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BANK INTERVIEW QUESTIONS 1. rs of in Why do you want to enter banking?

Banking is one of the fastest growing secto in India with more stable and high growth and more over providing wide range career opportunities for graduates. So I want to take an opportunity to join a bank.

2. What is the difference between Cheque and Demand Draft? Both are used for tra nsfer the amount b/w two accounts of same or different Bank. Cheque is written b y an individual and withdrawn from the account whereas Demand draft is issued by a bank where you have to pay before issuing. 3.What are NBFCs and difference between NBFCs and Bank? Non-bank financial compa nies (NBFCs) are financial institutions that provide banking services, but do no t hold a banking license. NBFCs do offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, a nd merger activities. These institutions are not allowed to take deposits from t he public. 4. What is Private Banking? Banking services offered to high net-worth individua ls. Private banking institution assists the high net-worth individual in investi ng his/her money in exchange for commissions and fees. The term "private" refers to the customer service being rendered on a more personal basis. 5. What is the Use of Computers in a Bank? Computers are used for many purposes in banks like: Computer store details of customers account information. Computer s can solve billions of complex mathematical operations in fractions of a second . Computers can be used for user authentication. Computers can be used on a netw ork to instantly contact other branches. When you use an ATM, you are using a ne tworked computer terminal. It's easier to access/update the information. An empl oyee can also check a customer's account balance instantly. Computers help a ban k save time and money, and can be used as an aid to generate profits. 6. What is recession? What is the cause for the present recession? It can be def ined as if country s GDP growth is negative for two or more consecutive years and the main cause for the present recession is Sub-Prime crisis where it started in US. 7 What is Sub-prime crisis? The current Subprime crisis is due to sub-prime lend ing. These are the loans given to the people having low credit rating. 8 What is a Repo Rate? Repo rate is the rate at which our banks borrow rupees fr om RBI. Whenever the banks have any shortage of funds they can borrow it from RB I. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive 9. What is Reverse Repo Rate? This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system. Banks are always happy to lend money to RBI since their money is in saf e hands with a good interest. An increase in Reverse repo rate can cause the ban ks to transfer more funds to RBI due to these attractive interest rates. 10 What is CRR Rate? Cash reserve nks have to keep with RBI in cash f this, the available amount with (increase of CRR rate), to drain Ratio (CRR) is the amount of funds that the ba form. If RBI decides to increase the percent o the banks comes down. RBI is using this method out the excessive money from the banks.

11 What is SLR Rate? SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities

(Bonds) before providing credit to its customers.SLR rate is determined and mai ntained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liab le to pay to the customers on their anytime demand. SLR is used to control infla tion and propel growth. Through SLR rate tuning the money supply in the system c an be controlled efficiently. 12. What is Bank Rate?Bank rate, also referred to as the discount rate, is the r ate of interest which a central bank charges on the loans and advances that it e xtends to commercial banks and other financial intermediaries. Changes in the ba nk rate are often used by central banks to control the money supply. 13. What is Inflation? Inflation is as an increase in the price of bunch of Good s and services that projects the Indian economy. An increase in inflation figure s occurs when there is an increase in the average level of prices in Goods and s ervices. Inflation happens when there are fewer Goods and more buyers; this will result in increase in the price of Goods, since there is more demand and less s upply of the goods. 14. What is Deflation?Deflation is the continuous decrease in prices of goods an d services. Deflation occurs when the inflation rate becomes negative (below zer o) and stays there for a longer period. 15. What is PLR?The Prime lending Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable busines s customers). The rate is almost always the same amongst major banks. Adjustment s to the prime rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. The Prime Rate is usually adjusted at the same time and in correlation to the adjustments of the Fed Funds Rate. The rate s reported below are based upon the prime rates on the first day of each respect ive month. Some banks use the name "Reference Rate" or "Base Lending Rate" to re fer to their Prime Lending Rate. 16. What is Deposit Rate?Interest Rates paid by a depository institution on the cash on deposit. 17. What is FII? FII (Foreign Institutional Investor) used to denote an investor , mostly in the form of an institution. An institution established outside India , which proposes to invest in Indian market, in other words buying Indian stocks . FII's generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, Insurance Compani es, Banks, etc. 18 . What is FDI?FDI (Foreign Direct Investment) occurs with the purchase of the physical assets or a significant amount of ownership (stock) of a company in ano ther country in order to gain a measure of management control (Or) A foreign comp any having a stake in a Indian Company. 19 What is IPO?IPO is Initial Public Offering. This is the first offering of sha res to the general public from a company wishes to list on the stock exchanges. 20. What is Disinvestment?The Selling of the government stake in public sector u ndertakings. 21. What is Fiscal Deficit?It is the difference between the government s total rec eipts (excluding borrowings) and total expenditure. 22 What is Revenue deficit?It defines that, where the net amount received (by ta xes & other forms) fails to meet the predicted net amount to be received by the

