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PO V Materials

All Banking Related Questions for IBPS PO V Interviews


What is Bank rate? Bank Rate is the rate at which central bank of the country (in India it is RBI) allows
finance to commercial banks. Any upward revision in Bank Rate by central bank is an indication that banks
should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate. Thus any revision
in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or
go down, and it can also indicate an increase or decrease in your EMI.
What is Bank Rate ? (For Non Bankers) : This is the rate at which central bank (RBI) lends money to other
banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up,
and vice-versa. Thus, it can said that in case bank rate is hiked, in all likelihood banks will hikes their own
lending rates to ensure that they continue to make profit.
What is CRR? The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into
force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank,
having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash
Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. [Before the enactment of
this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for
scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities].
RBI uses CRR either to drain excess liquidity or to release funds needed for the growth of the economy
from time to time. Increase in CRR means that banks have less funds available and money is sucked out
of circulation. Thus we can say that this serves duel purposes i.e.(a) ensures that a portion of bank
deposits is kept with RBI and is totally risk-free, (b) enables RBI to control liquidity in the system, and
thereby, inflation by tying the hands of the banks in lending money.
What is CRR (For Non Bankers) : CRR means Cash Reserve Ratio. Banks in India are required to hold a
certain proportion of their deposits in the form of cash. However, actually Banks dont hold these as cash
with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is
considered as equivlanet to holding cash with RBI. This minimum ratio (that is the part of the total
deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus,
When a banks deposits increase by Rs100, and if the cash reserve ratio is 6%, the banks will have to hold
additional Rs 6 with RBI and Bank will be able to use only Rs 94 for investments and lending / credit
purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for
lending and investment. This power of RBI to reduce the lendable amount by increasing the CRR, makes
it an instrument in the hands of a central bank through which it can control the amount that banks lend.
Thus, it is a tool used by RBI to control liquidity in the banking system.

What is SLR? Every bank is required to maintain at the close of business every day, a minimum proportion
of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered
approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity
Ratio (SLR). RBI is empowered to increase this ratio up to 40%. An increase in SLR also restrict the banks
leverage position to pump more money into the economy.

What is SLR ? (For Non Bankers) : SLR stands for Statutory Liquidity Ratio. This term is used by bankers
and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or
other approved securities. Thus, we can say that it is ratio of cash and some other approved securities to
liabilities (deposits) It regulates the credit growth in India.

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What are Repo rate and Reverse Repo rate?


Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks against
securities. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we
can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the
repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate
Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. The banks
use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for
reasonable returns. An increase in the reverse repo rate means that the RBI is ready to borrow money
from the banks at a higher rate of interest. As a result, banks would prefer to keep more and more surplus
funds with RBI.
Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system
by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the
banks
The policy announcements on 03/05/2011, indicates that now repo rate has become the only
independent variable policy rate, marking a shift from earlier method of calibrating various policy rates
separately. The reverse repo rate -- the rate at which RBI borrows will be kept 100 basis points lower
than the repo rate. On the other hand Marginal Standing Facility (MSF) rate will be kept 100 basis points
higher than the repo rate.
Difference between Bank rate and Rapo rate?
1. Repo rate is meant for short term basis. Bank rate is meant for long term basis.
2. In repo rate, there is need of securities submission. In bank rate, there is no need of security
submission.
3. Keeping securities and borrowing is repo rate, simple borrowing is bank rate.
4. It is the bank rate based on which the commercial banks decide the lending rates to the
customers. Hence, any change in the bank rates have direct bearing on the lending rates to the
customers. A repo transaction involves borrowing by the commercial banks from the RBI as a
result of working capital mismatches and short term liquidity needs. This involves bank selling
securities to RBI to borrow the money with an agreement to repurchase them at a later date and
at a predetermined price. Hence, repo represents short term outlook.
1. What is a Repo Rate?
A: Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks have any
shortage of funds they can borrow it from RBI. 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.
2. What is Reverse Repo Rate?
A: 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

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banking system. Banks are always happy to lend money to RBI since their money is in safe hands with a
good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to
the attractive interest rates.
3. What is CRR Rate?
A: 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.
Or
CRR specifies the percentage of their total deposits the commercial bank must keep with central bank or
RBI. Higher the CRR lower will be the capacity of bank to create credit.
4. What is SLR Rate?
A: 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 maintained 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 liable to pay to the customers on their
anytime demand. SLR is used to control inflation and propel growth. Through SLR rate tuning the money
supply in the system can be controlled efficiently.
Q How can RBI control inflation?
A. Inflation arises when the demand increases and there is a shortage of supply .So by anyways if
government is able to reduce the money in the hands of the people it will be able to reduce the demand
as the purchasing power of the people will reduce.
There are two policies in the hands of the RBI
1. Monetary Policy: It includes the interest rates. When the bank increases the interest rates than there
is reduction in the borrowers and people try to save more as the rate of interest has increased.
Tools : CRR, SLR, RR, RRR
2. Fiscal Policy: It is related to direct taxes and government spending. When direct taxes are increased
and government spending increased than the disposable income of the people reduces and hence the
demand reduces
5. What is Bank Rate?
A: Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on
the loans and advances that it extends to commercial banks and other financial intermediaries. Changes
in the bank rate are often used by central banks to control the money supply.

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6. What is Inflation?
A: 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 supply of the goods. An increase in inflation figures occurs
when there is an increase in the average level of prices in Goods and services7. What is
Q. Deflation?
A: Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the
inflation rate becomes negative (below zero) and stays there for a longer period.
8. What is PLR?
A: The Prime Interest Rate/Prime Lending Rate is the interest rate charged by banks to their most
creditworthy customers (usually the most prominent and stable business customers). The rate is almost
always the same amongst major banks. Adjustments 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.Some banks use the name
"Reference Rate" or "Base Lending Rate" to refer to their Prime Lending Rate.
Or
The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's
best customers consist of large corporations. The prime interest rate, or prime lending rate, is largely
determined by the federal funds rate, which is the overnight rate which banks lend to one another. The
prime rate is also important for retail customers, as the prime rate directly affects the lending rates which
are available for mortgage, small business and personal loans.
Default risk is the main determiner of the interest rate a bank will charge a borrower. Because a bank's
best customers have little chance of defaulting, the bank can charge them a rate that is lower than the
rate that would be charged to a customer who has a higher likelihood of defaulting on a loan.
9. What is Deposit Rate?
A: Deposit Rate refers to the amount of money paid out in interest by a bank or financial institution on
cash deposits. Banks pay the Deposit Rate on savings and other investment accounts. In essence, the
Deposit Rate is the interest rate that a bank pays the depositor for the use of their money for the time
period that the money is on deposit.
Policy Rates:
Bank Rate:
Repo Rate:
Reverse Repo Rate:
Reserve Ratios:
CRR:
SLR:
Lending/Deposit Rates:
PLR:
Deposit Rate:..

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. Savings Bank rate: ..


Note: Rates as on 14-05-10.
10. What is FII?
A: 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 Companies, Banks, etc. International
institutional investors must register with the Securities and Exchange Board of India to participate in the
market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in
Indian companies.
11. What is FDI?
A: FDI (Foreign Direct Investment) occurs with the purchase of the physical assets or a significant amount
of ownership (stock) of a company in another country in order to gain a measure of management control.
Or
Foreign direct investment, in its classic definition, is defined as a company from one country (Home
country) making a physical investment into building a factory in another country (host country). The direct
investment in buildings, machinery and equipment is in contrast with making a portfolio investment
(buying stocks of a company), which is considered an indirect investment (as in the case of FII). In recent
years, given rapid growth and change in global investment patterns, the definition has been broadened
to include the acquisition of a lasting management interest in a company or enterprise outside the
investing firms home country.
For a host country or the foreign firm which receives the investment, it can provide a source of new
technologies, capital, processes, products, organizational technologies and management skills, and as
such can provide a strong impetus to economic development. As such, it may take many forms, such as
a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic
alliance with a local firm with attendant input of technology, licensing of intellectual property, In the past
decade, FDI has come to play a major role in the internationalization of business.
Q. Difference between FII and FDI?
A.
Both FDI and FII is related to investment in a foreign country. FDI or Foreign Direct Investment is an
investment that a parent company makes in a foreign country. On the contrary, FII or Foreign Institutional
Investor is an investment made by an investor in the markets of a foreign nation(buying stocks)
In FII, the companies only need to get registered in the stock exchange to make investments. But FDI is
quite different from it as they invest in a foreign nation.
The Foreign Institutional Investor is also known as hot money as the investors have the liberty to sell it
and take it back. But in Foreign Direct Investment, this is not possible. In simple words, FII can enter the

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stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily. This
difference is what makes nations to choose FDIs more than then FIIs.
FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment
for the whole economy.
Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity
or productivity or change its management control. In an FDI, the capital inflow is translated into additional
production. The FII investment flows only into the secondary market. It helps in increasing capital
availability in general rather than enhancing the capital of a specific enterprise.
The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not
only brings in capital but also helps in good governance practises and better management skills and even
technology transfer. Though the Foreign Institutional Investor helps in promoting good governance and
improving accounting, it does not come out with any other benefits of the FDI.
While the FDI flows into the primary market, the FII flows into secondary market. While FIIs are shortterm investments, the FDIs are long term.
Q. How can FII/NRI/PIOs invest in Indian Companies?
A. Investment in Indian Companies by FIIs/NRIs/PIOs :
Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are
allowed to invest in the primary and secondary capital markets in India through the portfolio investment
scheme (PIS).
Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock
exchanges in India.
The ceiling for overall investment for FIIs is 24 per cent of the paid up capital of the Indian company and
10 per cent for NRIs/PIOs. The limit is 20 per cent of the paid up capital in the case of public sector banks,
including the State Bank of India.
Monitoring Foreign Investments
The Reserve Bank of India monitors the ceilings on FII/NRI/PIO investments in Indian companies on a
daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cutoff points that are two percentage points lower than the actual ceilings. The cut-off point, for instance,
is fixed at 8 per cent for companies in which NRIs/ PIOs can invest up to 10 per cent of the company's
paid up capital. The cut-off limit for companies with 24 per cent ceiling is 22 per cent and for companies
with 30 per cent ceiling, is 28 per cent and so on. Similarly, the cut-off limit for public sector banks
(including State Bank of India) is 18 per cent.
Once the aggregate net purchases of equity shares of the company by FIIs/NRIs/PIOs reach the cut-off
point, which is 2% below the overall limit, the Reserve Bank cautions all designated bank branches so as
not to purchase any more equity shares of the respective company on behalf of FIIs/NRIs/PIOs without
prior approval of the Reserve Bank. The link offices are then required to intimate the Reserve Bank
about the total number and value of equity shares/convertible debentures of the company they propose
to buy on behalf of FIIs/NRIs/PIOs. On receipt of such proposals, the Reserve Bank gives clearances on a
first-come-first served basis till such investments in companies reach 10 / 24 / 30 / 40/ 49 per cent limit

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or the sectoral caps/statutory ceilings as applicable. On reaching the aggregate ceiling limit, the Reserve
Bank advises all designated bank branches to stop purchases on behalf of their FIIs/NRIs/PIOs clients.
12. What is IPO?
A: IPO is Initial Public Offering. This is the first offering of shares to the general public from a company
wishes to list on the stock exchanges.
13. What is Disinvestment?
A: The Selling of the government stake in public sector undertakings.
Q What is buyback of shares/Corporate repurchase?
The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of
shares on the market. Companies will buy back shares either to increase the value of shares still
available (reducing supply), or to eliminate any threats by shareholders who may be looking for a
controlling stake
By reducing the number of shares outstanding on the market, buybacks increase the proportion of
shares a company owns. Buybacks can be carried out in two ways:
1. Shareholders may be presented with a tender offer whereby they have the option to submit (or
tender) a portion or all of their shares within a certain time frame and at a premium to the current
market price. This premium compensates investors for tendering their shares rather than holding on to
them.
2. Companies buy back shares on the open market over an extended period of time.

