Merchant Banking, Leasing and Hire Purchase

This set of vocabulary flashcards covers key terms and definitions related to merchant banking, various leasing models, and hire purchase systems as per the Unit IV lecture notes.

Merchant Bank

A financial institution that provides banking and financial solutions to High Net-worth Individuals (HNIs) and large corporations (MNCs) rather than the general public.

Project Counselling

A service where merchant bankers assist clients at every stage of a project, including idea generation, report creation, budgeting, and financing.

Issue Management

A merchant banking service where they are employed by high-net-worth individuals to issue equity shares, preference shares, and debentures to the general public.

Underwriting

The process by which banks assess the price and risk involved in a particular security and initiate a public issue and distribution of stocks.

Full-Service Global Merchant Banks

Large financial entities characterized by their worldwide presence and offering a complete range of financial services to global giants, such as Goldman Sachs and JP Morgan.

Regional Investment Banks

Also referred to as 'speciality investment banks', these institutions cater to the needs of clients from a particular geographical area and possess specialized market knowledge.

Boutique Investment Firms

Small-sized investment banks operational at a local level that offer personalized advisory services in specific industries or products like mergers and acquisitions (M&A).

Lease

A financial contract between the business customer (lessee) and the equipment supplier (lessor) for using a particular asset over a period of time against periodic payments.

Lessor

The owner of the asset or equipment in a leasing agreement who transfers the right to use the property to another party.

Lessee

The user in a lease agreement who receives the right to use the property in return for agreed-upon lease rentals.

Operating Lease

A short-term lease where ownership remains with the lessor, and the lessor usually handles maintenance; an example is renting a car for a few months.

Finance Lease (Capital Lease)

A long-term lease where the lessee uses the asset for most of its life and is usually responsible for maintenance, making it almost like buying the asset.

Sale and Leaseback

An arrangement where an owner sells an asset and then leases it back to help raise cash while still being able to use the asset.

Direct Lease

A type of arrangement common in equipment leasing where the lessor purchases the asset and leases it directly to the lessee.

Closed-End Lease

A lease agreement where the lessee has no obligation to buy the asset at the end and simply returns it.

Open-End Lease

A lease agreement where the lessee may have to pay extra if the value of the asset drops.

Off-Balance Sheet Debt

A classification for leasing where the debt does not appear on the company's balance sheet but features as part of the expenses in the P&L account.

Hire Purchase

A type of installment purchase where the hirer agrees to pay the cost of equipment in installments and becomes the owner after the last payment is made.

Hirer

The buyer in a hire purchase agreement who receives immediate possession of the goods and becomes the owner after the final payment.

Hiree

The vendor in a hire purchase agreement who retains property rights until the last installment is paid and can repossess goods in case of default.

Consumer hire purchase

A type of hire purchase where the rented goods are used for personal or household purposes and the renter is not a business.

Industrial hire purchase

A financing arrangement where a financing institution leases assets to a company or industry for business purposes.

Hire Purchase Installment Formula

$$Installment = Interest + principal amount$$