinary course of its business or a company
                established with the object of financing industrial enterprises or
                providing infrastructural facilities
           b.   a company whose principal business is the acquisition of shares,
                stocks, debentures or other securities
           c.   a private company unless it is a subsidiary of a public company

  ii.   Investment made under Rights issue of securities
 iii.   Loan made by holding company to its wholly subsidiary company
 iv.    Guarantee or security given by a holding company for loan to its wholly owned
        subsidiary
  v.    Acquisition of securities by a holding company in its wholly owned subsidiary




Financial instrument


                               From Wikipedia, the free encyclopedia
(Redirected from Financial instruments)
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Jump to: navigation, search

Financial instruments denote any form of funding medium - mostly those used for
borrowing in money markets, e. g. bills of exchange, bonds, etc. (Ref: [1])

                               Contents

                               [hide]

                                   •    1 Categorization
                                            o 1.1 Matrix Table
                                            o 1.2 Measuring Financial Instrument's Gain or
                                                Loss
                                   •    2 See also

                                   •    3 External links

Categorization

Financial instruments can be categorised by form depending on whether they are cash
instruments or derivative instruments:

    •   Cash instruments are financial instruments whose value is determined directly
        by markets. They can be divided into securities, which are readily transferable, and
        other cash instruments such as loans and deposits, where both borrower and lender
        have to agree on a transfer.
    •   Derivative instruments   are financial instruments which derive their value from
        some other financial instrument or variable. They can be divided into exchange-
        traded derivatives and over-the-counter (OTC) derivatives.

Alternatively, financial instruments can be categorized by "asset class" depending on
whether they are equity based (reflecting ownership of the issuing entity) or debt based
(reflecting a loan the investor has made to the issuing entity). If it is debt, it can be further
categorised into short term (less than one year) or long term.

Foreign Exchange instruments      and transactions are neither debt nor equity based and
belong in their own category.

Matrix Table

Combining the above methods for categorisation, the main instruments can be organized
into a matrix as follows:

                                                    Instrument Type
 Asset Class                                             Exchange-traded
                   Securities       Other cash                                OTC derivatives
                                                           derivatives
                                                                              Interest rate swaps
 Debt (Long                                            Bond futures           Interest rate caps
   Term)         Bonds            Loans                Options on bond        and floors
  >1 year                                              futures                Interest rate options
                                                                              Exotic instruments

Debt (Short      Bills, e.g. T-   Deposits
  Term)          Bills            Certificates of
                                                       Short term interest    Forward rate
                 Commercial                            rate futures           agreements
 <=1 year                         deposit
                 paper

                                                       Stock options          Stock options
   Equity        Stock            N/A
                                                       Equity futures         Exotic instruments

                                                                              Foreign exchange
                                                                              options
   Foreign                        Spotforeign                                 Outright forwards
  Exchange
                 N/A                                   Currency futures
                                  exchange                                    Foreign exchange
                                                                              swaps
                                                                              Currency swaps


Some instruments defy categorisation into the above matrix, for example repurchase
agreements.

[edit] Measuring Financial Instrument's Gain or Loss

The table below shows how to measure a financial instrument's gain or loss:

Instrument
   Type            Categories        Measurement                      Gains and losses
   Assets      Loans and          Amortized costs        Net income when asset is
               receivables                               derecognized or impaired (foreign
                                                        exchange and impairment recognized
                                                        in net income immediately)
                Available for                        Other comprehensive income
                                   Deposit account -
     ??         sale financial                       (impairment recognized in net income
                                   Fair value
                assets                               immediately)

A real or virtual document representing a legal agreement involving some sort of monetary value.
In today's financial marketplace, financial instruments can be classified generally as equity based,
representing ownership of the asset, or debt based, representing a loan made by an investor to
the owner of the asset. Foreign exchange instruments comprise a third, unique type of
instrument. Different subcategories of each instrument type exist, such as preferred share
equity and common share equity, for example.

Financial instruments can be thought of as easily tradeable packages of capital, each having their
own unique characteristics and structure. The wide array of financial instruments in today's
marketplace allows for the efficient flow of capital amongst the world's investors




Financial intermediary
The term financial intermediary may refer to an institution, firm or individual who
performs intermediation between two or more parties in a financial context. Typically the
first party is a provider of a product or service and the second party is a consumer or
customer.