14. What is Fiscal Deficit?


A: When a government's total expenditures exceed the revenue that it generates (excluding money
from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.
Or
Fiscal deficit is an economic phenomenon, where the Government's total expenditure surpasses the
revenue generated . It is the difference between the government's total receipts (excluding borrowing)
and total expenditure. Fiscal deficit gives the signal to the government about the total borrowing
requirements from all sources.
Components of fiscal deficit
The primary component of fiscal deficit includes revenue deficit and capital expenditure.
Revenue deficit: It is an economic phenomenon, where the net amount received (by taxes & other
forms) fails to meet the predicted net amount to be received by the government.
Capital expenditure: It is the fund used by an establishment to produce physical assets like property,
equipments or industrial buildings. Capital expenditure is made by the establishment to consistently
maintain the operational activities.
In India, the fiscal deficit is financed by obtaining funds from Reserve Bank of India, called deficit

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financing. The fiscal deficit is also financed by obtaining funds from the money market (primarily from
banks).
Arguments: Fiscal deficit lead to inflation
According to the view of renowned economist John Maynard Keynes, fiscal deficits facilitates nations to
escape from economic recession. From another point of view, it is believed that government need to
avoid deficits to maintain a balanced budget policy.
In order to relate high fiscal deficit to inflation, some economists believe that the portion of fiscal deficit,
which is financed by obtaining funds from the Reserve Bank of India, directs to rise in the money stock
and a higher money stock eventually heads towards inflation.
Expert recommendation
Financial advisors recommend that the Government should not promote disinvestment to reduce fiscal
deficits. Fiscal deficit can be reduced by bringing up revenues or by lowering expenditure.
Impact
Fiscal deficit reduction has an impact over the agricultural sector and social sector. Government's
investments in these sectors will be reduced.
Or
The government, every year prepares budget which shows the expected receipts and expenditures of
the government in the coming financial year. Receipts of the government come form taxes (both direct
and indirect taxes), profits from various financial institutions, government commercial undertakings,
interest from loans given to other governments, local bodies, etc and expenditure of the government
are on developmental projects such as construction of roads, railways, production of energy and nondevelopmental expenditure on a large number of activities such as defence, subsidies, police, law and
order etc.
If receipts are equal to expenditure, the budget is said to balanced one.
If receipts are higher than the expenditure the budget is said to be surplus one, and
If receipts are lower then the expenditure, the budget is said to be deficit one.
What is Budget Deficit and Fiscal Deficit?
Budget deficit = Total Receipt - Total Expenditure.
Fiscal Deficit:
a) the difference between total expenditure and total revenue receipts and capital receipts but
excluding borrowings and other liabilities, or
b) it is the Sum of Budget deficit plus Borrowings and other Liabilities.
16. What is GDP?
A: Gross Domestic Product or GDP refers to the market value/monetary value (the price it fetches when
bought or sold) of all final goods and services produced within a country in a given period of time usually
a year.
17. What is GNP/GNI?

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A: Gross National Product/Gross National Income is measured as GDP plus income of residents of India
from investments made abroad minus income earned by foreigners in domestic market (India).
18. What is National Income?
A: National Income is the money value of all goods and services produced in a country during the year.
19. What is Per Capita Income?
A: The national income of a country, or region, divided by its population. Per capita income is often used
to measure a country's standard of living. Per capita income during 2008-09 estimated by CSO: Rs.25,
494.
Q. Difference between GDP and GNP?
A.
GDP is product produced within a country's borders; GNP is product produced by enterprises owned by a
country's citizens.
Production within a country's borders, but by an enterprise owned by somebody outside the country,
counts as part of its GDP but not its GNP; on the other hand, production by an enterprise located outside
the country, but owned by one of its citizens, counts as part of its GNP but not its GDP.
Gross national product (GNP)/GNI equals GDP plus income receipts from the rest of the world minus
income payments to the rest of the world.
Q. How can economic growth be measured/How to calculate GDP?
A.
Economic growth is measured in terms of an increase in the size of a nation's economy. A broad measure
of an economy's size is its output. The most widely used measure of economic output is the Gross
Domestic Product.
There are three approaches to calculating GDP:
1. Expenditure approach - described below; calculates the final spending on goods and services.
2. Product (output) approach - calculates the market value (the price it fetches when bought or
sold) of goods and services produced.
3. Income approach - sums the income received by all producers in the country.
These three approaches are equivalent, with each rendering the same result.
Expenditure Approach to Calculating GDP
The expenditure approach calculates GDP by summing the four possible types of expenditures as follows:
GDP = Private Consumption + Government spending + Investment + ( Exports Imports )
GDP = C + G + I + NX

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Where,
Private Consumption is the largest component of the GDP.Consumption is calculated by adding durable
and non-durable goods and services expenditures. It is unaffected by the estimated value of imported
goods.
Government purchases are equal to the government expenditures less government transfer payments
(welfare, unemployment payouts, etc.)
Investment includes business investments in fixed assets and increases in inventory.
Net exports are exports minus imports. Imports are subtracted since GDP is defined as the output of the
domestic economy.
20. What is Vote on Account?
A: A vote-on account is basically a statement ,where the government presents an estimate of a sum
required to meet the expenditure that it incurs during the first three to four months of an election financial
year until a new government is in place, to keep the machinery running.
21. Difference between Vote on Account and Interim Budget?
A: Vote-on-account deals only with the expenditure side of the government's budget, an interim Budget
is a complete set of accounts, including both expenditure and receipts.
22. What is SDR?
A: The SDR (Special Drawing Rights) is an artificial currency created by the IMF in 1969. SDRs are allocated
to member countries and can be fully converted into international currencies so they serve as a
supplement to the official foreign exchange reserves of member countries. Its value is based on a basket
of key international currencies (U.S. dollar, euro, Japanese yen and UK pound sterling).
As of 2011, SDRs may only be exchanged for Euros, Japanese yen, UK pounds, or US dollars
Or
An international type of monetary reserve currency, created by the International Monetary Fund (IMF)
in 1969, which operates as a supplement to the existing reserves of member countries. Created in
response to concerns about the limitations of gold and dollars as the sole means of settling international
accounts/ foreign exchange reserves, SDRs are designed to augment international liquidity by
supplementing the standard reserve currencies.

23. What is SEZ?


A: SEZ means Special Economic Zone is the one of the part of governments policies in India. A special
Economic zone is a geographical region that economic 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 infrastructure, job opportunities and increase the income level of the people.

What is Corporate Governance?

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The way in which a company is governed and how it deals with the various interests of its customers,
shareholders, employees and society at large. Corporate governance is the set of processes, customs,
policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or
controlled. Is defined as the general set of customs, regulations, habits, and laws that determine to what
end a firm should be run.
It is about commitment to values, about ethical business conduct and about making a distinction between
personal & corporate funds in the management of a company

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 Bank of India Act, 1934.
Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of
the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy
Governors, one Government official from the Ministry of Finance, ten nominated Directors by the
Government to give representation to important elements in the economic life of the country, and four
nominated Directors by the Central Government to represent the four local Boards with the headquarters
at Mumbai, Kolkata, Chennai and New Delhi.
The central bank till now was governed by 21 governors. The 22nd, Current Governor of Reserve Bank of
India is Dr. D. Subbarao.
Main Functions:
1. The basic objectives of RBI are to issue bank notes,
2. Monetary policy: To maintain the currency and credit system of the country to utilize it in its best
advantage,
3. Minimum Reserve System - Principle of Currency Note Issue
RBI can issue currency notes as much as the country requires, provided it has to make a security
deposit of Rs. 200 crores, out of which Rs. 115 crores must be in gold and Rs. 85 crores must be
FOREX Reserves. This principle of currency notes issue is known as the 'Minimum Reserve System'.
4. Developmental role
The central bank has to perform a wide range of promotional functions to support national
objectives and industries.[6] The RBI faces a lot of inter-sectoral and local inflation-related
problems. Some of this problems are results of the dominant part of the public sector.[28
5. Related Functions
Banker to the Government: performs merchant banking function for the central and the state
governments; also acts as their banker.
Banker to banks: maintains banking accounts of all scheduled banks.
6. RBI maintains the economic structure of the country so that it can achieve the objective of price
stability as well as economic development, because both objectives are diverse in themselves.
Officials : One Governor (Duvvuri Subbarao) and not more than four Deputy Governors (K.C.
Chakraborthy, Subir Gokarn, H.R. Khan, Anand Sinha).
Subsidiaries

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Fully owned: National Housing Bank(NHB), Deposit Insurance and Credit Guarantee Corporation of
India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)
Majority stake: National Bank for Agriculture and Rural Development(NABARD).

Policy rates, Reserve ratios, lending, and deposit rates as of 9 January, 2016
7.75%
Bank Rate
6.75%
Repo Rate
5.75%
Reverse Repo Rate
4.0%
Cash Reserve Ratio (CRR)
21.5%
Statutory Liquidity Ratio (SLR)
7.75%
MSF

What is monetary policy?


Monetary policy is the process by which the monetary authority/Central Bank of a country controls the
supply of money, often targeting a rate of interest for the purpose of promoting economic growth and
stability.
Or
A Monetary policy is the process by which the government, central bank, of a country controls (i) the
supply of money, (ii) availability 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.

What is Fiscal Policy?


Fiscal policy is the use of government spending and revenue collection to influence the economy. These
policies affect tax rates, interest rates and government spending, in an effort to control the economy.
Fiscal policy is an additional method to determine public revenue and public expenditure.

What is Core Banking Solutions?


Core banking is a general term used to describe the services provided by a group of networked bank
branches. Bank customers may access their funds and other simple transactions from any of the member
branch offices. It will cut down time, working simultaneously on different issues and increasing
efficiency. The platform where communication technology and information technology are merged to
suit core needs of banking is known as Core Banking Solutions.

What is bank and its role and types?


Bank is a lawful organization, which accepts deposits that can be withdrawn on demand. It also lends
money to individuals and business houses that need it
Banks also render many other useful services like collection of bills, payment of foreign bills, safekeeping of jewellery and other valuable items, certifying the credit-worthiness of business, and so on.
Banks accept deposits from the general public as well as from the business community.
Banks give two assurances to the depositors
a. Safety of deposit, and

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b. Withdrawal of deposit, whenever needed


Role of Banking:
It encourages savings habit amongst people and thereby makes funds available for productive use.
It acts as an intermediary between people having surplus money and those requiring money for various
business activities.
It facilitates business transactions through receipts and payments by cheques instead of currency.
It provides loans and advances to businessmen for short term and long-term purposes.
It also facilitates import export transactions.
It helps in national development by providing credit to farmers, small-scale industries and selfemployed people as well as to large business houses which lead to balanced economic development in
the country.
It helps in raising the standard of living of people in general by providing loans for purchase of consumer
durable goods, houses, automobiles, etc
Types of Banks:
There are various types of banks which operate in our country to meet the financial requirements of
different categories of people engaged in agriculture, business, profession, etc. On the basis of functions,
the banking institutions in India may be divided into the following types:

a) Central Bank
A bank which is entrusted with the functions of guiding and regulating the banking system of a country is
known as its Central bank.
Such a bank does not deal with the general public.
It acts essentially as Governments banker, maintain deposit accounts of all other banks and advances
money to other banks, when needed.