government. 23. What is GDP?The Gross Domestic Product or GDP is a measure of all of the ser vices and goods produced in a country over a specific period; classically a year . 24. What is GNP?Gross National Product is measured as GDP plus income of residen ts from investments made abroad minus income earned by foreigners in domestic ma rket. 25 What is National Income?National Income is the money value of all goods and s ervices produced in a country during the year. 26 . What is Per Capita Income?The national income of a country, or region, divi ded by its population. Per capita income is often used to measure a country's st andard of living. 27 . What is SEZ?SEZ means Special Economic Zone is the one of the part of gover nment s policies in India. A special Economic zone is a geographical region that e conomic laws which are more liberal than the usual economic laws in the country. The basic motto behind this is to increase foreign investment, development of i nfrastructure, job opportunities and increase the income level of the people. 28 Functions of RBI?The Reserve Bank of India is the central bank of India, was established on April 1, 1935 in accordance with the provisions of the Reserve Ba nk of India Act, 1934. The Reserve Bank of India was set up on the recommendatio ns of the Hilton Young Commission. The commission submitted its report in the ye ar 1926, though the bank was not set up for nine years.To regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." Banker to the Government: performs merchant banking function fo r the central and the state governments; also acts as their banker.Banker to ban ks: maintains banking accounts of all scheduled banks. 29 What is monetary policy?A Monetary policy is the process by which the governm ent, central bank, of a country controls (i) the supply of money, (ii) availabil ity of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. 30 What is Fiscal Policy ? Fiscal policy is the use of government spending and r evenue collection to influence the economy. These policies affect tax rates, int erest rates and government spending, in an effort to control the economy. Fiscal policy is an additional method to determine public revenue and public expenditu re. 31 What is bank and its features and types? A bank is financial organizations wh ere people deposit their money to keep it safe.Banks play an important role in t he financial system and the economy. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner. 32 What is Right to information Act..? The Right to Information act is a law ena cted by the Parliament of India giving citizens of India access to records of th e Central Government and State governments...The Act applies to all States and U nion Territories of India, except the State of Jammu and Kashmir - which is cove red under a State-level law. This law was passed by Parliament on 15 June 2005 a nd came fully into force on 13 October 2005.. 33 What is Cheque? Cheque is a negotiable instrument instructing a Bank to pay a specific amount from a specified account held in the maker/depositor's name wit h that Bank.A bill of exchange drawn on a specified banker and payable on demand . Written order directing a bank to pay money .

34 What is demand Draft? A demand draft is an instrument used for effecting tran sfer of money. It is a Negotiable Instrument. Cheque and Demand-Draft both are u sed for Transfer of money. You can 100% trust a DD. It is a banker's check. A ch eck may be dishonored for lack of funds a DD cannot. Cheque is written by an ind ividual and Demand draft is issued by a bank. People believe banks more than ind ividuals.. 35 What is a NBFC? A non-banking financial company (NBFC) is a company registere d under the Companies Act, 1956 and is engaged in the business of loans and adva nces, acquisition of shares/stock/bonds/debentures/securities issued by governme nt, but does not include any institution whose principal business is that of agr iculture activity, industrial activity, sale/purchase/construction of immovable property. NBFCs are doing functions akin to that of banks; however there are a f ew differences :(i)A NBFC cannot accept demand deposits (demand deposits are fun ds deposited at a depository institution that are payable on demand -- immediate ly or within a very short period -- like your current or savings accounts.)(ii) it is not a part of the payment and settlement system and as such cannot issue c heques to its customers; and(iii) Deposit insurance facility of DICGC is not ava ilable for NBFC depositors unlike in case of banks. 36 What is NABARD? NABARD was established by an act of Parliament on 12 July 198 2 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Cre dit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Develop ment Corporation (ARDC). It is one of the premiere agency to provide credit in r ural areas. NABARD is set up as an apex Development Bank with a mandate for faci litating credit flow for promotion and development of agriculture, small-scale i ndustries, cottage and village industries, handicrafts and other rural crafts.. 37 What is SIDBI?The Small Industries Development Bank of India is a state-run b ank aimed to aid the growth and development of micro, small and medium scale ind ustries in India. Set up in 1990 through an act of parliament, it was incorporat ed initially as a wholly owned subsidiary of Industrial Development Bank of Indi a. 38 What is SENSEX and NIFTY? SENSEX is the short term for the words "Sensitive I ndex" and is associated with the Bombay (Mumbai) Stock Exchange (BSE). The SENSE X was first formed on 1-1-1986 and used the market capitalization of the 30 most traded stocks of BSE..Whereas NSE has 50 most traded stocks of NSE.SENSEX IS TH E INDEX OF BSE.. AND NIFTY IS THE INDEX OF NSE.BOTH WILL SHOW DAILY TRADING MARK S. Sensex and Nifty both are an "index . An index is basically an indicator it ind icates whether most of the stocks have gone up or most of the stocks have gone d own. 39 What is SEBI?SEBI is the regulator for the Securities Market in India. Origin ally set up by the Government of India in 1988, it acquired statutory form in 19 92 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Bhav e. 40 What is a Mutual fund? Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on a continuou s basis and use the capital thus raised to invest in securities of different com panies. The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to t he investors annually..A company that invests its clients' pooled fund into secu rities that match its declared financial objectives. Asset management companies provide investors with more diversification and investing options than they woul d have by themselves. Mutual funds, hedge funds and pension plans are all run by asset management companies. These companies earn income by charging service fee

