1. Forfaiting is a financing mechanism primarily used for:
Domestic trade receivables.
International trade receivables (Exports), usually medium to long term.
Real estate purchases.
Short-term working capital needs.
Explanation:
Forfaiting involves the purchase of export receivables (like bills of exchange) by a forfaiter on a "without recourse" basis. It is typically used for medium to long-term export financing.
2. The TReDS (Trade Receivables Discounting System) platform is specifically designed to facilitate financing for:
MSMEs (Micro, Small and Medium Enterprises).
Large Corporations.
Foreign Importers.
Government Infrastructure Projects.
Explanation:
TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of MSMEs through multiple financiers, helping them manage working capital.
3. In "Non-Recourse Factoring", if the debtor (customer) defaults on payment, the loss is borne by:
The Client (Seller)
Shared equally by Client and Factor
The Factor
The Bank of the Seller
Explanation:
In non-recourse factoring, the Factor assumes the credit risk. If the debtor fails to pay due to insolvency, the Factor cannot claim the money back from the seller (client).
4. Unlike Factoring which usually covers short-term receivables, Forfaiting usually deals with:
Medium to long-term export receivables.
Domestic receivables only.
Government securities.
Unsecured personal loans.
Explanation:
Forfaiting is a specialized form of export finance involving the purchase of medium to long-term export receivables (deferred payment obligations) on a non-recourse basis.
5. Who are the three key participants in the TReDS platform?
Importers, Exporters, and Customs.
RBI, SEBI, and NABARD.
Government, Citizens, and Banks.
Sellers (MSMEs), Buyers (Corporates/PSUs), and Financiers (Banks/NBFCs).
Explanation:
TReDS brings together MSME sellers (to upload invoices), Buyers (to accept invoices), and Financiers (to bid and provide funding against invoices).
6. In a Factoring arrangement, the "Factor" provides prepayment to the client up to what percentage of the invoice value (typically)?
Explanation:
Ideally, the Factor advances about 80-90% of the invoice value immediately to the client. The balance (minus charges) is paid when the customer (debtor) makes the full payment.
7. In "International Factoring", the two-factor system involves:
RBI and the Foreign Central Bank.
A Seller and a Buyer.
An Export Factor and an Import Factor.
A Bank and an Insurance Company.
Explanation:
International factoring typically involves two factors: the Export Factor (in the exporter's country) who handles the client, and the Import Factor (in the importer's country) who handles credit assessment and collection from the buyer.
8. Besides financing, what other key service does a Factor provide?
Manufacturing support.
Sales Ledger Administration and Collection of receivables.
Equity investment.
Technology consulting.
Explanation:
Factors provide a comprehensive package including maintenance of the sales ledger, collection of dues from debtors, credit protection, and advisory services.
9. Regarding the TReDS platform, which of the following statements is FALSE?
Corporates, Government Departments, and PSUs can participate as buyers.
Only MSMEs can participate as sellers.
The financing is done with recourse to the MSME seller.
NBFC-Factors are permitted to act as financiers.
Explanation:
Financing on TReDS is "Without Recourse" to the MSME seller. Once the invoice is accepted by the buyer and financed, the financier takes the credit risk of the buyer. The MSME seller does not have to refund the money if the buyer defaults.
10. Which organization sets the "General Rules for International Factoring" (GRIF)?
ICC (International Chamber of Commerce)
WTO
FCI (Factors Chain International)
World Bank
Explanation:
FCI is the global representative body for factoring and receivables finance. GRIF provides a legal framework for international factoring transactions.
11. In "Reverse Factoring" (also known as Supply Chain Finance), the arrangement is initiated by the:
Seller (Supplier)
Insurance Company
Buyer (Ordering Party)
Factor
Explanation:
Unlike traditional factoring where the supplier initiates the process to get funds, Reverse Factoring is buyer-led. A large buyer arranges a financing program with a bank/factor to pay its suppliers early (at a discount), improving the supply chain stability.
12. The key difference between "Recourse Factoring" and "Non-Recourse Factoring" lies in:
Who bears the credit risk (bad debt risk).
The service charges.
The duration of finance.
The currency of transaction.
Explanation:
In Recourse Factoring, the client (seller) bears the risk of bad debts. In Non-Recourse Factoring, the Factor bears the risk if the customer fails to pay due to insolvency.
13. Which of the following is NOT a licensed TReDS platform operator in India?
RXIL (Receivables Exchange of India)
M1xchange
Invoicemart (A.TReDS)
BillDesk
Explanation:
BillDesk is a payment gateway. The three RBI-licensed TReDS platforms are RXIL, Invoicemart, and M1xchange.
14. The "General Rules for International Factoring" (GRIF) are issued by:
RBI (Reserve Bank of India)
WTO (World Trade Organization)
ICC (International Chamber of Commerce)
FCI (Factors Chain International)
Explanation:
FCI is the global representative body for factoring. GRIF provides a uniform legal framework for international factoring transactions between export and import factors.
15. In Domestic Factoring, typically how many factors are involved?
None
One
Three
Two (Export and Import factors)
Explanation:
Domestic factoring usually involves a Single Factor who manages the receivables of the seller and collects from the buyer within the same country.
16. In "Undisclosed Factoring", the arrangement is:
Illegal in India.
Not disclosed to the Debtor; the Client collects payment and remits to Factor.
Known to the Debtor (Customer).
Disclosed to the RBI only.
Explanation:
In Undisclosed Factoring, the buyer is not aware of the factoring arrangement. The seller collects the payment in the usual course and passes it to the factor.