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The Central Bank provides guidance to other banks whenever they face any problem. It is therefore
known as the bankers bank.
The Central Bank maintains record of Government revenue and expenditure under various heads.
It also advises the Government on monetary and credit policies and decides on the interest rates for bank
deposits and bank loans. In addition, foreign exchange rates are also determined by the central bank.
b) Commercial Banks
Commercial Banks are banking institutions that accept deposits and grant short-term loans and advances
to their customers. In addition to giving short-term loans, commercial banks also give medium-term and
long-term loan to business enterprises. Now-a-days some of the commercial banks are also providing
housing loan on a long-term basis to individuals. There are also many other functions of commercial banks,
which are discussed later in this lesson.
Types of Commercial banks: Commercial banks are of three types i.e., Public sector banks, Private sector
banks and Foreign banks.
(i) Public Sector Banks: These are banks where majority stake is held by the Government of India or
Reserve Bank of India. Examples of public sector banks are: State Bank of India, Corporation Bank, Bank
of Boroda and Dena Bank, etc.
(ii) Private Sectors Banks: In case of private sector banks majority of share capital of the bank is held by
private individuals. These banks are registered as companies with limited liability. For example: The
Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd., Development Credit Bank Ltd, Lord Krishna Bank
Ltd., Bharat Overseas Bank Ltd., Global Trust Bank, Vysya Bank, etc.
(iii) Foreign Banks: These banks are registered and have their headquarters in a foreign country but
operate their branches in our country. Some of the foreign banks operating in our country are Hong Kong
and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard & Chartered Bank,
Grindlays Bank, etc. The number of foreign banks operating in our country has increased since the
financial sector reforms of 1991.
c) Development Banks
Business often requires medium and long-term capital for purchase of machinery and equipment, for
using latest technology, or for expansion and modernization. Such financial assistance is provided by
Development Banks. They also undertake other development measures like subscribing to the shares and
debentures issued by companies, in case of under subscription of the issue by the public. Industrial
Finance Corporation of India (IFCI) and State Financial Corporations (SFCs) are examples of development
banks in India
d) Co-operative Banks
People who come together to jointly serve their common interest often form a co-operative society under
the Co-operative Societies Act. When a co-operative society engages itself in banking business it is called
a Co-operative Bank. The society has to obtain a licence from the Reserve Bank of India before starting
banking business.
e) Specialised Banks

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There are some banks, which cater to the requirements and provide overall support for setting up business
in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of such banks.
i. Export Import Bank of India (EXIM Bank): If you want to set up a business for exporting products abroad
or importing products from foreign countries for sale in our country, EXIM bank can provide you the
required support and assistance. The bank grants loans to exporters and importers and also provides
information about the international market
ii. Small Industries Development Bank of India (SIDBI): If you want to establish a small-scale business
unit or industry, loan on easy terms can be available through SIDBI. It also finances modernisation of
small-scale industrial units, use of new technology and market activities. The aim and focus of SIDBI is to
promote, finance and develop small-scale industries.
iii. National Bank for Agricultural and Rural Development (NABARD): It is a central or apex institution
for financing agricultural and rural sectors. If a person is engaged in agriculture or other activities like
handloom weaving, fishing, etc. NABARD can provide credit, both short-term and long-term, through
regional rural banks (RRBs). It provides financial assistance, especially, to co-operative credit, in the field
of agriculture, small-scale industries, cottage and village industries handicrafts and allied economic
activities in rural areas.
NOTE : Public Sector Banks comprise 19 nationalised banks and State Bank of India and its 7 associate
banks
Functions of Commercial Banks
The functions of commercial banks are of two types.
(A) Primary functions; and
(B) Secondary functions.
(i) Primary functions
The primary functions of a commercial bank include:
a) Accepting deposits; and
b) Granting loans and advances.
a) Accepting deposits
The most important activity of a commercial bank is to mobilize deposits from the public. People who
have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon
the nature of deposits, funds deposited with bank also earn interest.
b) Grant of loans and advances
The second important function of a commercial bank is to grant loans and advances. Such loans and
advances are given to members of the public and to the business community at a higher rate of interest
than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances
varies according to the purpose and period of loan and also the mode of repayment.
i) Loans

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A loan is granted for a specific time period. Generally commercial banks provide short-term loans. But
term loans, i.e., loans for more than a year may also be granted.
There are two types of loan available from banks :
(a) Demand loan, and
(b) Term loan
(a) A Demand Loan or short term loan is a loan which is repayable on demand by the bank. In other words,
it is repayable at short-notice. The entire amount of demand loan is disbursed at one time and the
borrower has to pay interest on it. The borrower can repay the loan either in lumpsum (one time) or as
agreed with the bank. For example, if it is so agreed the amount of loan may be repaid in suitable
instalments.
Such loans are normally granted by banks against security. The security may include materials or goods
in stock, shares of companies or any other asset. Demand loans are raised normally for working capital
purposes, like purchase of raw materials, making payment of short-term liabilities.
(b) Term Loans : Medium and long term loans are called term loans. Term loans are granted for more
than a year and repayment of such loans is spread over a longer period.
Term loan is required for the purpose of starting a new business activity, renovation, modernization,
expansion/ extension of existing units, purchase of plant and machinery, purchase of land for setting up
of a factory, construction of factory building or purchase of other immovable assets. These loans are
generally secured against the mortgage of land, plant and machinery, building and the like.
ii) Advances
An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that
loans may be granted for longer period, but advances are normally granted for a short period of time.
Types of Advances
a) Cash Credit
Cash credit is an arrangement whereby the bank allows the borrower to draw amount upto a specified
limit. The amount is credited to the account of the customer. The customer can withdraw this amount
as and when he requires. Interest is charged on the amount actually withdrawn. Cash Credit is granted
as per terms and conditions agreed with the customers.
b) Overdraft
Overdraft is also a credit facility granted by bank. A customer who has a current account with the bank
is allowed to withdraw more than the amount of credit balance in his account. It is a temporary
arrangement.
c) Discounting of Bills
Apart from sanctioning loans and advances, discounting of bills of exchange by bank is another way of
making funds available to the customers. Bills of exchange are negotiable instruments which enable
debtors to discharge their obligations to the creditors. Such Bills of exchange arise out of commercial
transactions both in inland trade and foreign trade. When the seller of goods has to realise his dues from
the buyer at a distant place immediately or after the lapse of the agreed period of time, the bill of
exchange facilitates this task with the help of the banking institution. Banks invest a good percentage of

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their funds in discounting bills of exchange. These bills may be payable on demand or after a stated period.
In discounting a bill, the bank pays the amount to the customer in advance, i.e. before the due date. For
this purpose, the bank charges discount on the bill at a specified rate. The bill so discounted , is retained
by the bank till its due date and is presented to the drawee on the date of maturity. In case the bill is
dishonoured on due date the amount due on bill together with interest and other charges is debited by
the bank to the customers account.
ii) Secondary functions
In addition to the primary functions of accepting deposits and lending money, banks perform a number
of other functions, which are called secondary functions. These are as follows
a. Issuing letters of credit, travellers cheque, etc.
b. Undertaking safe custody of valuables, important document and securities by providing safe deposit
vaults or lockers.
c. Providing customers with facilities of foreign exchange dealings.
d. Transferring money from one account to another; and from one branch to another branch of the bank
through cheque, pay order, demand draft.
e. Standing guarantee on behalf of its customers, for making payment for purchase of goods, machinery,
vehicles etc.
f. Collecting and supplying business information.
g. Providing reports on the credit worthiness of customers.
i. Providing consumer finance for individuals by way of loans on easy terms for purchase of consumer
durables like televisions, refrigerators, etc.
j. Educational loans to students at reasonable rate of interest for higher studies, especially for professional
courses.
IMPORTANT :
About 92 percent of the countrys banking segment is under State control while the balance comprises
private sector and foreign banks. The public sector commercial banks are divided into three categories.
State bank group (8 banks): This consists of the State Bank of India (SBI) and Associate Banks of SBI. The
Reserve Bank of India (RBI) owns the majority share of SBI and some Associate Banks of SBI.1 SBI has 13
head offices governed each by a board of directors under the supervision of a central board. The boards
of directors and their committees hold monthly meetings while the executive committee of each central
board meets every week.
Nationalized banks (19 banks): In 1969, the Government arranged the nationalization of 14 scheduled
commercial banks in order to expand the branch network, followed by six more in 1980. A merger
reduced the number from 20 to 19. Nationalized banks are wholly owned by the Government, although
some of them have made public issues. In contrast to the state bank group, nationalized banks are
centrally governed, i.e., by their respective head offices. Thus, there is only one board for each
nationalized bank and meetings are less frequent (generally, once a month). The state bank group and
nationalized banks are together referred to as the public sector banks (PSBs).

Q) Different type of Bank accounts/deposits ?


A

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1.

CURRENT DEPOSITS /ACCOUNTS:

These accounts are used mainly by businessmen and are not generally used for the purpose of
investment. These deposits are the most liquid deposits and there are no limits for number of
transactions or the amount of transactions in a day. Most of the current account are firm / company
accounts. Cheque book facility is provided and the account holder can deposit all types of the cheques
and drafts in their name or endorsed in their favour by third parties. No interest is paid by banks on
these accounts. On the other hand, banks charge service charges, on such accounts.
2. SAVING DEPOSITS / ACCOUNTS
These accounts are one of the most popular deposits for individual accounts. These accounts not only
provide cheque facility but also have lot of flexibility for deposits and withdrawal of funds from the
account. Most of the banks have rules for the maximum number of withdrawals in a period and the
maximum amount of withdrawal, but hardly any bank enforces these. However, banks have every right
to enforce such restrictions if it is felt that the account is being misused as a current account. Till
24/10/2011, the interest on these accounts was regulated by Reserve Bank of India and it was fixed at
4.00% p.a. on daily balance basis. However, wef 25th October, 2011, RBI has deregulated SF interest
rates and banks are now free to decide the same within certain conditions imposed by RBI. Under
directions of RBI, banks are also forced to open no frill accounts which do not have any minimum balance
requirements
3. RECURRING DEPOSITS / ACCOUNTS
These kind of deposits are most suitable for people who do not have lump sum amount of savings, but
are ready to save a small amount every month. Normally, such deposits earn interest on the amount
already deposited (through monthly installments) at the same rates as are applicable for Fixed Deposits
/ Term Deposits. These are best if you wish to create a fund for your child's education or marriage of
your daughter or buy a car without loans.
Under these type of deposits, the person has to usually deposit a fixed amount of money every month
(usually a minimum of Rs,100/- p.m.). Any default in payment within the month attracts a small penalty
Such accounts are normally allowed for maturities ranging from 6 months to 10 years. A Pass book is
usually issued wherein the person can get the entries for all the deposits made by him / her and the
interest earned.
Premature withdrawal of accumulated amount permitted is usually allowed
(however, penalty may be imposed for early withdrawals). These accounts can be opened in single or
joint names. Nomination facility is also available.
4. FIXED DEPOSIT ACCOUNTS / TERM DEPOSITS/Time Deposit
A fixed deposit account allows you to deposit your money for a set period of time, thereby earning you a
higher rate of interest in return. Fixed deposits also give you a higher rate of interest than a savings bank
account.
All Banks offer fixed deposits schemes with a wide range of tenures for periods from 7 days to 10
years. The term "fixed" in Fixed Deposits (FD) denotes the period of maturity or tenor. Therefore, the

