BANKING GLOSSARY Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services. As on date; fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals. Capital fund: Equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II. Tier-1 capital: A term used to refer to one of the components of regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital.
Tier-II Capital Refers to one of the components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital. PFRDA (PENSION FUND REGULATORY DEVELOPMENT AUTHORITY) was established by Government of India on 23 rd August, 2003. The Government has, through an executive order dated 10 th October 2003, mandated PFRDA to act as a regulator for the pension sector. The mandate of PFRDA is development and regulation of pension sector in India Real Time Gross Settlement (RTGS) System: RTGS is a funds transfer systems where transfer of money takes place from one bank to another on a "real time" and on "gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. "Gross settlement" means the transaction is settled on one to one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable. This was introduced in 2004 and settles all inter-bank payments and customer transactions above ` 2 lakh. NPS (NEW PENSION SCHEME) is a new contributory pension scheme introduced by the Central Government for its own new employees. Under the new pension system, each new central government employee will open a personal retirement account on joining
Page | 2
service. Every month, and till the employee retires or leaves government service, a part of the employee's salary will be transferred into this account. When the person retires, he will be able to use these savings to take care of the needs and expenses of his family during old age. Beneficial owner Account (B.O. account) / Demat Account: It is an account opened with a depository participant in the name of client for the purpose of holding and transferring securities.
Trading Account: An account which is opened by the broker in the name of the respective investor for the maintenance of transactions executed while buying and selling of securities.
Client Account / Bank Account: A bank account which is in the name of the respective client and is used for debiting or crediting money for trading in the securities market. The Regional Rural Banks (RRBs) were established with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected therewith National Electronic Funds Transfer (NEFT) System In November 2005, a more secure system was introduced for facilitating one-to-one funds transfer requirements of individuals / corporate. Available across a longer time window, the NEFT system provides for batch settlements at hourly intervals, thus enabling near real-time transfer of funds. Certain other unique features viz. accepting cash for originating transactions, initiating transfer requests without any minimum or maximum amount limitations, facilitating one- way transfers to Nepal, receiving confirmation of the date / time of credit to the account of the beneficiaries, etc., are available in the system Equity share, commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture. The holders of such shares are members of the company and have voting rights. Credit rating agency is an entity which assesses the ability and willingness of the issuer company for timely payment of interest and principal on a debt
Yield refers to the percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest paid on a bond or note. There are many different kinds of yields depending on the investment scenario and the characteristics of the investment. The yield on the government securities is influenced by various factors such as level of money supply in the economy, inflation, future interest rate expectations, borrowing program of the government & the monetary policy followed by the government.
Yield to Maturity (YTM) is the most popular measure of yield in the Debt Markets and is the percentage rate of return paid on a bond, note or other fixed income security if you buy and hold the security till its maturity date.
Clean Price and the Dirty Price in reference to trading in G-Securities. G-Secs are traded on a clean price (Trade price) but settled on the dirty price (Trade price + Accrued Interest). This happens, as the coupon payments are not discounted in the price, as is the case in the other non-govt. debt instruments.
Bank Draft Bankers draft is a negotiable claim drawn upon a bank. Drafts are as good as cash. The drafts cannot be returned and unpaid.
Page | 3
Bank Rate Bank rate is the rate of discount at which the central bank of the country discounts first class bills. It is the rate of interest at which the central bank lends money to the lower banking institutions. Bank rate is a direct quantitative method of credit control in the economy.
Commercial Bill- it is a bill of exchange drawn by the creditor on the debtor when the debtors acceptance is obtained the paper becomes the bill of exchange.
Commercial Bank Commercial bank is an institution of finance. It deals with the banking services through its branches in whole of the country operation of current accounts, deposits, granting of loans to individuals and companies etc. are various functions of the commercial bank
Clearing Bank Clearing Bank is one which settles the debits and credits of the commercial banks. Sometimes back number of transactions in the bank is large in number and due to lack of technology these banks came into purview. Now the bank performs these functions itself. NAV (Net asset value) The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV). Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.
