1.

Arbitrage refers to the purchase of a good or asset in one market for immediate resale in
another market in order to profit from a price discrepancy. Arbitrage is an important force in eliminating price discrepancies, thereby making markets function more efficiently.

2.

Capital markets: Markets in which financial resources (money, bonds and stocks) are
traded. These, along with financial intermediaries, are institutions through which saving in the economy is transferred to investors.

3.

Base rate: The Base Rate system replaced the BPLR system (Prime lending Rate system) with
effect from July 1, 2010. Base Rate shall include all those elements of the lending rates that are common across all categories of borrowers. Banks may choose any bench mark to arrive at the base rate for a specific tenor that may be disclosed transparently. Banks may determine their actual lending rates on loans and advances with reference to the Base Rate and by including such other customer specific charges as considered appropriate.

4.

Bond: An interest bearing certificate issued by a government or corporation promising to

repay a sum of money (the principal) plus interest at a specified date in the future. 5. Command Economy: A mode of economic organization in which the key economic functionswhat, how and for whom- are principally determined by government directive. Sometimes called a centrally planned economy. 6. Consumer Price Index: A price index that measures the cost of a fixed basket of consumer goods in which the weight assigned to each commodity is the share of expenditures on that commodity in a base year. 7. Currency Board: A monetary institution operating like a central bank for a country that issues only currency that is fully backed by assets denominated in a key foreign currency, often the US Dollar. 8. Financial assets: Monetary claims or obligations by one party against another party. Examples are bonds, mortgages, bank loans and equities. 9. Foreign Exchange: Currency of different countries that allow one country to settle amounts owed to other countries. 10. Gold standard: A system under which a nation (a) declares its currency unit to be equivalent to some fixed weight of gold (b) holds gold reserves against its money and (c)will buy or sell gold freely at the price so proclaimed, with no restrictions on the export or import of gold. 11. Hedging: A technique for avoiding a risk by making a counteracting transaction. For example, if a farmer produces wheat that will be harvested in the fall, the risk of price fluctuations can be offset, or hedged, by selling in the spring or summer the quantity of wheat that will be produced. 12. Intrinsic value: The commodity value of a piece of money (example. the market value of the weight of copper in a copper coin). 13. Fiat Money: Money whose face value is greater than its intrinsic value because of a government decree. 14. Nostro Account: A banks account with a correspondent bank located in a foreign country. 15. Real Exchange Rate: The nominal exchange rate between two currencies adjusted for the price movements in the two countries over a period of time.

16. Purchasing Power parity theorem: The theory that states that the purchasing power of all the currencies in the world should be the same. 17. Euro-Dollar: A currency outside its home country. For example, a dollar deposit outside the USA is referred to as a euro-dollar deposit. 18. Why SDR will not be seen as foreign exchange reserve asset: SDRs may not see much use as foreign exchange reserve assets is that they must be exchanged into a currency before use. 19. Whole Sale Price Index: It is the price of a representative basket of wholesale goods. The Indian WPI figure was now updated on a monthly basis. The commodities chosen for the calculation are based on their importance in the region and the point of time the WPI is employed. For example in India about 435 items were used for calculating the WPI in base year 1993-94 while the advanced base year 2004-05 uses 676 items. The indicator tracks the price movement of each commodity individually. Based on this individual movement, the WPI is determined through the averaging principle. 20.

American Depository Receipts: A certificate of ownership issued by European Union:

a US bank representing a multiple of foreign shares that are deposited in a US bank. ADRs can be traded on the organized exchanges in the US or in the OTC market. The European Union is the direct descendent of the European Community (Formerly the European Economic Community), which was established to foster economic integration among the countries of Western Europe. Today the EU includes 27 member states that have eliminated barriers to the free flow of goods, capital and people.

21.

22.

Asian Development Bank: The Asian Development Bank is a multilateral

development finance institution. Its capital stock is owned by its 67 member countries, all of whom share a common goal which is to promote not only economic, but also social development among its developing member countries within the region. With regard to the banks operations, it emphasizes especially on paying attention to the needs of smaller and least developed countries with higher priority to regional, sub regional, and national projects and programs. The Bank focuses on these as they will contribute largely to economic growth and eventually, will lead to regional cooperation. The Bank is aiming for an Asia Pacific region which is ultimately free from poverty.

23. 24.

High Powered Money: The liabilities of the central bank, consisting of bank reserves
and currency in circulations that are usable as money also known as the monetary base.

Liquidity Trap: A situation in which the nominal interest rate is very close to zero, making
it possible for monetary policy makers to expand the economy through further reductions in the interest rate.

25.