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depositors are supposed to continue such Fixed Deposits for the length of time for which the depositor
decides to keep the money with the bank. However, in case of need, the depositor can ask for closing (or
breaking) the fixed deposit prematurely by paying a penalty (usually of 1%, but some banks either charge
less or no penalty). (Some banks introduced variable interest fixed deposits. The rate of interest on
such deposits keeps on varying with the prevalent market rates i.e. it will go up if market interest rates
goes and it will come down if the market rates fall. However, such type of fixed deposits have not been
popular till date).
The rate of interest for Fixed Deposits differs from bank to bank unlike previously when the same were
regulated by RBI and all banks used to have the same interest rate structure. The present trends indicate
that private sector and foreign banks offer higher rate of interest.
Usually a bank FD is paid in lump sum on the date of maturity. However, some banks have facility to pay
interest at the end of every quarter. If one desires to get interest paid every month, then the interest
paid will be at a marginal discounted rate. In the changed computerized environment, now the Interest
payable on Fixed Deposit can also be easily transferred on due dates to Savings Bank or Current Account
of the customer
Q) What is E-Banking (Electronic Banking)
Banking activity carried on through computers and other electronic means of communication is called
electronic banking or e-banking.
Some of these modern trends in banking in India are:
Automated Teller Machine
Banks have now installed their own Automated Teller Machine (ATM) throughout the country at
convenient locations. By using this, customers can deposit or withdraw money from their own account
any time.
Debit Card
Banks are now providing Debit Cards to their customers having saving or current account in the banks.
The customers can use this card for purchasing goods and services at different places in lieu of cash. The
amount paid through debit card is automatically debited (deducted) from the customers account.
Credit Card
Credit cards are issued by the bank to persons who may or may not have an account in the bank.
Just like debit cards, credit cards are used to make payments for purchase, so that the individual does not
have to carry cash. Banks allow certain credit period to the credit cardholder to make payment of the
credit amount. Interest is charged if a cardholder is not able to pay back the credit extended to him
within a stipulated period. This interest rate is generally quite high.
Net Banking
With the extensive use of computer and Internet, banks have now started transactions over Internet. The
customer having an account in the bank can log into the banks website and access his bank account. He
can make payments for bills, give instructions for money transfers, fixed deposits and collection of bill,
etc.
Phone Banking

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In case of phone banking, a customer of the bank having an account can get information of his account,
make banking transactions like, fixed deposits, money transfers, demand draft, collection and payment
of bills, etc. by using telephone .
As more and more people are now using mobile phones, phone banking is possible through mobile
phones. In mobile phone a customer can receive and send messages (SMS) from and to the bank in
addition to all the functions possible through phone banking.

What is E-Governance?
The word electronic in the term e-Governance implies technology driven governance.
E-Governance is the application of Information and communication Technology (ICT) for delivering
government Services, exchange of information, communication transactions, between Government-tocitizens (G2C), Government-to-Business(G2B),Government-to-Government( G2G) as well as back office
processes and interactions within the entire government frame work. Through the e-Governance, the
government services will be made available to the citizens in a convenient, efficient and transparent
manner. The three main target groups that can be distinguished in governance concepts are Government,
citizens and businesses/interest groups. RTI is an example.

What is Right to information Act?


The Right to Information act is a law enacted by the Parliament of India giving citizens of India access to
records of the Central Government and State governments. The Act applies to all States and Union
Territories of India, except the State of Jammu and Kashmir - which is covered under a State-level law.
This law was passed by Parliament on 15 June 2005 and came fully into force on 13 October 2005.
Q Credit Rating ?
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt
issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit
rating agency of the debt issuers likelihood of default.
A sovereign credit rating is the credit rating of a sovereign entity, i.e., a national government. The
sovereign credit rating indicates the risk level of the investing environment of a country and is used by
investors looking to invest abroad.
Standard & Poor's (Deven Sharma), Fitch and Moody's.
USA -> AA+ and India -> BBB- by S&P (Downgraded US from AAA ever since 1917)
USA -> AAA and India -> BBB- by Fitch

Credit Rating Agencies in India?


CRISIL, Credit Rating Information services of India LTD. From a pioneering step taken in 1987, to
playing an integral role in India's development milestones, CRISIL has emerged as India's leading
Ratings, Research, Risk and Policy Advisory company.
CARE Credit Analysis & Research Ltd. (CARE), incorporated in April 1993, is a credit rating,
information and advisory services company promoted by Industrial Development Bank of India

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(IDBI), Canara Bank, Unit Trust of India (UTI) and other leading banks and financial services
companies. In all CARE has 14 shareholders
ICRA , Investment Credit Rating Agency of India Ltd (an Associate of Moody's Investors Service)
was incorporated in 1991 as an independent and professional company. ICRA is a leading provider
of investment information and credit rating services in India. ICRAs major shareholders include
Moody's Investors Service and leading Indian financial institutions and banks.
Importance:
To increase investor confidence and guide them
Facilitate decision making
Measures probability of default to meet obligations
Strengths and weaknesses of the company
Q) What are financial institutions ?
A financial institution is an institution that provides financial services for its clients or members.
Institution which collects funds from the public and places them in financial assets, such as deposits, loans,
and bonds, rather than tangible property.
There are three major types of financial institutions:
1. Deposit-taking institutions that accept and manage deposits and make loans, including banks,
building societies, credit unions, trust companies, and mortgage loan companies
2. Insurance companies and pension funds; and
3. Brokers, underwriters and investment funds.

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 with that Bank.
A bill of exchange drawn on a specified banker and payable on demand.
Written order directing a bank to pay money.

What is demand Draft?


A demand draft is an instrument used for effecting transfer of money. It is a Negotiable Instrument.
Cheque and Demand-Draft both are used for Transfer of money. You can 100% trust a DD. It is a banker's
cheque. A cheque may be dishonored for lack of funds a DD can not. Cheque is written/issued by an
individual and Demand draft is issued by a bank. People believe banks more than individuals.

What is a NBFC?
A non-banking financial company (NBFC) is a company registered under the Companies Act, 1956 and is
engaged
in
the
business
of
loans
and
advances,
acquisition
of
shares/stock/bonds/debentures/securities issued by government, but does not include any institution
whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of
immovable property.
NBFCs are doing functions similar to that of banks; however there are a few differences:

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(i)A NBFC cannot accept demand deposits (Demand deposits are funds deposited at a depository
institution that are payable on demand -- immediately 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 cheques to its
customers; and
(iii) Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.

Diff between banking & Finance?


Finance is generally related to all types of financial, this could be accounting, insurances and policies
whereas banking is everything that happens in a bank only. The term Banking and Finance are two very
different terms but are often associated together. These two terms are often used to denote services that
a bank and other financial institutions provide to its customers.
Q) What is MFI ?
Microfinance institutions, also known as MFI, offer financial services to underprivileged and
impoverished communities.
An Increasing number of microfinance institutions (MFIs) are seeking non-banking finance company
(NBFC) status from RBI to get wide access to funding, including bank finance

What is NASSCOM ?
The National Association of Software and Services Companies (NASSCOM), is a non-profit organization
that serves as an interface to the Indian software industry and Indian BPO industry maintaining close
interaction with the Government of India in formulating National IT policies with specific focus on IT
software and services maintaining a state of the art information database of IT software and services
related activities for use of both the software developers as well as interested companies overseas
NASSCOMs members are primarily companies run by Indian nationals in the business of software
development, software services, and IT-enabled/BPO services. The consortium was set up to facilitate
Indian business and trade in software and services and to encourage advancement of research in
software technology by Indians. It is a non-profit organization, funded entirely by its members
Among its services, NASSCOM provides industry reports. NASSCOM also conducts various training
programs and workshops for the industry professionals to upgrade theirs skills and knowledge. They have
regular training programs spanning across different areas.
President : Mr. Som Mittal
Chairman : Mr. R.S. Pawar

Q. What is ASSOCHAM?
ASSOciated CHAMbers of Commerce and Industry of India (ASSOCHAM).
India's premier apex chamber covers a membership of over 2 lakh companies and professionals across
the country. It was established in 1920 by promoter chambers, representing all regions of India.

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As an apex industry body, ASSOCHAM represents the interests of industry and trade, interfaces with
Government on policy issues and interacts with counterpart international organizations to promote
bilateral economic issues.
President- Mr. Dilip Modi

What is NABARD?
Explained earlier.

What is SIDBI?
The Small Industries Development Bank of India is a state-run bank aimed to aid the growth and
development of micro, small and medium scale industries in India. Set up in 1990 through an act of
parliament, it was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of
India.
SIDBI's statute provides that it should serve as the principal financial institution for:
Promotion
Financing and
Development of industry in the small scale sector and
Co-ordinating the functions of other institutions engaged in similar activities.
Q) What is financial security when we talk about capital market?
A security is generally a negotiable financial instrument representing financial value.
Securities are broadly categorized into:
debt securities (such as banknotes, bonds and debentures),
equity securities, e.g., common stocks; and,
derivative contracts, such as forwards, futures, options and swaps.

Q) What is Capital Market ?


A market in which individuals and institutions trade financial securities. Organizations/institutions in the
public and private sectors also often sell securities on the capital markets in order to raise funds. Thus,
this type of market is composed of both the primary and secondary markets.
It is an institutional arrangement to borrow and lend money for a longer period of time. Business units
and corporate are the borrowers in the capital market. Capital market involves various instruments
which can be used for financial transactions. Capital market provides long term debt and equity finance
for the government and the corporate sector. Capital market can be classified into primary and
secondary markets. The primary market is a market for new shares (as in IPO ), where as in the
secondary market the existing securities are traded. Capital market institutions provide rupee loans,
foreign exchange loans, consultancy services and underwriting.
Q) What do you mean by Stock Exchange?

Stock Exchange is an entity that assists in the issue and release of financial securities and other
monetary tools incorporating the fortification of revenues and dividends. The book keeping of the trade

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is centralized but the buying and selling is associated to a particular place as advanced marketplaces are
mechanized. The buying and selling on an exchange is only open to its affiliates and brokers.
These stock exchanges render services for the issue of redemption of securities and also other financial
aid and they deal with the payment of all income and dividends.
There are 23 stock exchanges in India. Among them two are national level stock exchanges namely
Bombay Stock Exchang (BSE), Mumbai and National Stock Exchange of India (NSE), Delhi. The rest 21 are
Regional Stock Exchanges (RSE).

What is SENSEX and NIFTY?


SENSEX is the short term for the words "Sensitive Index" and is associated with the Bombay (Mumbai)
Stock Exchange (BSE). The SENSEX 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 THE INDEX OF BSE and NIFTY IS THE INDEX OF NSE (National Stock Exchange). BOTH WILL
SHOW DAILY TRADING MARKS. Sensex and Nifty both are an "index. An index is basically an indicator
which indicates whether most of the stocks have gone up or most of the stocks have gone down.
Index is simply an indicator. By knowing this number the investors can have an idea about the price
movement of stocks at that particular moment whether it has gone up or down.

What is SEBI?
SEBI is the regulator for the Securities Market in India. Originally set up by the Government of India in
1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian Parliament.
Headquartered in Mumbai. Regional offices in Delhi, Kolkata, Chaennai and Ahmedabad.
Chairman: Upendra Kumar Sinha.
Functions and responsibilities
SEBI has to be responsive to the needs of three groups, which constitute the market:
the issuers of securities
the investors
the market intermediaries.
Powers:
1.
2.
3.
4.
5.
6.
7.
8.
9.

to approve bylaws of stock exchanges.


to require the stock exchange to amend their bylaws.
inspect the books of accounts and call for periodical returns from recognised stock exchanges.
inspect the books of accounts of a financial intermediaries.
compel certain companies to list their shares in one or more stock exchanges.
levy fees and other charges on the intermediaries for performing its functions.
grant licence to any person for the purpose of dealing in certain areas.
delegate powers exercisable by it.
prosecute and judge directly the violation of certain provisions of the companies Act.

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What is Mutual funds?


A mutual fund is a professionally managed type of collective investment scheme that pools money from
many investors and invests it in stocks, bonds, short-term money market instruments, and/or other
securities. 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 the investors annually.
Mutual funds are investment companies that pool money from investors at large and offer to sell and buy
back its shares on a continuous basis and use the capital thus raised to invest in securities of different
companies. 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 the investors annually.