In the U.S., a financial intermediary is typically an institution that facilitates the
channelling of funds between lenders and borrowers indirectly. That is, savers (lenders)
give funds to an intermediary institution (such as banks), and then that institution in turn
gives those funds to spenders (borrowers). This may be in the form of loans or mortgages.
Alternatively, they may lend the money directly via the financial markets which is known
as financial disintermediation or ect....

Types of financial intermediary

Financial intermediaries can be:

                                                                        •   Banks;
                                                                        •   Building Societies;
                                                                        •   Credit Unions;
                                                                        •   Financial adviser or
                                                                            broker;
                                                                        •   Insurance Companies;
                                                                        •   Life Insurance
                                                                            Companies;
                                                                        •   Mutual Funds; or
                                                                        •   Pension Funds.

Financial services
Financial services is a term used to refer to the services provided by the finance
industry. Financial services is also the term used to describe organizations that deal with
the management of money and includes merchant banks, credit card companies, consumer
finance companies, government sponsored enterprises, and stock brokerages. Financial
services is the largest industry (or industry category) in the world, in terms of earnings; as
of 2004, the industry represents 20% of the market capitalization of the S&P 500.[1]

The term financial services became more prevalent in the United States partly as a result
of the Gramm-Leach-Bliley Act of the late 1990s, which enabled different types of
companies in the US financial services industry to merge. Critics of this act say the term
financial services attempts to make the unison of these operations sound natural, ignoring
the history of problems that have arisen from combining them, such as conflicts of interest
and monopolization [citation needed]. Others, noting that many of the restrictions abolished by the
Gramm-Leach-Bliley Act had never existed in other countries or had been abolished
earlier than in the US, say the term financial services is a natural one, in long term use,
which means nothing more than its constituent words [citation needed].

In the USA almost every company now which previously described themselves as a bank,
insurance company, or brokerage house, now describes themselves in some way as a
financial services institution. Allstate Insurance, for example, now provides CDs and
investment brokerage services. Bank of America offers full-featured brokerage products,
while E*TRADE has expanded into offering bank accounts and loans. Companies usually
have two distinct approaches to this new type of business. One approach would be a bank
which simply buys an insurance company or an investment bank, keeps the original
brands of the acquired firm, and adds the acquisition to its holding company simply to
diversify its earnings. Outside the U.S., e.g., in Japan, non-financial services companies
are permitted within the holding company. In this scenario, each company still looks
independent, and has its own customers, etc. This is essentially the style of Citigroup and
JP Morgan Chase.

In the other style, a bank would simply create its own brokerage division or insurance
division and attempt to sell those products to its own existing customers, with incentives
for combining all things with one company. This is the style of Washington Mutual and
Wells Fargo.

[edit] Banking services: What do banks do?

        Main article: Bank

The primary operations of banks include:

                                                                       •   Keeping money safe
                                                                           while also allowing
                                                                           withdrawals when
                                                                           needed
                                                                       •   Issuance of
                                                                           checkbooks so that
                                                                           bills can be paid and
                                                                           other kinds of
                                                                           payments can be
                                                                           delivered by post
                                                                 •   Provision of loans
                                                                     and mortgage loans
                                                                     (typically loans to
                                                                     purchase a home,
                                                                     property or business)
                                                                 •   Issuance of credit
                                                                     cards
                                                                 •   Allow financial
                                                                     transactions at
                                                                     branches or by using
                                                                     Automatic Teller
                                                                     Machines (ATMs)
                                                                 •   Facilitation of
                                                                     standing orders and
                                                                     direct debits, so
                                                                     payments for bills
                                                                     can be made
                                                                     automatically
                                                                 •   Provide overdraft
                                                                     agreements for the
                                                                     temporary
                                                                     advancement of the
                                                                     Bank's own money
                                                                     to meet monthly
                                                                     spending
                                                                     commitments of a
                                                                     customer in their
                                                                     current account.
                                                                 •   Provide Charge card
                                                                     advances of the
                                                                     Bank's own money
                                                                     for customers
                                                                     wishing to settle
                                                                     credit advances
                                                                     monthly.
                                                                 •   Provide a cheque
                                                                     guaranteed by the
                                                                     Bank itself and
                                                                     prepaid by the
                                                                     customer, such as a
                                                                     cashier's check or
                                                                     certified check.