Nominal and real effective exchange rates: As prices of individual goods and
services are combined into a general price, the bilateral exchange rates are merged into a multilateral exchange rate called the effective exchange rate. The latter are further distinguished as Nominal and real effective exchange rates. The NEER is obtained as the weighted average of the bilateral nominal exchange rates. Just as there is a bilateral real

exchange rate, there is a real effective exchange rates which adjusts NEER to the relative inflation rates in foreign countries.

26. Stocks and Shares: "stock" is a general term used to describe the ownership certificates
of any company, in general, and "shares" refers to a the ownership certificates of a particular company. So, if investors say they own stocks, they are generally referring to their overall ownership in one or more companies. 27. Crowding Out Effect: An economic concept where increased public sector spending replaces, or drives down, private sector spending. Crowding out refers to when government must finance its spending with taxes and/or with deficit spending, leaving businesses with less money and effectively "crowding them out." One explanation of why crowding out occurs is government financing of projects with deficit spending through the use of borrowed money. Because the government borrows such large amounts of capital, its activities can increase interest rates. Higher interest rates discourage individuals and businesses from borrowing money, which reduces their spending and investment activities. 28. Zero based budgeting: A method of budgeting in which all expenses must be justified for each new period. Zero-based budgeting starts from a "zero base" and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one. ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization, where costs can be first grouped, then measured against previous results and current expectations. participatory notes are instruments issued by registered foreign institutional investors to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India. Financial instruments used by hedge funds that are not registered with SEBI to invest in Indian securities. Indian-based brokerages to buy India-based securities / stocks and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors. 30.. Treasury Bills: T-bills are short-term securities that mature in one year or less from their issue date. They are issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that is less than their par (face) value; when they mature, the government pays the holder the full par value. 31. Pump Priming: It is an attempt to stimulate private spending and the expansion of Business and Industry. Government action taken to stimulate the economy, as spending money in the commercial sector, cutting taxes or reducing interest rates. 32. Global Depository Receipts. It is very similar to an ADR. It is a bank certificate issued in more than one country for shares in a foreign company. The shares are held by a foreign branch of an

29.Participatory Note:

international bank. The shares trade as domestic shares, but are offered for sale globally through the various bank branches. It also refers as a financial instrument used by private markets to raise capital denominated in either U.S. dollars or Euros. 33. Fiscal Drag: Fiscal drag is an economics term referring to a situation where a government's net fiscal position (equal to its spending less any taxation) does not meet the net savings goals of the private economy. This can result in deflationary pressure attributed to either lack of state spending or to excess taxation. One cause of fiscal drag is the consequence of expanding economies with progressive taxation. In general, individuals are forced into higher tax brackets as their income rises. The greater tax burden can lead to less consumer spending. For the individuals pushed into a higher tax bracket, the proportion of income as tax has increased, resulting in fiscal drag. 34. Zero Coupon Bond: A bond that pays no coupon interest and simply returns the face value at maturity. 35. Tobin Tax: A tax on the international flow of hot money proposed by Professor Tobin for the purpose of discouraging cross-border financial speculation. 36. Greshams Law: Under the bimetallic standard the abundant metal was used as money while the scarce metal was driven out of circulation, based on the fact that the ratio of the two metals was officially fixed. 37. Crowding In: An economic principle in which private investment increases as debt-financed government spending increases. This is caused by government spending boosting the demand for goods, which in turn increases private demand for new output sources, such as factories. This is in contrast to crowding out. 38. Commercial Paper: An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. The debt is usually issued at a discount, reflecting prevailing market interest rates. 39. OECD: It is an international economic organization of 34 countries founded in 1961 to stimulate the economic progress and world trade. The mission of the Organization for Economic Co-operation and Development (OECD) is to promote policies that will improve the economic and social well-being of people around the world. The OECD provides a forum in which governments can work together to share experiences and seek solutions to common problems. The OECD promotes policies designed: (a)To achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining financial stability, and thus to contribute to the development of the world economy;

(b) To contribute to sound economic expansion in Member as well as nonmember countries in the process of economic development; and (c) To contribute to the expansion of world trade on a multilateral, nondiscriminatory basis in accordance with international obligations.

(40)Inequalities adjusted HDI (IHDI): IHDI relies on data on income/consumption

and years of schooling from major publicly available databases. IHDI takes into account not only the average achievements of a country on health, education, income but also how those achievements are distributed among its citizens by discounting each dimensions average value according to its level of inequality. The IHDI uses the HDI indicators that refer to 2012 and measures of inequality that are based on household surveys. IHDI is the actual level of Human Development accounting for inequality in the distribution of achievement across people in a society. The IHDI value for India was 0.392. The indicators of IHDI were (a) Inequality adjusted HDI (b) Inequality adjusted Education Index (c) Inequality adjusted Income Index. The overall loss to HDI in 2012 was estimated at 29.3 per cent due to inequalities.