s to their clients. 41 What are non-perfoming assets?Non-performing assets, also called non-performi ng loans, are loans,made by a bank or finance company, on which repayments or in terest payments are not being made on time. A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments to th e designated lender for an extended period of time. The nonperforming asset is t herefore not yielding any income to the lender in the form of principal and inte rest payments. 42 What is Recession?A true economic recession can only be confirmed if GDP (Gro ss Domestic Product)growth is negative for a period of two or more consecutive q uarters. 43 What is foreign exchange reservers?Foreign exchange reserves (also called For ex reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities.However, the term in popular usag e commonly includes foreign exchange and gold,SDRs and IMF reserve positions. 44 Tackling Hobby Questions: Hobby questions must be answered carefully. This is because the hobby related answers always give rise to cross questions. For exam ple if you said that you love listening to music, you MUST know something about the music you love. If you tell them that you love Indian classical music and do n't know about Pandit Jasraj this means you are telling a lie. Similarly, if you tell, reading is your hobbey, you may be asked about particular books you have read. In other words, you should have a general knowledge about your hobby Finally 10 Keys to get Success: 1. be confident 2. Believe in yourself 3. Put so me counter questions if you feel so 4. Agree or disagree with the interviewer 5. Be neutral to Sensitive issues 6. Don't answer in Hurry 7. Practice Before Your Interview 8. Be neutral to political parties / 9. Be honest with your Country a nd your countrymen. 10. Be sincere...Sincere people never fail. EW QUESTIONS BANKING INTERVIEW QUESTIONS 1. 1. Who are forensic accountants? Forensic accountants are trained to detect evidence of frauds in financial state ments. They go beyond the numbers and attempt to analyze 100% of the data as aga inst the sampling procedure adopted by auditors. When the extended procedures ar e invoked, cases like the overvaluation of the sales or the debtors become easy to investigate. In India there is an urgent need of large number of forensic accountants in view of the preponderance of cor porate frauds. 1. 2. What do you mean by Financial Inclusion? Financial inclusion means providing to the large unbanked population of India ac cess to financial products and services like: Bank accounts, immediate credit, savings products, remittance and payment servic es, insurance, mortgage, entrepreneurial credit, financial advisory services. Steps taken so far for promotion of financial inclusion have been the cooperativ e movement, setting up of State Bank of India, nationalization of banks, lead ba nk scheme, regional rural banks, service area approach, self help groups.. Out of 611 districts in the country, only 68 districts have been covered by so c alled financial inclusion (as of July 2009). 1. 3. What do you mean by Capital adequacy ratio? CRAR is the acronym for capital to risk weighted assets ratio, a standard metric to measure balance sheet strength of banks. BASEL I and BASEL II are global capital adequacy rules that prescribe a minimum amount of capital a bank has to hold given the size of its risk weighted assets. The old rules mandate banks to back every Rs. 100 of commercial loans with Rs. 9 of capital irrespective of the nature of these loans. The new rules suggest th e amount of capital needed depends on the credit rating of the customer. 1. 4. What are Banking Codes and Standards Board of India BCSBI? BCSBI is an independent and autonomous body set up by RBI to ensure that compreh