[edit] Commercial bank

A commercial bank is what is commonly considered a 'bank'. The term 'commercial' is used
to distinguish it from an 'investment bank', a type of financial services entity which,
instead of lending money directly to a business, helps businesses raise money from other
firms in the form of bonds (debt) or stock (equity). Major commercial banks include:

[edit] Top ten banking groups in the world ranked by tier 1 capital
Top ten banks in the world (as at end-2006) according to The Economist:[2]
                                                      Tier 1 Capital
              Rank               Company                             Country
                                                      (US$ billions)


              1.     Bank of America                  91           US


              2.     Citigroup                        90           US


              3.     HSBC                             88           UK


              4.     Credit Agricole Group            85           France


              5.     JPMorgan Chase                   81           US


              6.     Mitsubishi UFJ Financial Group   69           Japan


              7.     ICBC                             59           China


              8.     Royal Bank of Scotland           59           UK


              9.     Bank of China                    52           China


              10.    Banco Santander                  47           Spain


[edit] Private banking

The term private bank is simply a marketing term for a bank or a division of a financial
services company targeted towards wealthy individuals. Often it is used to describe
specifically the lending services targeted towards this group, such as large margin loans.

This table displays the results of the Ultra high net worth (US$30m+) category of the
2006 private banking awards:[3]
What Are Working Capital Loans?

•   They are short-term loans meant to increase your cash flow.

•   They are often used to fund the daily operations of your business.

What's The Difference Between Secured And Unsecured Loans?

•   Working Capital Loans can be secured or unsecured.

•   A secured Working Capital Loan is one that is backed by an asset and/or personal
    guarantee.

    o   The asset required can be a house, factory or inventory. They can be fully paid
        up assets or assets with existing mortgages or loans.

    o   How much collateral the bank or financial institution will ask for depends very
        much on their assessment of your ability to pay back the loan.

    o   The bank may also require personal guarantees from the owners and/or directors.
        They must be ready and willing to put up their own personal assets to back the
        loan e.g. family home, shares and stocks.

•   Lenders give unsecured loans only to borrowers whom they consider to be low or
    no risk. Start-ups are generally viewed as risky and are unlikely to be granted
    unsecured loans.

What Are The Common Types Of Working Capital Loans?

•   There are many different types of Working Capital Loans. To complicate matters,
    different banks use different terms to describe the same type of loan.

•   To help you better understand and select the right loan, here are some common types
    of Working Capital Loans:

    Overdraft / Line-Of-Credit
    o   An overdraft allows you to draw funds beyond the available limit of your bank
        account.

    o   The maximum amount you can overdraw is your line of credit. The terms and
        amount depend on the relationship you have with your banker and his/her
        assessment of your credit worthiness.

    o   Overdrafts are flexible and simple to operate. You pay interest only on the
        amount you have overdrawn. However, the interest rate charged is usually 1-2%
        above the bank's prime rate.

    o   Suitable for: All businesses and start-ups.



    Short-Term Loan

    o   Unlike an overdraft, a short-term loan has a fixed repayment period - usually 12
        months - and fixed interest rates.

    o   You may be asked to put up an asset as collateral for this loan.

    o   If your track record and relationship with the bank is good, the lender may even
        be willing to provide you with the loan without collateral.

    o   Suitable for: All businesses and start-ups.

    Confirmed Sales Orders or Accounts Receivable

    o   Loans based on confirmed sales orders or accounts receivable is another way to raise
        working capital.
         If you need to fulfil a sizeable order of goods, but do not have the funds  to
             do so, you may apply for a Working Capital Loan based on the value of the
             contract or order.
          If there is new opportunity round the corner and you need funds to take
             advantage of it, you may apply for a Working Capital Loan based on the
             value of your accounts receivable. Accounts receivable is the amount of
             money you have billed your customers but have not yet received payment.
    o   If your customers are established and reputable, the lender may be willing to
        help ease your cash flow problems.

    o   Suitable for: All businesses.