(41)Rajiv Aawas Yojana: "The scheme for affordable housing through partnership and the scheme for interest subsidy for urban housing would be dovetailed into the Rajiv Awas Yojana which would extend support under JNNURM to states that are willing to assign property rights to people living in slum areas. (42) NBFC Types: (a) Asset Finance Companies (b) Investment Companies (c)Loan Companies (d)Infrastructure Finance Companies. (43) Types of schemes of Mutual Funds: Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc.The existing types of schemes in the industry are (a) By Structure Open - Ended Schemes Close - Ended Schemes Interval Schemes (b) By Investment Objective Growth Schemes Income Schemes Balanced Schemes

Money Market Schemes (c) Other Schemes (Tax saving schemes, Index Schemes, Sector specific schemes)

Q.44. Take-out financing:

Take-out financing is a method of providing finance for longer duration projects (say of 15 years) by banks by sanctioning medium term loans (say 5-7 years). It is understanding that the loan will be taken out of books of the financing bank within pre-fixed period, by another institution thus preventing any possible asset-liability mismatch. After taking out the loans from the banks, the institution could off-load them to another bank or keep it. Under this process, the institutions engaged in long term financing such as IDFC, agree to take out the loan from books of the banks financing such projects after the fixed time period, say of 5 years, when the project reaches certain previously defined milestones. On the basis of such understanding, the bank concerned agrees to provide a medium term loan with phased redemption beginning after, say 5 years. At the end of five years, the bank could sell the loans to the institution and get it off its books. Q. 45. Types of Corporate Debt Securities:Debt securities are debt instruments of corporations, governments, governmental agencies, or other organizations. Organizations issue debt securities to raise capital. Most debt securities pay interest at a fixed rate; debt securities are frequently called fixed income securities. Common types of debt securities include corporate bonds, municipal bonds, and treasury bonds.

Corporate bonds are debt securities issued by corporations. Interest is generally paid semi-annually. The investor receives the face amount of the bond at the bond's maturity date. Interest rates depend on the creditworthiness of the issuing company and the duration of the bond. Municipal bonds are issued by states or municipalities to fund projects or borrow money to meet general obligations. Municipal bond interest is exempt from federal income taxes. Most municipal bond interest is exempt from state and local taxes for taxpayers of the state in which they are issued. Capital gain from the sale of municipal bonds is taxable income on both the federal and state levels. Interest rates are lower than corporate bonds.

Corporations issue commercial paper to fund their short term obligations. Commercial paper is generally purchased by other corporations; it is not generally sold on exchanges.

Q. 46. FEMA:The Foreign Exchange Management Act (1999)

has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA became an act on the 1st day of June, 2000. FEMA was introduced because the FERA didnt fit in with post-liberalisation policies. A significant change that the FEMA brought with it, was that it made all offenses regarding foreign exchange civil offenses, as opposed to criminal offenses as dictated by FERA. The main objective behind the Foreign Exchange Management Act (1999) is to consolidate and amend

the law relating to foreign exchange with the objective of facilitating external trade and payments. It was also formulated to promote the orderly development and maintenance of foreign exchange market in India.

Q. 47. BASEL NORMS:Basel

II, initially published in June 2004, was intended to create an international standard for banking regulators to control how much capital banks need to put aside to guard against the types of financial and operational risks banks (and the whole economy) face. One focus was to maintain sufficient consistency of regulations so that this does not become a source of competitive inequality amongst internationally active banks. Advocates of Basel II believed that such an international standard could help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. In theory, Basel II attempted to accomplish this by setting up risk and capital management requirements designed to ensure that a bank has adequate capital for the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability. Basel II uses a "three pillars" concept (1) Minimum capital requirements (2) Supervisory review (3) Market discipline

Basel III is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. It was agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11 and was scheduled to be introduced from 2013 until 2015.Basel III was supposed to strengthen bank capital requirements by increasing bank liquidity and bank leverage.

Q.48. Credit Default SWAPS

A swap designed to transfer the credit exposure of fixed income products between parties. A credit default swap is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt if this party defaults on the loan. A CDS is considered insurance against non-payment. A buyer of a CDS might be speculating on the possibility that the third party will indeed default. Q.49. Why gold prices are falling
Euro zones sovereign default risks and the interlinked bank crisis There is also fear that the big banks in Europe will sell their stockpiles of gold to generate cash, which would then help support their fragile financial positions.