1. Forfaiting is a financing mechanism primarily used for:
Short-term working capital needs.
Domestic trade receivables.
International trade receivables (Exports), usually medium to long term.
Real estate purchases.
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:
Government Infrastructure Projects.
MSMEs (Micro, Small and Medium Enterprises).
Foreign Importers.
Large Corporations.
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 Factor
The Bank of the Seller
The Client (Seller)
Shared equally by Client and Factor
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:
Unsecured personal loans.
Government securities.
Medium to long-term export receivables.
Domestic receivables only.
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?
Government, Citizens, and Banks.
RBI, SEBI, and NABARD.
Sellers (MSMEs), Buyers (Corporates/PSUs), and Financiers (Banks/NBFCs).
Importers, Exporters, and Customs.
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:
An Export Factor and an Import Factor.
A Bank and an Insurance Company.
RBI and the Foreign Central Bank.
A Seller and a Buyer.
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?
Equity investment.
Sales Ledger Administration and Collection of receivables.
Technology consulting.
Manufacturing support.
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?
The financing is done with recourse to the MSME seller.
Corporates, Government Departments, and PSUs can participate as buyers.
NBFC-Factors are permitted to act as financiers.
Only MSMEs can participate as sellers.
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)?
FCI (Factors Chain International)
World Bank
ICC (International Chamber of Commerce)
WTO
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:
Buyer (Ordering Party)
Factor
Insurance Company
Seller (Supplier)
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:
The service charges.
The currency of transaction.
The duration of finance.
Who bears the credit risk (bad debt risk).
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?
BillDesk
Invoicemart (A.TReDS)
RXIL (Receivables Exchange of India)
M1xchange
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:
ICC (International Chamber of Commerce)
WTO (World Trade Organization)
RBI (Reserve Bank of India)
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:
Known to the Debtor (Customer).
Illegal in India.
Disclosed to the RBI only.
Not disclosed to the Debtor; the Client collects payment and remits to Factor.
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.