ensive code of conduct for fair treatment of customers was evolved and adhered t o. In substance the board has been set up to ensure that the common consumer of banking services is in no way in a disadvantageous position and really gets what he has been promised by the banks. Member banks of the board have voluntarily agreed to abide by the provisions enu merated in the codes which have been drawn up for the benefit of customers. Thes e are: Code of Bank s Commitment to Customers, and Code of Bank s Commitment to Micro and Small Enterprises. 1. 5. Who is a Banking Ombudsman? An independent dispute resolution authority provided by RBI to deal with dispute s that bank customers have with their respective banks. The authority is to be a pproached after the customer fails to get his grievance resolved from the concer ned bank in terms of the grievance redressal mechanism. 1. 6. What is meant by nomination facility for bank accounts? Nomination in bank accounts prevents harassment and facilitates the bank to make payment to the nominee of a deceased depositor, of the amount standing to the c redit of the depositor without the need for producing succession certificate and completion of other legal formalities as required to determine the legal heirs. 1. 7. What is a no frills account? It is supposed to be a basic savings bank account for the benefit of all section s of the population. Such accounts require either nil or low minimum balance to be maintained. Services available for these accounts are also limited. 1. 8. What is meant by insurance cover for deposits in banks? All deposits upto Rs. 1 lakh in a commercial or cooperative bank in India are in sured by the Deposit Insurance and Credit Guarantee Corporation of India DICGC. The insurance protection is available free of cost to the depositors and covers the principal and interest dues taken together. Deposits in different banks are separately insured with each deposit eligible for Rs1lakh cover. Insurance cover is available across savings accounts, current accounts, recurring and fixed dep osit accounts. 1. 9. What is meant by credit score? It is the statistical summary of the individual bits of information on the credi t report of an entity. A credit score predicts how likely it is that a company o r individual will repay debts. Banks use this information to take a decision whe ther to sanction the loan or not and if so, the applicable rate of interest. 10. What is Plastic Money? With the increasing use of credit, debit cards for withdrawal of cash from ATMs, the use of the term plastic money is common. These cards being of plastic facil itating availability of cash or money to the card holder, have come to be referr ed commonly as plastic money. 11. What is Free look period for insurance policies? Free look period is a fortnight given to a new insurance policy holder to examin e the life insurance contract that he has signed. In case he does not want to co ntinue with it, he can rescind the contract and the insurance company shall refu nd the amount paid. In India IRDA has made it mandatory for all insurance compan ies to grant 15 days free look period. The free look period starts from the day of receipt of policy documents by an individual and the cancellation of the poli cy must be intimated to the insurance company within this time period. 12. What are Riders on an insurance policy? The riders are meant to provide additional cover against risks. Depending upon t he risk perception additional covers can be brought with the basic policy. These riders may cover accidental death, critical illnesses, disability etc. Though e xtra premium would be charged for each of the additional risk covers it would st ill be much less when compared to separate policies. 13. Give some examples of Functions of Finance? Determination of the financial requirements of the firm, obtaining necessary fin ance from the necessary sources at minimum possible cost & allocation of finance in different assets. In simple terms the finance fuinctions are raising of fund s, planning for funds and allocation & control of funds.

14. What do you mean by profit maximization? Profit maximization is the indicator of economic efficiency. It includes measure ment of success of business decisions. It is also a source of incentives. 15. Is there any difference between a finance manager and treasurer? The major functions of a a treasurer are management of Cash, Management of Credi t , Management of pensions and overlooking the banking transactions. He is subor dinate to finance manager in big firms however the finance manager may perform t he duty of a treasurer in small firms or vice versa. 16. What kind of decisions a Finance Manager has to make in a firm? The main decision is financial analysis & performance appraisal, making financin g decisions, Investing decisions and dividend decisions. He plays an important r ole in Financial Control, Dividend Decisions, Management of Income and Financial analysis. Besides he also plays an important role in amalgamation, reconstructi on, liquidation decisions, continuous audits, co-ordination in funds, preparatio n of cost account and maintaining adequate liquidity. 17. What does come under financial Control? The financial control involves Accounting functions, control planning and audit and tax Administration apart from this. 18. What is the meaning of value in a business? Value in simple means is a worth of an asset, security or a business. There are certain kinds of value like Market value, Intrinsic value, Liquidation value, re placement value etc. 19. What is market value? Market value is the price which is present in market. It is different from intri nsic value which is a synonym to net Assets, Liquidation value is the value at w ind up and Salvage value is the scrap value. 20. Can you give some examples of all these? Yes, For example any price given in a price list or a quotation is a market valu e, any price which is realizable for any asset is liquidation value. If the same asset has to be replaced with a new asset then it becomes the replacement value , and lastly the cost incurred in removing the asset from the premises is called Scrap value. 21. Ok, on what does this value imply upon? The value may imply upon valuation of a plant, machinery, intangible assets of t he firm like Goodwill, Tangible assets like Stock and even human resources. 22. Ok then what is Fair value? Fair value is an average of market value and book value. Book value is the value given in the balance sheet of the company. Market value is the economic value w hich is also called as present value. 23. How valuations are done? Valuation can be by several approaches. For example, asset based approach, earni ng based approach, market value based approach etc. 24. Suppose you are starting a business. Which kind of sources of finance you wi ll require to start your business as you need working capital and current assets ? The arrangement of working capital and current assets can be done by short-term sources. The short term sources are trade credit, short term bank finance and al so public deposits. 25. But suppose, you are given an option to go for either trade credit or Bank l oans which option you will choose?, keep in mind that you are in a new business. Trade credit is in most cases not available to new customers as it depends upon the intangible assets of the business like goodwill and brand. Besides, trade cr edit is also not advisable as high price is charged in credit purchases. Sometim es, low quality or inferior good are to be accepted. 26. Ok, then what are the other options? Bank loans such as overdraft, cash credit, discounting of trade bills and loans and advances are options. 27. What is the main function of Competition Commission of India? CCI is an independent body which become operational w.e.f. May 20, 2009 and is r esponsible for investigating the mergers, market shares & conditions besides reg