What is Asset Management Companies?


A company that invests its clients' pooled fund into securities that match its declared financial objectives.
Asset management companies provide investors with more diversification and investing options than
they would have by themselves. Mutual funds, hedge funds and pension plans are all run by asset
management companies. These companies earn income by charging service fees to their clients.

What are Non-Performing Assets (NPA)?


Non-performing assets, also called non-performing loans, are loans, made by a bank or finance company,
on which repayments (paying back of loan money) or interest payments are not being made on time or
for an extended period of time. A debt obligation where the borrower has not paid any previously agreed
upon interest and principal repayments to the designated lender for an extended period of time. The NPA
is therefore not yielding any income to the lender/bank in the form of principal and interest payments.

What is Recession/Global recession and depression?


A true economic recession can only be confirmed if GDP (Gross Domestic Product) growth is
negative/declining for a period of two or more consecutive quarters.
Global recession is defined slightly differently than national recession. A nation would be considered in
a recession when GDP declines for two consecutive periods.
A global recession as a period where gross domestic product (GDP) growth is at 3% or less.
A recession is typically accompanied by a drop in the stock market, an increase in unemployment, and a
decline in the housing market. A recession is generally considered less severe than a depression, and if a
recession continues long enough it is often then classified as a depression. There is no one obvious cause
of a recession, although overall blame generally falls on the govt. leadership, often either the President
himself, the head of the govt. Reserve, or the entire administration.

What is foreign exchange reservers (Forex reserves)?


1. Foreign Exchange :
Foreign Exchange is the system or process of converting one national currency into another and
of transferring the ownership of money from one country to another country and is used

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settling international transactions. Also know as foreign currency.


2. What is the meaning of Exchange Rate?
The rates applied by the Bank for converting foreign currency into Indian rupees and vice versa
are known as exchange rates. In other words, exchange rate is the rate at which one currency
can be exchanged for another.
What are the systems of quoting Exchange Rates?
Direct Quotation: Where the price of foreign currency is quoted in terms of home or local
currency. In this system variable units of home currency equivalent to a fixed unit of foreign
currency is quoted
For Example US Dollar 1 = Rs 43.50
3. The foreign exchange market
Foreign exchange market assists international trade and investment, by enabling currency
conversion. For example, it permits a business in the United States to import goods from the
United Kingdom and pay pound sterling, even though its income is in United States dollars.
Financial centers around the world function as anchors of trading between a wide range of
different types of buyers and sellers around the clock, with the exception of weekends. The
foreign exchange market determines the relative values of different currencies.
4. Foreign exchange reserves:
Total of a country's gold holdings and convertible foreign(foreign currencies) currencies held in
its central banks, plus special drawing rights (SDR) and exchange reserve balances with the
International Monetary Fund (IMF).
Holding the currencies of other countries as assets allow governments to keep their currencies
stable and reduce the effect of economic shocks. The use of foreign exchange reserves became
popular after the decline of the gold standard.
Forex reserve of India : USD 318 Billion (Aug. 2011)
China : USD 3201 Billion (Sep. 2011) Largest reserve

Q. What is Open Market operations(OMO)?


The buying and selling of government securities/bonds in the open market by a central bank, such as
RBI in the India, in order to control the money supply. When it sells the securities, the central bank soaks
up the liquidity, and when it buys them it injects liquidity in the local economy/banking system.
Open market operations are the principal tools of monetary policy.
The RBI brought together a Liquidity Adjustment Facility (LAF). It commenced in June, 2000 and it was
set up to oversee liquidity on a daily basis and monitor market interest rates. For the LAF, two rates are
set by the RBI: Repo rate and reverse repo rate. Repo rate is applicable while selling securities to RBI
(Thus daily injection of cash flow (liquidity)), while reverse repo rate is applicable when banks buy back

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those securities (Absorption of liquidity). Also, these interest rates that are fixed by the RBI also help in
determining other market interest rates.

What is Micro Credit?


It is a term used to extend small loans (microloans) to very poor people for self-employment projects
that generate income, allowing them to care for themselves and their families.
Microfinance institutions (banks and insurance companies) usually provide microcredit services.
Microfinance and microcredit activities help low-income or unemployed individuals fulfill personal
needs in the short term and long term. These activities also help developing and underdeveloped
countries balance budgets and fund social programs

What is RTGS System and NEFT System?


RTGS :
The acronym 'RTGS' stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism
where transfer of money takes place from one bank to another on a 'real time' and on 'gross' basis. This
is the fastest possible money transfer system through the banking channel. Settlement in 'real time'
means payment transaction is not subjected to any waiting period. The transactions are settled as soon
as they are processed. 'Gross settlement' means the transaction is settled on one to one basis without
bunching/bundling with any other transaction.
Considering that money transfer takes place in the books of the Reserve Bank of India, the payment is
taken as final and irrevocable.
RTGS is a large value (minimum value of transaction should be Rs 2,00,000) funds transfer system
whereby financial intermediaries can settle interbank transfers for their own account as well as for their
customers. The system effects final settlement of interbank funds transfers on a continuous, transactionby-transaction basis throughout the processing day.
NEFT:
The national electronic fund transfer (NEFT) system is a nation-wide system that facilitates individuals,
firms and corporates to electronically transfer funds from any bank branch to any individual, firm or
corporate having an account with any other bank branch in the country.
Difference:
1. RTGS is Real Time Gross Settlement, while NEFT is National Electronic Funds Transfer.
2. RTGS completes transactions in real-time, and is therefore faster than NEFT, which completes
transactions in cycles.
3. RTGS is gross settlement, where a transfer is completed on a one-to-one basis, while NEFT is on
a Deferred Net Basis, where transfers are bundled and deferred for a specific time/next cycle.
4. RTGS is a high value transfer system, handling funds worth Rs 200,000 and above, while NEFT
transfers smaller amounts below Rs 100,000.

What is Bancassurance?

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The sale of insurance products to already established customers of a bank, thus allowing the bank to sell
a wider variety of products to their clients.
Or
It is the term used to describe the partnership or relationship between a bank and an insurance company
whereby the insurance company uses the bank sales channel in order to sell insurance products.
Or
The sale of insurance and other similar products through a bank.

What is Wholesale Price Index(WPI)?


The Wholesale Price Index (WPI) is the index used to measure the changes in the average price level of
goods (representative basket of wholesale goods) traded in wholesale market.
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.
It is available on a weekly basis.
It is generally taken as an indicator of the inflation rate in the Indian economy.
The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods
bought by consumers, which is measured by the Consumer Price Index.
The Indian Wholesale Price Index (WPI) was first published in 1902, and was used by policy makers until
it was replaced by the Producer Price Index (PPI : measures average changes in prices received by domestic
producers for their output) in 1978.

What is Consumer price Index(CPI)?


It measures changes in the price level of consumer goods and services purchased by households.
What is Cost of living Index?
Cost-of-living index is a theoretical price index that measures relative cost of living over time or regions.
It is an index that measures differences in the price of goods and services, and allows for substitutions to
other items as prices vary

What is Venture Capital?


Venture capital is money provided by an outside investor to finance a new, growing, or troubled
business. The venture capitalist provides the funding knowing that theres a significant risk associated
with the companys future profits and cash flow. Capital is invested in exchange for an equity stake in the
business rather than given as a loan, and the investor hopes the investment will yield a better-thanaverage return.

What is a Treasury Bills?


Treasury Bills (T-Bills) are short term, Rupee denominated obligations issued by the Reserve Bank of India
(RBI) on behalf of the Government of India. They are thus useful in managing short-term liquidity.
These are issued to raise funds for meeting expenditure needs and also provide outlet for parking
temporary surplus funds by investors.

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At present, the Government of India issues three types of treasury bills through auctions, namely, 91day, 182-day and 364-day. Treasury bills are available for a minimum amount of Rs.25,000 and in
multiples of Rs. 25,000
There are no treasury bills issued by State Governments.

What is Banking Ombudsmen Scheme?


The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer
complaints against deficiency in certain banking services.
The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002. The
current scheme became operative from the 1 January 2006, and replaced and superseded the banking
Ombudsman Scheme 2002.

What is Subsidy?
A subsidy is a form of financial assistance paid to a business or economic sector. Most subsidies are made
by the government to producers or distributors in an industry to prevent the decline of that industry or
an increase in the prices of its products or to encourage it to hire more labor.

What is a Debenture? How many types of debentures are there? What are they?
It is debt instrument used by large companies to borrow money. You invest a sum, and the company pays
you a fixed rate of interest (coupon : is the amount of interest paid per year) for the pre-defined period.
After the period gets over, you get back your principal amount.
A debenture is basically an unsecured loan to a corporation. A type of debt instrument that is not secured
by physical asset. Debentures are backed only by the general creditworthiness and reputation of the
issuer.
Debentures are generally freely transferable by the debenture holder. Debenture holders have no rights
to vote in the company's general meetings of shareholders, but they may have separate meetings or votes
e.g. on changes to the rights attached to the debentures.
Types :
i)Convertible Debentures: Any type of debenture that can be converted into some other security or it can
be converted into stocks/equity shares.
ii)Non-Convertibility Debentures(NCB): Non Convertible Debentures are those that cannot be converted
into equity shares of the issuing company, as opposed to Convertible debentures. Non-convertible
debentures normally earn a higher interest rate than convertible debentures do.

Put and Call Options


Debentures can have put and / or call options.
A put option means that you have an option to surrender the debenture if you want to, and get back
your principal.

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A call option means that the company has an option to ask you to surrender the debenture, and pay
back the principal to you.
A put option gives a lot of flexibility to you if interest rates go up, and you can get better rates from the
market, you can exercise the put option and get back your money. You can invest it elsewhere, and get
better interest.
A call option gives flexibility to the company if interest rates go down, and the company can get funds
at lower rates from the market, it can exercise the call option and give your money back to you. It can
then raise money from the market at lower rates.

Listing on stock exchange


Debentures can be listed on a stock exchange, giving you an opportunity to sell them and exit earlier
then the tenure of the debenture.

Rate of return
The interest rate offered (or the coupon rate) is usually in line with the prevailing market rates.
Companies can offer a high rate of return to attract more investors.
Convertible debentures might offer slightly lower interest rate, as they already provide a lot of growth
potential in the form of the facility to convert into shares of the company.
Difference between Bonds and Debenture :
1. Long-term debt securities issued by the Government of India or any of the State Governments
or undertakings owned by them or by development financial institutions are called as bonds.
Instruments issued by other entities/companies are called debentures.
2. In general terms bondholders are secured againt the assets in case of default by the issuer.
Debentures, on the other hand, are unsecured, and debenture holders do not have recourse to
assets in the case of default by the debenture issuer.
3. Bonds r issued by a Government and thats the reason risk of default is very less.
Other side, Debentures r issued by companies where the risk of default is very high.

Shares/Stocks:
Stock typically takes the form of shares of either common stock or preferred stock. As a unit of ownership,
common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock
differs from common stock in that it typically does not carry voting rights but is legally entitled to receive
a certain level of dividend payments before any dividends can be issued to other shareholders
Difference between Debentures And Stocks:
When you buy stocks, you become one of the owners of the company.

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Your fortunes rise and fall with that of the company. If the stocks of the company soar in value, your
investment pays off high dividends, but if the stocks decrease in value, the investments are low paying.
The higher the risk you take, the higher the rewards you get.
Debentures are more secure than stocks, in the sense that you are guaranteed payments with high
interest rates. The company pays you interest on the money you lend it until the maturity period, after
which, whatever you invested in the company is paid back to you. The interest is the profit you make
from debentures. While stocks are for those who like to take risks for the sake of high returns,
debentures are for people who want a safe and secure income.

What is a hedge fund?


