BANKING AWARENESS

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 BANKING TERMS

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 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 this 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.3
 

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.
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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.

6. What is Inflation?
A: Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. 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.

7. What is 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 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. The rates reported below are based upon the prime rates on the first day of each respective month. Some banks use the name "Reference Rate" or "Base Lending Rate" to refer to their Prime Lending Rate.

9. What is Deposit Rate?
A: Interest Rates paid by a depository institution on the cash on deposit.

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.

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) A foreign company having a stake in a Indian Company.

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. 

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14. What is Fiscal Deficit?
A: It is the difference between the government’s total receipts (excluding borrowings) and total expenditure. Fiscal deficit in 2009-10 is proposed at 6.8% of GDP.

15. What is Revenue deficit?
A: It defines that, where the net amount received (by taxes & other forms) fails to meet the predicted net amount to be received by the government. Revenue deficit in 2009-10 is proposed at 4.8% of GDP.

16. What is GDP?
A: The Gross Domestic Product or GDP is a measure of all of the services and goods produced in a country over a specific period; classically a year. GDP during 2008-09 is 6.7%. 

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17. What is GNP?
A: Gross National Product is measured as GDP plus income of residents from investments made abroad minus income earned by foreigners in domestic market.

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. 

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TERMINOLOGY

Administered price	The price of a commodity fixed by govt. or some other institution. The market forces are not allowed to influence the price.
Ad valorem tax	The tax in which goods are taxed according to their value. For e.g., VAT is an ad valorem tax.
Appreciation	The increase in value of something with the time.
Arbitration	The settlement of a dispute with involvement of a third party agreeable to both the parties to the dispute. This is used as an alternative to the litigation.
Balance of trade	The balance between country’s exports and imports is called the balance of trade. The balance of trade is called negative if the imports are more than the exports and positive if the exports are more than the imports.
Balance sheet	Statement showing the assets and the liabilities of and enterprise on a particular date. This helps to understand the real financial position of the organization.
Bank rate	It is the rate at which the central bank of country (RBI in India) discounts the bills of the banks. In other words, it is the rate at which the central bank lends money to other banks.
Black money	It is the unaccounted money concealed from the tax authorities. It creates a parallel economy and puts adverse pressure on equitable distribution of wealth and income in the economy. This is the greatest challenge to the moves of the govt. to control inflation.
Blue chip	It is the share of well performing company. The investment is considered very safe.
Blue collar job	These are manual jobs performed by unskilled or semi-skilled workers in factories, etc.
Brain drain	Refers to leaving of country by intellectuals for better opportunities abroad. This deprives the country of the best talent and results in total loss of the expenditure incurred on the training.
Bridge loan	This is a loan given by bank for a short period to cover the temporary shortage of cash in an organization.
Budget	This is the document containing the proposals of the govt. for the coming financial year regarding the income and expenditure of the govt.
Census	This is the compilation of vital data of the country. In India, census is conducted every 10 years. This includes the data on population, occupation, income, health etc. and forms the bases for the future planning.
Clearing house	It is the place where banks meet and clear the negotiable instruments of each other.
Custom duty	This is the tax imposed on products imported from other countries.
Estate duty	This is the tax which is payable on the property passing from one person to other on death of the owner.
Deficit finance	This is a practice of spending more than earning by the govt. This practice enhances the inflation. However, this has become a very common practice throughout the world.
Devaluation	The deliberate lowering of value of the currency against the currencies of the world by a govt. This is considered to be the last resort to revive the economy and is eyed as a very desperate step.
Direct tax	A tax which is borne by the payee and is not passed onto somebody else. E.g. income tax, wealth tax, etc.
Indirect tax	A tax which is passed on by the payee to somebody else. E.g. Sales tax.
Giffin goods	The goods which have appositive relationship between the price and the demand. In other words, the demand of commodity is more if the price is more. The luxury items which are a status symbol, fall in this category.
Gross National Product	It is the money value of total output produced by nationals of a country during a year.
Gross domestic product	It is money value of all the final goods and services produced within the country during a year.
Inflation	The steady and sustained rise in general prices of commodities. The real value of money comes down with rising inflation.
Joint sector	The simultaneous presence of private and public sector is called joint sector.
Laissez faire	Literally meaning “leave us alone” This is the policy of minimum interference by govt. in the economy matters.
Mixed economy	The economic system in which both private and public sector co-exist.
Monopoly	It refers to market situation in which there is only one seller and he is in  position to control market supply and hence, the price.
Monopsony	It is the market situation in which there is only one buyer of a product. In other words, it is the buyer’s monopoly.
Net national product	If we deduct depreciation from Gross national product, the resultant is called net national product.