ulating firms. CCI will ultimately replace the Monopolies and Restrictive Trade Practices Commission (MRTPC) of India. 28. What is Lead Bank Scheme? Lead bank scheme was introduced around 40 years ago and recently it was in the n ews as a high level committee chaired by RBI Deputy Governor Usha Thorat was con stituted to review and revitalize this scheme. The scheme aims at facilitating c redit delivery to the farfetched areas of India. There are members of the commit tee from NABARD and SIDBI. Thus the scheme focuses upon financial inclusion. The Opinion of this committee is that full financial inclusion is possible only if it makes a facility of opening of no frill accounts backed by other specializ ed services. 29. What are Nostro & Vostro Accounts ? A nostro account is maintained by an Indian Bank in the foreign countries for a facility of easy clearing of their transactions. For instance, if the bank pays a demand drawn on it by its correspondent bank, there is no delay because the fo reign corresponded bank would already have credited the nostro account of the pa ying bank while issuing the demand draft. A vostro account is maintained by a foreign bank in India with their correspondi ng bank. 30. From which country India imports maximum? From China. Import from China was $ 24.16 billion in 2008-09, which got doubled in 3 years. This is 10.3 % of all the imports of India. 31. What is Gold Standard? A system of setting currency values whereby the participating countries commit t o fix the prices of their domestic currencies in terms of a specified amount of gold. 32. What is a Free Float Exchange Rate system? An exchange rate system characterized by the absence of government intervention. Also known as a clean float 33. What are Special Drawing rights SDR? SDR are new form of international reserve assets, created by the International M onetary Funds in 1967. The value of SDR is based on a portfolio of widely used c urrencies and they are maintained as accounting entries and not as hard currency or physical assets like Gold. 34. What are the requirements to open a New Branch in Rural Area? Since 2006, RBI has approved the opening of new branches only on the condition t hat at least half of such branches are opened in under-banked areas as notified by the regulator. The opening of branches by banks is governed by the provisions of Section 23 of the Banking Regulation Act, 1949. In terms of these provisions, banks cannot ope n a new place of business in India or abroad or change otherwise than within the same city, town or village, the location of the existing place of business with out the prior approval of the Reserve Bank of India (RBI). Thus, it is mandatory for RRBs to seek prior approval/ license from Rural Planning and Credit Departm ent (RPCD) of RBI before opening of new branches/offices. RRB should fulfill the following conditions to become eligible for opening of ne w branch/es. 1. It should not have defaulted in maintenance of SLR and CRR during the last tw o years. 2. The RRB should be making operational profits, its net worth should show impro vement 3. Its net NPA ratio should not exceed 8 per cent. 35. What is concept sustainable Development? Meeting the needs of the present without compromising the ability of future gene rations to meet their needs is called sustainable development. This concept is p opular in present context of development. 36. What is the meaning of Financial Inclusion? Today is well recognized that large population of India is out of reach of the f ormal banking services. Financial inclusion is the concept which has been floate d to bring the most of the rural population / area under the net of the financia