Hedge means to reduce financial risk.
A hedge fund is an investment fund open to a limited range of investors and requires a very
large initial minimum investment. It is important to note that hedging is actually the practice of attempting
to reduce risk, but the goal of most hedge funds is to maximize return on investment.

What is FCCB?
A Foreign Currency Convertible Bond (FCCB) is a type of convertible bond issued in a currency different
than the issuers domestic currency. In other words, the money being raised by the issuing company is in
the form of a foreign currency. A company may issue an FCCB if it intends to make a large investment in
a country using that foreign currency.

What is Capital Account Convertibility (CAC)?


It is the freedom to convert local financial assets into foreign financial assets and vice versa at market
determined rates of exchange. This means that capital account convertibility allows anyone to freely move
from local currency into foreign currency and back.
The Reserve Bank of India has appointed a committee to set out the framework for fuller Capital Account
Convertibility.
Capital account convertibility is considered to be one of the major features of a developed economy.
It helps attract foreign investment. capital account convertibility makes it easier for domestic companies
to tap foreign markets.

What is Current Account Convertibility?


It defines at one can import and export goods or receive or make payments for services rendered.
However, investments and borrowings are restricted.

What is Arbitrage?
The opportunity to buy an asset at a low price then immediately selling it in a different market for a higher
price.

What is Capitalism?

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Capitalism as an economy is based on a democratic political ideology and produces a free market
economy, where businesses are privately owned and operated for profit; in capitalism, all of the capital
investments and decisions about production, distribution, and the prices of goods, services, and labor, are
determined in the free market and affected by the forces of supply and demand.

What is Socialism?
Socialism as an economy is based on a collectivist type of political ideology and involves the running of
businesses to benefit the common good of a vast majority of people rather than of a small upper class
segment of society

Q What is a bill of exchange?


A bill of exchange or "draft" is a written order (negotiable instrument) by the drawer to the drawee to pay
money to the payee. A common type of bill of exchange is the cheque (check in American English), defined
as a bill of exchange drawn on a banker and payable on demand. Bills of exchange are used primarily in
international trade, and are written orders by one person to his bank to pay the bearer a specific sum on
a specific date. Prior to the advent of paper currency, bills of exchange were a common means of
exchange. They are not used as often today.

Q. Tell the names of 4 public and private sector bank, public and private insurance companies?
Central bank

Reserve Bank of India

State Bank of India & associates (Public Sector) 1+7


SBI oldest bank and biggest PSU lender which originated from Bank of Calcutta in 1806

State Bank of Bikaner & Jaipur


State Bank of Hyderabad
State Bank of Indore (now merged into State Bank of India)
State Bank of Mysore
State Bank of Patiala
State Bank of Saurashtra (Now merged into State Bank of India)
State Bank of Travancore

Public Sector Banks/Nationalized banks - 19

Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra

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Bharatiya Mahila Bank


Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank

Other public sector banks

IDBI Bank

Private sector banks

Axis Bank (Formerly UTI Bank)


Bandhan Bank
HDFC Bank
ICICI Bank
IndusInd Bank
ING Vysya Bank
Kotak Mahindra Bank
Yes bank

Foreign banks operating in India

ABN AMRO Bank N.V. (Now merged with RBS)


Abu Dhabi Commercial Bank
American Express Bank
Bank Internasional Indonesia
Bank of America NA
Bank of Ceylon
Bank of Nova Scotia (Scotia Bank)
Bank of Tokyo Mitsubishi UFJ
Barclays Bank PLC
BNP Paribas
Calyon Bank

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Chinatrust Commercial Bank


Citibank N.A.
DBS Bank
Deutsche Bank AG
HSBC
JPMorgan Chase Bank
Krung Thai Bank
Mashreq Bank psc
Mizuho Corporate Bank
Royal Bank of Scotland
Shinhan Bank
Socit Gnrale
Sonali Bank
Standard Chartered Bank
State Bank of Mauritius
UBS
VTB

Bank of Rajasthan merged with ICICI bank


Q) Why were banks nationalised?
The Government of India issued an ordinance and nationalised the 14 largest commercial banks
with effect from the midnight of July 19, 1969. A second dose of nationalization of 6 more
commercial banks followed in 1980. The stated reason for the nationalization was to give the
government more control of credit delivery. With the second dose of nationalization, the
Government of India controlled around 91% of the banking business of India. Later on, in the
year 1993, the government merged New Bank of India with Punjab National Bank. It was the
only merger between nationalized banks and resulted in the reduction of the number of
nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a
pace of around 4%, closer to the average growth rate of the Indian economy.
Q) Where is the note printing press?
Note printing press: In Nasik, Maharashtra and Dewas, MP
Coin Mints: The designing and minting of coins in various denominations is also the
responsibility of the Government of India. Coins are minted at the four India Government Mints
at Mumbai, Alipore(Kolkata), Saifabad(Hyderabad), Cherlapally (Hyderabad) and NOIDA (UP).
Q) What is banking regulation act?

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In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India
(RBI) "to regulate, control, and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or branch of an existing bank could
be opened without a license from the RBI, and no two banks could have common directors.

Q) What is Indian Banks Association (IBA)?


The Indian Banks Association (IBA) was formed on the 26th September, 1946 with 22 members.
Today IBA has more than 156 members comprising of Public Sector banks, Private Sector banks,
Foreign banks having offices in India, Urban Co-operative banks, Developmental financial
institutions, Federations, merchant banks, mutual funds, housing finance corporations, etc.
Functions:

IBA was formed for development, coordination and strengthening of Indian banking, and assist
the member banks in various ways including implementation of new systems and adoption of
standards among the members.

To project good public image of banking through publicity and public relations.
To encourage sports and cultural activities among bank employees.

Indian Banks' Association is managed by a managing committee, and the current managing
committee consists of one chairman (current chairman is M.D.Mallya, previous notable
chairmens include V. P. Shetty and M. V. Nair), four deputy chairmen, one honorary secretary,
and 31 members.) )

Q) what is the reason behind the fluctuation of rupee value against dollar and other
currencies??
Here I will put it in the simple words why the currency value is often fluctuated. A currency will tend to
become more valuable when its demand is higher than supply. A currency will tend to become less
valuable when its demand is less than supply. It is the basic theory. We need to understand in the global
economy terms, when the currency will have more demand and when it will have less demand.
Remember that exchange rates are expressed as a comparison of two currencies. It is always relative
and can be measured between two countries. Interest rates, Inflation and exchange rates are highly
related. Reserve bank change the interest rates to control the Inflation and exchange rates.
We can take our real time example of stock market investment to understand the above principle. As we
know that, our stock market is dominated by the overseas investors (outside India), because of our
growing economy and industrial development. When our economy is doing well and market is
performing better than other countries, overseas investors would invest heavily on our market
(expecting a good return or interest rates). How they would put it in our market? They will sell or
convert to our currency and invest in India. It is clear that when more investors coming to India, the

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demand for the currency will be very high. Our rupee value will be increased against dollar. In the same
way, when they are pulling out of market, demand for the rupee will be decreased and value is
depreciated.
Here I am talking only about the dollar, because it is the global currency and most of the countries
trading using the dollar as trade reserve currency. The above example is given to explain it in simple
words, the demand for a currency would come in the different way. When we are importing from other
countries, we should have the currency of that country to pay for the trade. The value for the currency is
fluctuated on real time.
If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is
determined by the market forces of supply and demand. Exchange rates for such currencies are likely to
change almost constantly on financial markets, mainly by banks, around the world. A movable or
adjustable peg system is a system of fixed exchange rates, but with a provision for the devaluation of a
currency. For example, between 1994 and 2005, the Chinese yuan renminbi (CNY, ) was pegged to the
United States dollar at 8.2768 to $1.
India is heavily depend on the import of raw materials and Oil for its industrial development. In the
decreasing rupee scenario, the outgo of money will be much higher. This would affect the expenses for
the companies who imports raw materials for their factory and all the Oil Marketing Companies
(OMC) will incur heavy payment to import the Oil. Now you would have understood why the Petrol
prices have been increase in the last fortnight. If you look into the news papers, the reason said by our
finance minister was the depreciation of rupee value against dollar.
Political stability is the first key factor which impacts demand. If a country is in the midst of a civil war,
then its currency will become devalued, due to a large supply with no global demand. After all, who
would want to buy currency which may become worthless in the near future? If there is political
uncertainty across the world, then investors will exchange speculative currencies for a safe haven
currency, such as the United States dollar, which is well protected from political turmoil. In this case,
strong demand and a limited supply will increase the value of the U.S. dollar in international markets.
Economic stability is another factor which affects demand. During the 2008-2009 financial crisis, the U.S.
dollar, a safe haven currency, was no longer safe, and investors exchanged their U.S. dollar for British
pounds and Euros. As a result, the U.S. dollar plunged relative to those currencies.

Q) What is RBI's clean note policy?


The objective of the Reserve Bank's Clean Note Policy is to give the citizens good quality currency notes
and coins while the soiled(filthy, dirty) and mutilated(old, torn out) notes are withdrawn out of
circulation. The Reserve Bank has also instructed the banks to issue only good quality clean notes to the
public and refrain from recycling the soiled notes received by them over their counters

Q) Questions about BRIC,ASEAN,SAARC,FTA


BRICS: Brazil, Russia, India, China, South Africa

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All these countries are deemed to be at a similar stage of newly advanced economic
development.
ASEAN: Association of Southeast Asian Nations
is a geo-political and economic organization of ten countries located in Southeast Asia, which
was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand
SAARC: South Asian Association for Regional Cooperation. Purpose of the organization is
collective economic, technical, social, and cultural development of member states. The Headquarter of
SAARC is in Kathmandu, Nepal.

Members(8): India, Maldives, Pakistan, Afghanistan , Bangladesh, Nepal, Sri Lanka, Bhutan,
FTA: A free trade area (FTA) is a trade bloc whose member countries have signed a free trade
agreement (FTA), which eliminates tariffs, import quotas, and preferences on most (if not all) goods and
services traded between them. If people are also free to move between the countries, in addition to
FTA, it would also be considered an Open Border
India and Sri Lanka signed a free trade agreement in December 1998 with India agreeing to a phase out
of tariffs on a wide range of Sri Lankan goods within 3 years, while Sri Lanka agreed to remove tariffs on
Indian goods over eight years. One of its objectives which was stated was to contribute, by the removal
of barriers to bilateral trade "to the harmonious development and expansion of world trade".
IRDA
The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of
India, based in Hyderabad. It was formed by an act of Indian Parliament known as IRDA Act 1999, which
was amended in 2002 to incorporate some emerging requirements. Mission of IRDA as stated in the act
is "to protect the interests of the Policyholders, to regulate, promote and ensure orderly growth of the
Insurance and reinsurance industry and for matters connected therewith or incidental thereto."
In 2010, the Government of India ruled that the Unit Linked Insurance Plans (ULIPs) will be governed by
IRDA, and not the market regulator Securities and Exchange Board of India.
To ensure that insurance customers receive precise, clear and correct information about products and
services and make them aware of their responsibilities and duties in this regard.
To take action where such standards are inadequate or ineffectively enforced
Banking Terms for interview
Demand Deposit A Demand deposit is the one which can be withdrawn at any time, without any notice
or penalty; e.g. money deposited in a checking account/current account or savings account in a bank.