    Loans for Buying & Selling Goods

    o   There are special loan facilities for businesses that buy and sell goods, e.g.
        importers, manufacturers, exporters, etc.

    o   Letters of Credit, Inventory Loans and Trust Receipts are some examples.

What Are Some Of The Advantages And Disadvantages?

Advantages
•   Working Capital Loans are quick sources of cash.

•   They can help your business tide over cyclical downturns.

•   They can be used to provide cash flow during short-term shocks e.g. when your key
    customer is declared bankrupt.

Disadvantages

•   They can only be used to meet short-term cash needs - they are insufficient for long-
    term plans or projects that require more capital (cash or asset).

•   You need to monitor your loans closely and make sure you repay them on time to
    avoid being blacklisted by credit bureaus and lending institutions.

What Working Capital Loans Does The Government Offer?

•   Internationalisation Finance (IF) Scheme
    Need funds to expand overseas? Get a loan of up to S$15 million to buy fixed assets
    and finance your overseas projects or orders.

•   Loan Insurance Scheme (LIS)
    Secure loans by getting them insured against default. The Government will subsidise
    50% of the insurance premium.

•   Micro Loan Programme
    Very small businesses can get loans of up to S$50,000.

•   Trade Credit Insurance (TCI) Programme
    Get your accounts receivable insured against non-payment risk at rates normally
    available only to companies with substantial trade volume. You can apply for TCI
    Programme with trade financing to raise working capital.




The layperson’s understanding of working capital, working capital loans, and working
capital financing is very fussy. In fact not a single non-financial personal will be able to
give anywhere close to the definition of working capital.

Here’s a simple exercise for you. Take a walk downtown with a microphone in hand. Ask
the first one hundred people you come across what "working capital" is. Chances are the
majority of them will be able to give you some idea as to what working capital is. And,
I’m sure you probably (have an inkling about) know what working capital is, Right?

But, if I were to ask you for the definition of working capital, would you be able to tell
me? Okay. Enough of the exercise. I’m going to give you the answer right here. Sadly,
the average person almost always gets it wrong.

                              Definition Of Working Capital
Working Capital is technically defined as the difference between Current Assets and
Current Liabilities, i.e., "Current Assets-Current Liabilities," and is also know as Net
Working Capital.

The working capital of a company reflects its ability to meet its obligations as they come
due, and thereby avoid bankruptcy. Thus, the amount of working capital may influence
the character and scope of the business. Working capital loans or financing are the funds
usually required to finance working capital short-falls.

It is believed in some finance sector that the financing difficulties for small businesses
only increase when they seek funds for working capital (operating expenses, purchasing
inventory, receivables financing). The reason? They say, unlike a loan for the acquisition
of fixed assets (land, buildings, machinery and equipment), a loan for working capital
does not provide the lender with collateral thought to be as reliable for repayment
purposes.

                    The Absolute Need For Working Capital Loans

You see, new and small firms typically find themselves in working capital crunches.
Without adequate working capital, they cannot build inventory or purchase raw materials.
Without adequate inventory, the company cannot sell a sufficient number of products to
improve its financial condition. If a sufficient level of financing is not available, the
company may either collapse or never realize its true potential.

Thus, the availability of credit is a key determinant in the ability of small firms to expand
and grow. To lessen these problems for small and new businesses and meet the demand,
some private lenders have instituted flexible working capital loan programs. In fact some
lenders offer collateral or "promise of repayment" to back up working capital loans.

                                New Market Has Evolved

Such arrangements with this new market involve third party entities (usually private
lenders) who promise repayment of a loan that is obtained from lending institutions for
working capital purposes. By reducing the lender’s risk, this promise of repayment
increases the likelihood of the business obtaining a working capital loan, and getting the
loan at affordable rates.

This is indeed a creative working capital solution. Some professionals are beginning to
call it "the working capital sub prime market." Many small business owners are rushing
to take advantage by going through this back door (new market) to meet their working
capital needs.