Open-ended Fund/ Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. Soiled note: means a note which, has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note, and form the entire note. Intaglio Printing: The portrait of Mahatma Gandhi, Reserve Bank seal, Guarantee and promise clause, Ashoka Pillar Emblem and RBI Governor's signature are printed in intaglio i.e. in raised prints in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 banknotes.
Page | 4
Mutilated banknote is a banknote, of which a portion is missing or which is composed of more than two pieces. Imperfect banknote means any banknote, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated banknote. Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit. However, with the passage of time, the activities covered by banking business have widened and now various other services are also offered by banks. The banking services these days include issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services and online transfer of funds across the country / world Bank we can say that Bank is a financial institution that undertakes the banking activity. It accepts deposits and then lends the same to earn certain profit. Commodity market: These allow trading of various types of commodities including agriculture commodities and precious metals etc. Derivative Market: provides trading of instruments which help in controlling financial risk; Foreign Exchange Markets: This market facilitates trading of foreign exchange or trading of popular currencies of the world. American Depository Receipts popularly known as ADRs were introduced in the American market in 1927. ADR is a security issued by a company outside the U.S. which physically remains in the country of issue, usually in the custody of a bank, but is traded on U.S. stock exchanges. In other words, ADR is a stock that trades in the United States but represents a specified number of shares in a foreign corporation.
Capital Expenditure:- The total expenditure by the government on acquiring any asset that may include investment in shares, machinery, building or land. The scope of capital expenditure extends to payments, advancements or loans that are approved or sanctioned to the State governments, union territories, public sector undertakings by the Central government.
Budget Deficit: - When the expenditure becomes more than revenues, then the budgetary exercise is considered a failure as there is shortage of funds. Such a situation is said to be a 'Budget Deficit'.
Contingency Fund: - The fund that is used by the government in order to meet the unforeseen expenditure or in case to meet emergencies. The contingency fund is generally used when the government cannot wait for long for the parliament to authorise the expenses on the expenditure.
Disinvestment: -Government makes a number of investments in public sector undertakings. But when it dilutes its stake in these undertakings, it is defined as disinvestment.
Soft loan: A loan with a below-market rate of interest. Loans made by multinational development banks and the World Bank to developing countries. Typically, soft loans have extended grace periods in which only interest or service charges are due. They also offer longer amortization schedules and lower interest rates than conventional bank loans.
Page | 5
Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank undertakes to make payment in full when the instrument is presented by the payee for payment. The demand draft is made payable on a specified branch of a bank at a specified centre. In order to obtain payment, the beneficiary has to either present the instrument directly to the branch concerned or have it collected by his / her bank through the clearing mechanism
Indian Depository Receipts: SEBI has issued guidelines for foreign companies who wish to raise capital in India by issuing Indian Depository Receipts. Thus, IDRs will be transferable securities to be listed on Indian stock exchanges in the form of depository receipts. Such IDRs will be created by a Domestic Depositories in India against the underlying equity shares of the issuing company which is incorporated outside India.
Check Truncation: The conversion of data on a check into an electronic image after a check enters the processing system. Check truncation eliminates the need to return cancelled checks to customers.
Power of Attorney: A written instrument which authorizes one person to act as another's agent or attorney. The power of attorney may be for a definite, specific act, or it may be general in nature. The terms of the written power of attorney may specify when it will expire. If not, the power of attorney usually expires when the person granting it dies.
Depository Receipts are a type of negotiable (transferable) financial security, representing a security, usually in the form of equity, issued by a foreign publicly-listed company. However, DRs are traded on a local stock exchange though the foreign public listed company is not traded on the local exchange. Thus, the DRs are physical certificates, which allow investors to hold shares in equity of other countries. These types of instruments first started in USA in late 1920s and are commonly known as American depository receipt (ADR). Later on these have become popular in other parts of the world also in the form of Global Depository Receipts (GDRs). Some other common types of DRs are European DRs and International DRs. In nut shell we can say ADRs are typically traded on a US national stock exchange, such as the New York Stock Exchange (NYSE) or the American Stock Exchange, while GDRs are commonly listed on European stock exchanges such as the London Stock Exchange. Both ADRs and GDRs are usually denominated in US dollars, but these can also be denominated in Euros.
Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Derivative instruments A derivative is an instrument whose value is derived from the value of one or more underlying, which can be commodities, precious metals, currency, bonds, stocks, stocks indices, etc. Four most common examples of derivative instruments are Forwards, Futures, Options and Swaps. Forward contracts A forward contract is a customized contract between two parties, where settlement takes place on a specific date in future at a price agreed today. They are bilateral contracts and hence exposed to counter-party risk. Each contract is custom designed, and hence is unique in terms of contract size, expiration date and the asset type and quality. The contract price is generally not available in public domain. The contract has to be settled by delivery of the asset on expiration date. In case, the party wishes to reverse
Page | 6
the contract, it has to compulsorily go to the same counter party, which being in a monopoly situation can command the price it wants. Futures are exchange-traded contracts to sell or buy financial instruments or physical commodities for Future delivery at an agreed price. There is an agreement to buy or sell a specified quantity of financial instrument/ commodity in a designated Future month at a price agreed upon by the buyer and seller. To make trading possible, the exchange specifies certain standardized features of the contract. Depository can be compared to a bank. A depository holds securities (like shares, debentures, bonds, Government Securities, units etc.) of investors in electronic form. Besides holding securities, a depository also provides services related to transactions in securities.
Dematerialization is a process by which physical certificates are converted into electronic form.
Rematerialisation is the process of converting securities held in a demat account in electronic form back in physical certificate form.
Beneficial Owner (BO) When physical shares are converted in to electronic form, the depository becomes Registered owner in the books of the company and investors name is removed from books of the company. Depository is holding shares in its records on behalf of the investors who have opened a demat account with the depository. Hence all benefits are given to the actual investor who is called as a Beneficial Owner (BO) of the securities.
Depository Participant (DP) is an agent of the depository who is authorized to offer depository services to investors. Financial institutions, banks, custodians and stockbrokers complying with the requirements prescribed by SEBI/ Depositories can be registered as DP. Pledge is an activity of taking loan against securities by the investor. The investor is called as pledgor and his entity who is giving the loan against the securities is called as pledgee.
Cost-push inflation occurs when the price of inputs increases. Businesses must acquire raw materials, labour, energy, and capital to operate. If the price of these were to rise, it would reduce the ability of producers to generate output because their unit cost of production had increased. If these increases in production cost are relatively large and pervasive, the effect is to simultaneously create higher inflation, reduce real GDP, and increase the unemployment rate.
Demand-pull inflation occurs when spending on goods and services drives up prices. Demand-pull inflation is fueled by income, so efforts to stop it involve reducing consumer's income or giving consumers more incentive to save than to spend. Demand-pull inflation persists if the public or foreign sector reinforces it. Low taxes and profligate government spending exacerbate demand-pull inflation. A failure of the central bank to reign in the money supply also makes the demand-pull inflation worse.
Hyperinflation If government spending is financed by printing currency or by the central bank monetizing the debt, demand-pull inflation can become hyperinflation. Hyperinflation is defined as annual inflation of 100% or greater. All cases of hyperinflation have been accompanied by the government or central bank issuing too much money.
Stagflation: A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation. Stagflation occurs when the
Page | 7
economy isn't growing but prices are; which is not a good situation for a country to be in. This happened to a great extent during the 1970s, when world oil prices rose dramatically, fueling sharp inflation in developed countries. For these countries, including the U.S., stagnation increased the inflationary effects.
Stagnation A period of little or no growth in the economy. Economic growth of less than 2- 3% is considered stagnation. Sometimes used to describe low trading volume or inactive trading in securities. A good example of stagnation was the U.S. economy in the 1970s.
Stamp duty The tax placed on legal documents usually in the transfer of assets or property. Where enforced, this tax is placed on the transfer of homes, buildings, copyrights, land, patents and securities. The transfer of documents in locations where this law exists is only legally enforceable once they are stamped, which shows the amount of tax paid.