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Time Deposit Time deposit is a money deposit at a banking institution that cannot be withdrawn for a
certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another
term.
Fixed Deposits FDs are the deposits that are repayable on fixed maturity date along with the principal
and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank
account.
Recurring Deposits These are also called cumulative deposits and in recurring deposit accounts, a
certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified
period.
Savings Account Savings account is an account generally maintained by retail customers that deposit
money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are
subjected to low rates of interest.
Current Accounts These accounts are maintained by the corporate clients/businessmen that may be
operated any number of times in a day. There is a maintenance charge for the current accounts for which
the holders enjoy facilities of easy handling, overdraft facility etc. No interest is paid.
FCNR Accounts Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs
in foreign currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked
to the international rates of interest of the respective currencies.
NRE Accounts Non-Resident External accounts are the ones in which NRIs remit money in any
permitted foreign currency and the remittance is converted to Indian rupees for credit to NRE accounts.
The accounts can be in the form of current, saving, FDs, recurring deposits. The interest rates and other
terms of these accounts are as per the RBI directives.
Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank
with your account number, sort-code and cheque number printed on it. The account number distinguishes
your account from other accounts; the sort-code is your bank's special code which distinguishes it from
any other bank.
Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the
cheque receiver's account.
Clearing Bank - This is a bank that can clear funds between banks. For general purposes, this is any
institution which we know of as a bank or as a provider of banking services.
Bounced Cheque - when the bank has not enough funds in the relevant account or the account holder
requests that the cheque is bounced (under exceptional circumstances) then the bank will return the

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cheque to the account holder. The beneficiary of the cheque will have not been paid. This normally incurs
a fee from the bank.
Overdraft - This is when a person has a minus figure in their account. It can be authorized (agreed to in
advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because
the account holder represents too great a risk to lend to in this way or because the account holder has
not asked for an overdraft facility).
Payee - The person who receives a payment. This often applies to cheques. If you receive a cheque you
are the payee and the person or company who wrote the cheque is the payer.
Internet Banking - Online banking (or Internet banking) allows customers to conduct financial
transactions on a secure website operated by the bank.
Compound interest Compound Interest arises when interest is added to the principal, so that from that
moment on, the interest that has been added also itself earns interest. This addition of interest to the
principal is called compounding (i.e. the interest is compounded).
Time value of money The time value of money is the value of money figuring in a given amount of
interest earned over a given amount of time. For example, 100 dollars of today's money invested for one
year and earning 5 percent interest will be worth 105 dollars after one year. Therefore, 100 dollars paid
now or 105 dollars paid exactly one year from now both have the same value to the recipient who assumes
5 percent interest; using time value of money.
Present Value The current worth of a future sum of money or stream of cash flows given a specified
rate of return is the present value of that sum.
Nominal interest rate Nominal rate of interest refers to the rate of interest before adjustment for
inflation (in contrast with the real interest rate); or, for interest rates "as stated" without adjustment for
the full effect of compounding.
Effective interest rate Effective Annual interest rate, Annual Equivalent Rate (AER) or simply effective
rate is the interest rate on a loan or financial product restated from the nominal interest rate as an interest
rate with annual compound interest payable in arrears.
Capital Structure Capital structure refers to the way a corporation finances its assets through some
combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or
'structure' of its liabilities. The capital structure is how a firm finances its overall operations and growth
by using different sources of funds. For example, a firm that sells $20 billion in equity and $80 billion in
debt is said to be 20% equity-financed and 80% debt-financed.
Cost of Capital (Cut off rate) is the minimum rate of return expected by the investors in a firm for
supplying funds to the firm (by buying its shares or lending money etc.)

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A decision (by the firm) to invest in a particular project depends upon the cost of capital of the firm or cut
off rate which is the minimum rate of return expected by the investors. In case a firm is not able to achieve
even the cut off rate, the market value of its shares will fall.
CAGR Compound Annual Growth Rate The year-over-year growth rate of an investment over a
specified period of time.

CAGR isn't the actual return in reality. It's an imaginary number that describes the rate at which an
investment would have grown if it grew at a steady rate. You can think of CAGR as a way to smooth out
the returns.
Don't worry if this concept is still fuzzy to you - CAGR is one of those terms best defined by example.
Suppose you invested $10,000 in a portfolio on Jan 1, 2005. Let's say by Jan 1, 2006, your portfolio had
grown to $13,000, then $14,000 by 2007, and finally ended up at $19,500 by 2008.
Your CAGR would be the ratio of your ending value to beginning value ($19,500 / $10,000 = 1.95) raised
to the power of 1/3 (since 1/# of years = 1/3), then subtracting 1 from the resulting number:
1.95 raised to 1/3 power = 1.2493. (This could be written as 1.95^0.3333).
1.2493 - 1 = 0.2493
Another way of writing 0.2493 is 24.93%.
Thus, your CAGR for your three-year investment is equal to 24.93%, representing the smoothed
annualized gain you earned over your investment time horizon.
CAGR is often used to describe the growth over a period of time of some element of the business, for
example revenue, units delivered, registered users, etc.
Leverage Leverage (also known as gearing or levering) refers to the use of debt to supplement
investment. The main aim of the company to use leverage is to increase returns to equity shareholders
or return to its investors by using fixed cost funds i.e. debts/debentures, as this practice can maximize
gains (and losses).
DCF Discounted Cash Flow analysis is a method of valuing a project, company, or asset using the
concepts of the time value of money. All future cash flows are estimated and discounted to give their
present values (PVs).
NPV The Net Present Value or net present worth of a time series of cash flows, both incoming and
outgoing, is defined as the sum of the present values (PVs) of the individual cash flows. In case when all
future cash flows are incoming (such as coupons and principal of a bond) and the only outflow of cash is
the purchase price, the NPV is simply the NPV of future cash flows minus the purchase price/outflow
(which is its own PV).
NBFC Non-Banking Financial Company is a company registered under the Companies Act, 1956 of India
and
is
engaged
in
the
business
of
loans
and
advances,
acquisition
of

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shares/stock/bonds/debentures/securities issued by government or local authority or other securities of


like marketable nature, insurance business.
Q. What is CAR?
CAR : Capital Adequacy Ratio.
Also know as CRAR : Capital to Risk Weighted Assets Ratio
Amount of capital relative to a financial institution's loans and other assets. Almost all banking
regulators require that banks hold a certain minimum of equity capital against their risk-weighted assets
This ratio is used to protect depositors and promote the stability and efficiency of financial systems
around the world.
Two types of capital are measured: tier one capital, which can absorb losses without a bank being
required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and
so provides a lesser degree of protection to depositors.
CAR = ( tier 1 capital + tier 2 capital ) / risk weighted assets
Insurance A promise of compensation for specific potential future losses in exchange for a periodic
payment. Insurance is designed to protect the financial well-being of an individual, company or other
entity in the case of unexpected loss. Some forms of insurance are required by law, while others are
optional. Agreeing to the terms of an insurance policy creates a contract between the insured and the
insurer. In exchange for payments from the insured (called premiums), the insurer agrees to pay the
policy holder a sum of money upon the occurrence of a specific event. In most cases, the policy holder
pays part of the loss (called the deductible), and the insurer pays the rest. Examples include car
insurance, health insurance, disability insurance, life insurance, and business insurance.
Reinsurance - The practice of insurers (the first insurance company) transferring portions of risk
portfolios to other parties (the second insurance company i.e. reinsurer) by some form of agreement in
order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim (i.e.
claim by the insured).
The party that accepts a portion of the potential obligation in exchange for a share of the insurance
premium is known as the reinsurer.
The intent of reinsurance is for an insurance company to reduce the risks associated with underwritten
policies by spreading risks across alternative institutions
Also known as "insurance for insurers" or "stop-loss insurance".
Pension fund Pooled-contributions from pension plans set up by employers, unions, or other
organizations to provide for the employees' or members' retirement benefits. Pension funds are the
largest investment blocks in most countries and dominate the stock markets where they invest. When
managed by professional fund managers, they constitute the institutional investor category with
insurance companies and investment trusts. Commonly, pension funds are exempt from capital gains
tax and the earnings on their investment portfolios are either tax deferred or tax exempt.

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Dividends Dividends are payments made by a corporation to its shareholder members. It is the
portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that
money can be put to two uses: it can either be re-invested in the business (called retained earnings), or
it can be paid to the shareholders as a dividend.
Exchange rate The exchange rates (also known as the foreign-exchange rate, forex rate or FX rate)
between two currencies specifies how much one currency is worth in terms of the other. It is the value of
a foreign nations currency in terms of the home nations currency. For example an exchange rate of 91
Japanese yen (JPY, ) to the United States dollar (USD, $) means that JPY 91 is worth the same as USD 1.
Derivatives Derivatives is the collective name used for a broad class of financial instruments that derive
their value from other financial instruments (known as the underlying), events or conditions.
Futures A futures contract is a standardized contract to buy or sell a specified commodity of
standardized quality at a certain date in the future and at a market-determined price (the futures price).
The contracts are traded on a futures exchange. They are a type of derivative contract.
Options In finance, an option is a contract between a buyer and a seller that gives the buyer of the
option the right, but not the obligation, to buy or to sell a specified asset (underlying) on or before the
option's expiration time, at an agreed price, the strike price.
CBS: Core Banking Solutions
It is a facility provided by banks in which a person, having an account in one branch, can operate his
account, in another branch. This has become possible, because each account holder is given a specialised,
computerised and unique account number. In simple terms, CBS is a type of banking, in which a person,
who opens a bank account in a particular branch of a bank, will be a customer of the bank, rather than
being a customer of a particular branch. Therefore, he can transact anywhere, at any time.

Financial inclusion: Financial inclusion is the availability of banking services at an affordable cost to
disadvantaged and low-income groups. In India the basic concept of financial inclusion is having a saving
or current account with any bank. In reality it includes loans, insurance services and much more.
Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement
date. Accrued interest on bonds must be added to their purchase price.

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Definitions

Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a
higher price in another market.
Ask Price: The lowest price at which a dealer is willing to sell a given security.
Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans, leases,
and other assets. Most ABS are backed by auto loans and credit cards these issues are very
similar to mortgage-backed securities.
At-the-money: The exercise price of a derivative that is closest to the market price of the
underlying instrument.
Basis Point: One hundredth of 1%. A measure normally used in the statement of interest rate e.g.,
a change from 5.75% to 5.81% is a change of 6 basis points.
Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.
Bid-ask Spread: The difference between a dealers bid and ask price.
Bid Price: The highest price offered by a dealer to purchase a given security.
Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings
and dividends. They are issued by large and well-established firms that have impeccable financial
credentials.
Bond: Publicly traded long-term debt securities, issued by corporations and governments,
whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and
to repay a fixed amount of principal at maturity.
Book Value: The amount of stockholders equity in a firm equals the amount of the firms assets
minus the firms liabilities and preferred stock. /p>
Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities.
Brokerage Fee: The commission charged by a broker.
Bull Markets: Favorable markets associated with rising prices and investor optimism.
Call Option: The right to buy the underlying securities at a specified exercise price on or before a
specified expiration date.
Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated
maturity.
Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original
purchase price.
Capital Markets: The market in which long-term securities such as stocks and bonds are bought
and sold.
Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a
specified period, and premature withdrawals incur interest penalties.
Closed-end (Mutual) Fund: A fund with a fixed number of shares issued, and all trading is done
between investors in the open market. The share prices are determined by market prices instead
of their net asset value.

