BBI-Fsm short notes series 1

Venture capital financing: Venture capital financing refers to financing of new high-risk ventures promoted by
qualified entrepreneurs who lack experience and funds to give shape to their ideas. A
venture capitalist invests in equity or debt securities floated by such entrepreneurs who
undertake highly risky ventures with a potential of success.
Common methods of venture capital financing include:
(i) Equity financing: The undertaking’s requirements of long-term funds are met by
contribution by the venture capitalist but not exceeding 49% of the total equity
capital;
(ii) Conditional Loan: Which is repayable in the form of royalty after the venture is
able to generate sales;
(iii) Income Note: A hybrid security combining features of both a conventional and
conditional loan, where the entrepreneur pays both interest and royalty but at
substantially lower rates;
(iv) Participating debenture: The security carries charges in three phases – start

phase, no interest upto a particular level of operations; next stage, low interest;

thereafter a high rate.

There is a basic difference between the money market and capital market. The operation

in the money market are for a duration upto one year and deals in short term financial

assets whereas in the capital market operations are for a larger period beyond one year

and therefore deals in medium and long term financial assets. Secondly, the money

market is not a well-defined place like the capital market where business is normally

done at a defined place like a stock-exchange. The transactions in the money market

are done through electronic media and other written documents.

(a) In the capital market, there is a classification between primary market and

secondary market. There is no such sub-division of the money market. Lately,

however issues are afoot to develop a secondary money market.

(b) Capital market deals for fund requirements of a long-term whilst money market

generally caters to short-term requirements.

(c) The quantum of transactions in the capital market is decidedly not as large as in the

money market.

(d) The type of instruments dealt in the money market are like inter bank call money,

notice money upto 14 days, short-term deposits upto three months, 91 days/182 days treasury bills, commercial paper etc.
(e) The players in the capital market are general/retail investors, brokers, merchant
bankers, registrars to the issue, under-writers, corporate investors, FIIs and bankers
while the money market participants are the Government, Reserve Bank of India
and the banks.

d)

consumers. They enable the consumer to:

(a) Dispense with using cash for every transaction.

(b) Make Monthly payments.

(c) No interest charges if paid on due date every month.

(d) Insurance benefits are available.

(e) Special discounts can be availed which are not applicable on cash transactions.

(f) For high value purchases the consumer can use the roll over facility and pay for his

purchases in instalments.

The disadvantages of credit cards are:

(a) The consumer commits his future income.

(b) If not used wisely the consumer lands into a debt trap.

(c) The rate of interest on credit cards for long term finance (roll over) is around 40%

per annum.

Credit cards are a simple and convenient means of access to short term credit for