l and banking services. 37. What is a fiscal deficit? A deficit in the government budget of a country and represents the excess of exp enditure over income. So this is the amount of borrowed funds required by the go vernment to meet its expenditures completely. India's fiscal deficit widened to Rs. 541.58 billion in April, 2009 as compared to Rs. 329.39 billion rupees in April 2008. 38. What is Black Money ? Black Money is the unaccounted money concealed from the tax authorities. The bla ck money runs a parallel economy adversely affecting the distribution of wealth & income in the economy. The total amount of black money globally is estimated b etween $2.1 and 2.5 trillion. This is roughly about seven percent of the world s G DP. 39. What is a Black Market? A black market is an illegal market, in which something is bought and sold outsi de of official government-sanctioned channels. Black markets tend to arise when a government tries to fix a price without itself providing all of the necessary supply or demand. Black markets in foreign exchange almost always exist when the re are exchange controls. 40. What is a blue chip company? Why it is blue color only used in such companie s? A blue chip is concerned with stocks & shares of company, which are well establi shed and whose purchase is considered extremely safe. Due to stable earnings and no extensive liabilities these companies are called blue chip companies. The term blue chip comes from casinos, where blue chips stand for counters of th e highest value. Most blue chip stocks pay regular dividends, even when business is faring worse than usual. 41. What is a direct Tax? A direct tax is that which is paid directly by someone to taxing authority. Inco me tax and property tax are examples of direct tax. They are not shifted to some body else. 42. What is an Indirect Tax? This type of tax is not paid by someone directly to the authorities and it is ac tually passed on to the other in the form of increased cost. They are levied on goods and services produced or purchased. Excise tax, Sales tax, VAT are indirec t taxes. 43. What are LDCs or Least Developed Countries? Least Developed Countries (LDCs) are countries which as per United Nations show the lowest indicators of socioeconomic development. They have lowest Human Development Index ratings of all countries in the world. A country which has three-year average Gross national Income per capita of less than US $750 is tagged as LDC. a LDC must have an income of $ 900 to escape this tag. Besides if thse countries show human resource weakness based on indicators of nutrition, health, education and adult literacy and also or economic vulnera bility based on instability of economy . Currently UN has tagged 49 countries in LDC. India is not an LDC. 44. What are Middle Income Countries ? Middle-income countries (MICs) are the 86 countries that fall into the middle-in come range set by the Bank's World Development Indicators. They account for just under half of the world's population; are home to one-third of people across th e globe living on less than $2 per day; and are found in all six of the Bank's g eographical regions. They cover a wide income range, with the highest income MIC having a per capita income 10 times that of the lowest. 45. What is Policy of Laissez Faire? Laissez Faire is a French term and means no interference. It is a doctrine that states that government generally should not intervene in the marketplace. 46. What is the difference between Monopoly and Monopsony ? In monopsony only one buyer faces many sellers. So this is called Buyer's Monopo ly. It is a rare situation in today's economy. In monopoly one seller faces many buyers. As the only purchaser of a good or ser

vice, the "monopsonist" may dictate terms to its suppliers in the same manner th at a monopolist controls the market for its buyers. 47. What is Balance of Trade? The value of a country's exports minus the value of its imports. Unless specifie d as the balance of merchandise trade, it normally incorporates trade in service s, including earnings (interest, dividends, etc.) on financial assets. 48. What is Balanced Trade? When A balance of trade equal to zero. (exports-imports=0) 49. What is Balance of merchandise trade? The value of a country's merchandise exports minus the value of its merchandise imports. 50. What is a favorable balance of trade? It is the difference between exports and imports. Debit items include imports, f oreign aid, domestic spending abroad and domestic investments abroad. Credit ite ms include exports, foreign spending in the domestic economy and foreign investm ents in the domestic economy. A country has a trade deficit if it imports more t han it exports; the opposite scenario is a trade surplus. 51. What is Balance of Payments? A list, or accounting, of all of a country's international transactions for a gi ven time period, usually one year. Payments into the country (receipts) are ente red as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits. A single number summarizing all o f a country's international transactions: the balance of payments surplus. 52. What is Balance of payments adjustment mechanism? Any process, especially any automatic one, by which a country with a payments im balance moves toward balance of payments equilibrium 53. What is Monopolistic Competition? A market structure in which there are many sellers each producing a differentiat ed product. Each can set its own price and quantity, but is too small for that t o matter for prices and quantities of other producers in the industry. 54. What is MFN? MFN stands for Most Favoured Nation. The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favo red other nation. That is, and with some exceptions, every country gets the lowe st tariff that any country gets, and reductions in tariffs to one country are pr ovided also to others. 55. What is Gold Standard A monetary system in which both the value of a unit of the currency and the quan tity of it in circulation are specified in terms of gold. If two currencies are both on the gold standard, then the exchange rate between them is approximately determined by their two prices in terms of gold. 56. What is Balance on capital account? A country's receipts minus payments for capital account transactions. 57. What is Balance on current account ? A country's receipts minus payments for current account transactions. Equals the balance of trade plus net inflows of transfer payments. 58. What is a Balanced budget ? A government budget surplus that is zero, thus with net tax revenue equaling exp enditure. A balanced budget change in policy or behavior is one in which a compo nent of the government budget, usually taxes, is adjusted as necessary to mainta in a balanced budget. 59. What is balanced growth of an Economy? Growth of an economy in which all aspects of it, especially factors of productio n, grow at the same rate. 60. What is a Bank rate The interest rate charged by a central bank to commercial banks for very short t erm loans. 61. What is a Repo? Repo is Repurchase Agreement. An agreement to sell a security for a specified pri ce and to buy it back later at another specified price. A repo is essentially a

