JAIIB Paper 1 Module D Quiz 5

Factoring can combine purchase or financing of receivables with services such as sales-ledger administration and collections. The exact services and recourse depend on the contract and legal framework.

With recourse, the factor may seek payment from the seller for specified non-payment events, as defined in the agreement. The allocation of credit risk depends on the contractual terms and applicable law.

Without-recourse structures generally transfer specified buyer credit risk to the purchaser, but exclusions may apply, for example for disputes, fraud or breach of warranties. The agreement must be reviewed carefully.

Forfaiting commonly involves purchasing export receivables, often on a without-recourse basis, to provide the exporter with immediate cash and transfer agreed payment risk.

TReDS connects eligible MSME sellers, their buyers and financiers to facilitate discounting/financing of accepted trade receivables. The platform’s framework defines participant eligibility and operating requirements.

Buyer acceptance supports confirmation of the trade payable and allows financing to proceed according to platform rules. It does not mean every legal or commercial risk disappears.

Discounting can improve working-capital cash flow by advancing funds against receivables. The supplier receives less than the invoice amount after discounting/fees and remains subject to the transaction’s terms.

The drawer creates the bill and directs the drawee to pay the specified amount to the payee or as directed. The drawee’s acceptance can create an obligation according to the applicable law and instrument terms.

Invoice discounting commonly focuses on obtaining finance against receivables, while factoring may bundle finance with collection and sales-ledger administration. Products vary by provider and contract.

Supply-chain finance uses commercial relationships and transaction information to help finance working-capital needs. It may reduce funding friction but does not eliminate buyer default or operational risks.

The yield curve shows the relationship between yields and maturities for a set of comparable securities. Its shape can reflect expectations, term premiums and supply-demand conditions; it is not a guaranteed forecast.

An inverted curve occurs when short-term yields exceed longer-term yields. It may reflect monetary-policy expectations and economic outlook, but it is not a certain prediction of a recession.

Green bonds earmark proceeds for eligible environmental projects, with reporting and governance depending on the framework. The green label does not itself guarantee credit quality or investment performance.

Inflation-linked structures adjust specified cash flows using a reference inflation index. Actual realised returns still depend on the bond’s terms, market price, index methodology and tax treatment.

A zero-coupon bond makes no periodic interest payments. The investor’s return generally comes from the difference between the purchase price and the amount received at maturity, subject to default and market risk.

When rates fall, an issuer may have an incentive to redeem a callable bond and refinance more cheaply. Investors may then have to reinvest the returned principal at lower rates.

A put option embedded in a bond may allow the holder to sell it back to the issuer at specified dates and terms. This can reduce some interest-rate or credit exposure, but depends on the contract and issuer’s ability to perform.

A settlement cycle specifies the timetable for completing a trade’s cash and securities obligations. Standardised settlement supports operational coordination and risk management; the applicable cycle depends on the market and product.

Current regulatory requirements can change through amendments and circulars. The latest applicable official SEBI instrument should be checked, while noting its effective date and scope.

SEBI’s merchant banker framework has been amended, including a 2025 amendment effective from January 2026 and a 2026 master circular. Exam preparation should distinguish the rule’s publication date, effective date and transitional arrangements.