CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based
Which of the following is a typical example of a non-fund based facility rather than a fund based facility?
A performance bank guarantee is a non-fund based facility because the bank only promises to pay the beneficiary if the customer fails to perform, with no immediate disbursement. Cash credit, term loans and bill discounting all involve actual release of funds and are therefore fund based.
- ACash credit against hypothecation of stock
- BTerm loan for purchase of machinery
- CPerformance bank guarantee issued in favour of a customerCorrect
- DBill discounting facility
Explanation
A performance bank guarantee is a contingent commitment by the bank and involves no initial disbursal. Cash credit, term loans and bill discounting all involve the bank actually providing funds to the borrower at the start.
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