secured loan. 62. What is Repo Rate? Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the r epo rate will help banks to get money at a cheaper rate. When the repo rate incr eases borrowing from RBI becomes more expensive. On March 4, 2009 it was 5% in I ndia (please check the latest figure by RBI) 63. What is CRR Rate in India? Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. 64. What is a Reverse Repo Rate? Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are i n safe hands with a good interest. An increase in Reverse repo rate can cause th e banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuni ng of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man. On March 4, 2009 Reverse Repo Rate is 3.5% (please check latest rate by RBI) 65. What is SLR Rate? SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintai n in the form of cash, or gold or govt. approved securities (Bonds) before provi ding credit to its customers. SLR rate is determined and maintained by the RBI ( Reserve Bank of India) in order to control the expansion of bank credit. 66. How is SLR determined? SLR is determined as the percentage of total demand and percentage of time liabi lities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. . 67. What is the Need of SLR? With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a comm ercial bank. It is also helpful to control the expansion of Bank Credits. By cha nging the SLR rates, RBI can increase or decrease bank credit expansion. Also th rough SLR, RBI compels the commercial banks to invest in government securities l ike government bonds. 68. What is the main use of SLR? SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently. 69. What is Inflation in India? Increase in the overall price level of an economy, usually as measured by the CP I /WPI or by the implicit price deflator. Inflation is as an increase in the pri ce of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of pr ices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods. 70. What is Deflation? A fall in the general level of prices. Unlikely unless the rate of inflation is already low, it may then be due either to a surge in productivity or, less favor ably, to a recession. Deflation is the continuous decrease in prices of goods an d services. Deflation occurs when the inflation rate becomes negative (below zer o) and stays there for a longer period. 71. What is a Barter economy? An economic model of international trade in which goods are exchanged for goods without the existence of money. Most theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations. 72. What is Basel I? Also known at Basel Capital Accord, this was an agreement in 1988 by the Basel C ommittee of central bankers to measure the credit risk of commercial banks and s

et minimum standards for bank capital in order to reduce the likelihood of inter national repercussions due to bank failures. 73. What is Basel II? The Basel II Framework describes a more comprehensive measure and minimum standa rd for capital adequacy that national supervisory authorities are now working to implement through domestic rule-making and adoption procedures. It seeks to imp rove on the existing rules by aligning regulatory capital requirements more clos ely to the underlying risks that banks face. In addition, the Basel II Framework is intended to promote a more forward-looking approach to capital supervision, one that encourages banks to identify the risks they may face, today and in the future, and to develop or improve their ability to manage those risks. As a resu lt, it is intended to be more flexible and better able to evolve with advances i n markets and risk management practices. The efforts of the Basel Committee on Banking Supervision to revise the standard s governing the capital adequacy of internationally active banks achieved a crit ical milestone in the publication of an agreed text in June 2004. 74. What is a Beggar thy neighbor policy? For a country to use a policy for its own benefit that harms other countries. Ex amples are optimal tariffs and, in a recession, tariffs and/or devaluation to cr eate employment. 75. What is a Bill of Lading? This term is normally used in shipping industry. The receipt given by a transpor tation company to an exporter when the former accepts goods for transport. It in cludes the contract specifying what transport service will be provided and the l imits of liability. 76. What is the use of color boxes in WTO category of subsidies? Used with a color, a category of subsidies based on status in WTO: red=forbidden , amber or orange=go slow, green=permitted, blue=subsidies tied to production li mits. Terminology seems only to be used in agriculture, where in fact there is n o red box. 77. There are mainly two types of liabilities on any bank: Demand Liabilities: The liabilities which bank have to pay on demand. Current de posits, demand liabilities portion of savings bank deposits, margins held agains t letters of credit/guarantees, balances in overdue fixed deposits, cash certifi cates and cumulative/recurring deposits, outstanding Telegraphic Transfers (TTs) , Mail Transfer (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand come under Demand Liabilities. Time Liabilities: The liabilities which bank have to pay after specific time per iod. Fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, staff security deposits, margin he ld against letters of credit if not payable on demand, deposits held as securiti es for advances which are not payable on demand and Gold Deposits come under Tim e Liabilities. 78. What is REER Model in Currency Markets? There is difference between the exchange rate of a currency and the real value o f a currency. A Nominal Effective Exchange Rate (NEER) is weighted with the inve rse of the asymptotic trade weights. A Real Effective Exchange Rate (REER) adjus ts NEER by appropriate foreign price level and deflates by the home country pric e level. Thus REER model is more useful in determining the real value of a curre ncy. 79. What is Alpha Factor in Financial Markets? Alpha Factor is the concept which basically measures the inherent volatility of a particular share. For example, a share which has an Alpha Factor for example 1 .5 is slated to rise in price by 50% in a year on its inherent strength such as growth in earnings per share , regardless of inherent strength such as growth in earning per share regardless of the market behavior. 80. Corporate Tax: This tax is imposed on the profits of companies or organizations. It is also dep end on the profits shared to the shareholders. Currently 33.9 % corporate tax is