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Collateral: A specific asset pledged against possible default on a bond. Mortgage bonds are
backed by claims on property. Collateral trusts bonds are backed by claims on other securities.
Equipment obligation bonds are backed by claims on equipment.
Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very
high credit standings.
Common Stock: Equity investment representing ownership in a corporation; each share
represents a fractional ownership interest in the firm.
Compound Interest: Interest paid not only on the initial deposit but also on any interest
accumulated from one period to the next.
Contract Note: A note which must accompany every security transaction which contains
information such as the dealers name (whether he is acting as principal or agent) and the date of
contract.
Controlling Shareholder: Any person who is, or group of persons who together are, entitled to
exercise or control the exercise of a certain amount of shares in a company at a level (which differs
by jurisdiction) that triggers a mandatory general offer, or more of the voting power at general
meetings of the issuer, or who is or are in a position to control the composition of a majority of
the board of directors of the issuer.
Convertible Bond: A bond with an option, allowing the bondholder to exchange the bond for a
specified number of shares of common stock in the firm. A conversion price is the specified value
of the shares for which the bond may be exchanged. The conversion premium is the excess of the
bonds value over the conversion price.
Corporate Bond: Long-term debt issued by private corporations.
Coupon: The feature on a bond that defines the amount of annual interest income.
Coupon Frequency: The number of coupon payments per year.
Coupon Rate: The annual rate of interest on the bonds face value that a bonds issuer promises
to pay the bondholder. It is the bonds interest payment per dollar of par value.
Covered Warrants: Derivative call warrants on shares which have been separately deposited by
the issuer so that they are available for delivery upon exercise.
Credit Rating: An assessment of the likelihood of an individual or business being able to meet its
financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the
financial strength of the issuer for investors.
Currency Board: A monetary system in which the monetary base is fully backed by foreign
reserves. Any changes in the size of the monetary base has to be fully matched by corresponding
changes in the foreign reserves.
Current Yield: A return measure that indicates the amount of current income a bond provides
relative to its market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.
Custody of Securities: Registration of securities in the name of the person to whom a bank is
accountable, or in the name of the banks nominee; plus deposition of securities in a designated
account with the banks bankers or with any other institution providing custodial services.
Default Risk: The possibility that a bond issuer will default ie, fail to repay principal and interest
in a timely manner.

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Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right
to buy (sell) the shares of a listed company at a specified price.
Derivative Instrument: Financial instrument whose value depends on the value of another asset.
Discount Bond: A bond selling below par, as interest in-lieu to the bondholders.
Diversification: The inclusion of a number of different investment vehicles in a portfolio in order
to increase returns or be exposed to less risk.
Duration: A measure of bond price volatility, it captures both price and reinvestment risks to
indicate how a bond will react to different interest rate environments.
Earnings: The total profits of a company after taxation and interest.
Earnings per Share (EPS): The amount of annual earnings available to common stockholders as
stated on a per share basis.
Earnings Yield: The ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).
Equity: Ownership of the company in the form of shares of common stock.
Equity Call Warrants: Warrants issued by a company which give the holder the right to acquire
new shares in that company at a specified price and for a specified period of time.
Ex-dividend (XD): A security which no longer carries the right to the most recently declared
dividend or the period of time between the announcement of the dividend and the payment
(usually two days before the record date). For transactions during the ex-dividend period, the
seller will receive the dividend, not the buyer. Ex-dividend status is usually indicated in
newspapers with an (x) next to the stocks or unit trusts name.
Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument.
Interest is calculated on face/nominal value.
Fixed-income Securities: Investment vehicles that offer a fixed periodic return.
Fixed Rate Bonds: Bonds bearing fixed interest payments until maturity date.
Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates.
Fundamental Analysis: Research to predict stock value that focuses on such determinants as
earnings and dividends prospects, expectations for future interest rates and risk evaluation of the
firm.
Future Value: The amount to which a current deposit will grow over a period of time when it is
placed in an account paying compound interest.
Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal
intervals will grow over a period of time when it is placed in an account paying compound interest.
Futures Contract: A commitment to deliver a certain amount of some specified item at some
specified date in the future.
Hedge: A combination of two or more securities into a single investment position for the purpose
of reducing or eliminating risk.
Income: The amount of money an individual receives in a particular time period.
Index Fund: A mutual fund that holds shares in proportion to their representation in a market
index, such as the S&P 500.
Initial Public Offering (IPO): An event where a company sells its shares to the public for the first
time. The company can be referred to as an IPO for a period of time after the event.

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Inside Information: Non-public knowledge about a company possessed by its officers, major
owners, or other individuals with privileged access to information.
Insider Trading: The illegal use of non-public information about a company to make profitable
securities transactions
Intrinsic Value: The difference of the exercise price over the market price of the underlying asset.
Investment: A vehicle for funds expected to increase its value and/or generate positive returns.
Investment Adviser: A person who carries on a business which provides investment advice with
respect to securities and is registered with the relevant regulator as an investment adviser.
IPO price: The price of share set before being traded on the stock exchange. Once the company
has gone Initial Public Offering, the stock price is determined by supply and demand.
Junk Bond: High-risk securities that have received low ratings (i.e. Standard & Poors BBB rating
or below; or Moodys BBB rating or below) and as such, produce high yields, so long as they do
not go into default.
Leverage Ratio: Financial ratios that measure the amount of debt being used to support
operations and the ability of the firm to service its debt.
Libor: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest
rates at which banks offer to lend unsecured funds to other banks in the London wholesale money
market (or interbank market). The LIBOR rate is published daily by the British Bankers Association
and will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are
prepared to accept deposits.
Limit Order: An order to buy (sell) securities which specifies the highest (lowest) price at which
the order is to be transacted.
Limited Company: The passive investors in a partnership, who supply most of the capital and have
liability limited to the amount of their capital contributions.
Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value.
Listing: Quotation of the Initial Public Offering companys shares on the stock exchange for public
trading.
Listing Date: The date on which Initial Public Offering stocks are first traded on the stock exchange
by the public
Margin Call: A notice to a client that it must provide money to satisfy a minimum margin
requirement set by an Exchange or by a bank / broking firm.
Market Capitalization: The product of the number of the companys outstanding ordinary shares
and the market price of each share.
Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to
make continuous two-sided quotes.
Market Order: An order to buy or an order to sell securities which is to be executed at the
prevailing market price.
Money Market: Market in which short-term securities are bought and sold.
Mutual Fund: A company that invests in and professionally manages a diversified portfolio of
securities and sells shares of the portfolio to investors.
Net Asset Value: The underlying value of a share of stock in a particular mutual fund; also used
with preferred stock.

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Offer for Sale: An offer to the public by, or on behalf of, the holders of securities already in issue.
Offer for Subscription: The offer of new securities to the public by the issuer or by someone on
behalf of the issuer.
Open-end (Mutual) Fund: There is no limit to the number of shares the fund can issue. The fund
issues new shares of stock and fills the purchase order with those new shares. Investors buy their
shares from, and sell them back to, the mutual fund itself. The share prices are determined by
their net asset value.
Open Offer: An offer to current holders of securities to subscribe for securities whether or not in
proportion to their existing holdings.
Option: A security that gives the holder the right to buy or sell a certain amount of an underlying
financial asset at a specified price for a specified period of time.
Oversubscribed: When an Initial Public Offering has more applications than actual shares
available. Investors will often apply for more shares than required in anticipation of only receiving
a fraction of the requested number. Investors and underwriters will often look to see if an IPO is
oversubscribed as an indication of the publics perception of the business potential of the IPO
company.
Par Bond: A bond selling at par (i.e. at its face value).
Par Value: The face value of a security.
Perpetual Bonds: Bonds which have no maturity date.
Placing: Obtaining subscriptions for, or the sale of, primary market, where the new securities of
issuing companies are initially sold.
Portfolio: A collection of investment vehicles assembled to meet one or more investment goals.
Preference Shares: A corporate security that pays a fixed dividend each period. It is senior to
ordinary shares but junior to bonds in its claims on corporate income and assets in case of
bankruptcy.
Premium (Warrants): The difference of the market price of a warrant over its intrinsic value.
Premium Bond: Bond selling above par.
Present Value: The amount to which a future deposit will discount back to present when it is
depreciated in an account paying compound interest.
Present Value of an Annuity: The amount to which a stream of equal cash flows that occur in
equal intervals will discount back to present when it is depreciated in an account paying
compound interest.
Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the companys
common stock. The price/earnings (P/E) ratio relates the companys earnings per share (EPS) to
the market price of its stock.
Privatization: The sale of government-owned equity in nationalized industry or other commercial
enterprises to private investors.
Prospectus: A detailed report published by the Initial Public Offering company, which includes all
terms and conditions, application procedures, IPO prices etc, for the IPO
Put Option: The right to sell the underlying securities at a specified exercise price on of before a
specified expiration date.

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Rate of Return: A percentage showing the amount of investment gain or loss against the initial
investment.
Real Interest Rate: The net interest rate over the inflation rate. The growth rate of purchasing
power derived from an investment.
Redemption Value: The value of a bond when redeemed.
Reinvestment Value: The rate at which an investor assumes interest payments made on a bond
which can be reinvested over the life of that security.
Relative Strength Index (RSI): A stocks price that changes over a period of time relative to that
of a market index such as the Standard & Poors 500, usually measured on a scale from 1 to 100,
1 being the worst and 100 being the best.
Repurchase Agreement: An arrangement in which a security is sold and later bought back at an
agreed price and time.
Resistance Level: A price at which sellers consistently outnumber buyers, preventing further price
rises.
Return: Amount of investment gain or loss.
Rights Issue: An offer by way of rights to current holders of securities that allows them to
subscribe for securities in proportion to their existing holdings.
Risk-Averse,
Risk-Neutral,
Risk-Taking:
Risk-averse describes an investor who requires greater return in exchange for greater risk.
Risk-neutral describes an investor who does not require greater return in exchange for greater
risk.
Risk-taking describes an investor who will accept a lower return in exchange for greater risk.
Senior Bond: A bond that has priority over other bonds in claiming assets and dividends.
Short Hedge: A transaction that protects the value of an asset held by taking a short position in a
futures contract.
Settlement: Conclusion of a securities transaction when a customer pays a broker/dealer for
securities purchased or delivered, securities sold, and receives from the broker the proceeds of a
sale.
Short Position: Investors sell securities in the hope that they will decrease in value and can be
bought at a later date for profit.
Short Selling: The sale of borrowed securities, their eventual repurchase by the short seller at a
lower price and their return to the lender.
Speculation: The process of buying investment vehicles in which the future value and level of
expected earnings are highly uncertain.
Stock Splits: Wholesale changes in the number of shares. For example, a two for one split doubles
the number of shares but does not change the share capital.
Subordinated Bond: An issue that ranks after secured debt, debenture, and other bonds, and
after some general creditors in its claim on assets and earnings. Owners of this kind of bond stand
last in line among creditors, but before equity holders, when an issuer fails financially.
Substantial Shareholder: A person acquires an interest in relevant share capital equal to, or
exceeding, 10% of the share capital.

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Support Level: A price at which buyers consistently outnumber sellers, preventing further price
falls.
Technical Analysis: A method of evaluating securities by relying on the assumption that market
data, such as charts of price, volume, and open interest, can help predict future (usually shortterm) market trends. Contrasted with fundamental analysis which involves the study of financial
accounts and other information about the company. (It is an attempt to predict movements in
security prices from their trading volume history.)
Time Horizon: The duration of time an investment is intended for.
Trading Rules: Stipulation of parameters for opening and intra-day quotations, permissible
spreads according to the prices of securities available for trading and board lot sizes for each
security.
Trust Deed: A formal document that creates a trust. It states the purpose and terms of the name
of the trustees and beneficiaries.
Underlying Security: The security subject to being purchased or sold upon exercise of the option
contract.
Valuation: Process by which an investor determines the worth of a security using risk and return
concept.
Warrant: An option for a longer period of time giving the buyer the right to buy a number of
shares of common stock in company at a specified price for a specified period of time.
Window Dressing: Financial adjustments made solely for the purpose of accounting presentation,
normally at the time of auditing of company accounts.
Yield (Internal rate of Return): The compound annual rate of return earned by an investment
Yield to Maturity: The rate of return yield by a bond held to maturity when both compound
interest payments and the investors capital gain or loss on the security are taken into account.
Zero Coupon Bond: A bond with no coupon that is sold at a deep discount from par value.

Created by: Sushil Kumar Kataria


Edited by: Team ExamPundit

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