levied on the companies. But in Direct Tax Code, which is going to be implement ed from 1 April 2011, it is proposed to be at 30%. 81. Capital Gain Tax This tax is levied on the sale of capital assets/equities. The Gain here means the difference of price of asset/share when purchased and when sold. The tax is lev ied on that gain. For the Capital Assets the time limit is minimum three years b ut in the context of equities it is minimum one year. 82. Direct Taxes: As the name suggests Direct tax means the tax which is directly paid to the gove rnment by individuals and the companies. Ex: Corporate Tax, Personal Income Tax, Securities Transaction Tax, Banking Cash Transaction Tax, and the Fringe Benefit Tax 83. Indirect Taxes: As the name suggests Indirect Taxes are those taxes which are paid indirectly to government by the individuals or the companies. Ex: Sales Tax, Service Tax, Custom and Excise Duties, VAT and Anti-Dumping Dutie s 84. What is Security Transaction Tax? Security Transaction Tax (STT) is levied on all the transactions done on the sto ck exchange. This tax is levied on purchase of equity, sale of equity, derivativ es, equity oriented funds and equity oriented Mutual Funds. Current rate of this tax is 0.075% on equity. 85. What is Service Tax? Service tax is tax paid on the services provided in the country. According to Fi nance Act 1994, all service provider of the country except in the Jammu and Kash mir have to pay service tax. This tax comes under Indirect Tax. Currently 10% ta x is surcharged as service tax. 86. Excise Duty : According to Central Excise act 1944 and the Central Excise Tariff Act 1985, eve ry manufacturer of the goods in the country has to pay Excise duty. Most of the products attract 16% excise duty But in case of some products it more than that. 87. Custom Duty: The custom duty in India is regulated by Customs Act of 1962. This duty is impos ed on the imported and exported goods in the country. This duty is one of the mo st important duty because it hampers illegal import and export of goods 88. What is Fringe Benefit Tax? This tax is imposed on the fringe benefits provided by the company to their empl oyee. Here fringe benefit means non wage compensation which are given to employe es by their company. This duty was initiated from 1 April 2005 under the Finance Act 1995. 89. Fiscal Policy: All the policies taken by the Government to control the economy of the country a re called Fiscal Policies. The two main instrument of fiscal policy are governme nt expenditure and taxation. How government decides taxes, collect them and spen d them comes under the fiscal policy. In broad level all the action done by gove rnment to maintain the economy is collectively called fiscal policy. 90. Monetary Policy: The actions taken by Reserve Bank of India, which is the monetary authority, to control the economy is collectively called Monetary Policy. Time to time RBI mak es changes in the various rates like CRR, Repo Rate, Reverse Repo Rate, SLR etc. to maintain the supply of money that is liquidity in the system. 91. Microeconomic Policy: How the individual firms, markets, the households are using resources and making the country productive is being measured in Microeconomic policy. In these poli cies the centre of attraction is on very small level of the economy as it will c ollectively help the country to become more competitive. 92. Which Constitution amendment Bill seeks to add Service tax in Union List? The 95th amendment in the Constitution brought Services in India under the purvi ew of Value Added Tax system. Currently 10% tax is levied on the Service