Duty A tax levied on certain goods, services or transactions. Duties are enforceable by law and are imposed on commodities or financial transactions, instead of individuals. The obligation of a person in authority, such as a fiduciary, to fullfil the responsibilities of his or her position Non Resident Indian (NRI) as per FEMA 1999 is an Indian citizen or Foreign National of Indian Origin resident outside India for purposes of employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period. An individual will also be considered NRI if his stay in India is less than 182 days during the preceding financial year. Money Market: Money market is a market for debt securities that pay off in the short term usually less than one year, for example the market for 90-days treasury bills. This market encompasses the trading and issuance of short term non equity debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc. Capital Market: Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets. Debentures: Bonds issued by a company bearing a fixed rate of interest usually payable half yearly on specific dates and principal amount repayable on particular date on redemption of the debentures. Debentures are normally secured / charged against the asset of the company in favour of debenture holder. Bonus Shares: Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. A broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI. Stock Plain and simple, a stock is a share in the ownership of a company. A stock represents a claim on the company's assets and earnings. Holding a company's stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim to everything the company owns. Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange. Margin Trading is trading with borrowed funds/securities. It is essentially a leveraging mechanism which enables investors to take exposure in the market over and above what is
Page | 8
possible with their own resources. SEBI has been prescribing eligibility conditions and procedural details for allowing the Margin Trading Facility from time to time. Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price. ASBA means Application Supported by Blocked Amount. ASBA is an application containing an authorization to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed. Day trading refers to buying and selling of securities within the same trading day such that all positions will be closed before the market close of the trading day. In the Indian securities market only retail investors are allowed to day trade. SCSB (Self Certified Syndicate Banks) is a bank, which is recognized as a bank capable of providing ASBA services to its customers. Direct Market Access (DMA) is a facility which allows brokers to offer clients direct access to the exchange trading system through the brokers infrastructure without manual intervention by the broker. Some of the advantages offered by DMA are direct control of clients over orders, faster execution of client orders, reduced risk of errors associated with manual order entry, greater transparency, increased liquidity, lower impact costs for large orders, better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools / algorithms for trading. Presently, DMA facility is available for institutional investors. Securities Transaction Tax (STT) is a tax being levied on all transactions done on the stock exchanges at rates prescribed by the Central Government from time to time. Pursuant to the enactment of the Finance (No.2) Act, 2004, the Government of India notified the Securities Transaction Tax Rules, 2004 and STT came into effect from October 1, 2004. Investor Protection Fund is the fund set up by the Stock Exchanges to meet the legitimate investment claims of the clients of the defaulting members that are not of speculative nature. SEBI has prescribed guidelines for utilisation of IPF at the Stock Exchanges. The Stock Exchanges have been permitted to fix suitable compensation limits, in consultation with the IPF/CPF Trust. It has been provided that the amount of compensation available against a single claim of an investor arising out of default by a member broker of a Stock Exchange shall not be less than Rs. 1 lakh in case of major Stock Exchanges viz., BSE and NSE, and Rs. 50,000/- in case of other Stock Exchanges. Electronic Funds Transfer (EFT) This retail funds transfer system introduced in the late 1990s enabled an account holder of a bank to electronically transfer funds to another account holder with any other participating bank. Available across 15 major centers in the country, this system is no longer available for use by the general public, for whose benefit a feature-rich and more efficient system is now in place, which is the National Electronic Funds Transfer (NEFT) system. Mobile Banking System Mobile phones as a medium for providing banking services have been attaining increased importance. Reserve Bank brought out a set of operating guidelines on mobile banking for banks in October 2008, according to which only banks which are licensed and supervised in India and have a physical presence in India are permitted to offer mobile banking after obtaining necessary permission from Reserve Bank. The guidelines focus on systems for security and inter-bank transfer arrangements through Reserve Bank's authorized systems. On the technology front the objective is to enable the development of inter-operable standards so as to facilitate funds transfer from one account to any other account in the same or any other bank on a real time basis irrespective of the mobile network a customer has subscribed to.
Page | 9
Oversight of Payment and Settlement Systems Oversight of the payment and settlement systems is a central bank function whereby the objectives of safety and efficiency are promoted by monitoring existing and planned systems, assessing them against these objectives and, where necessary, inducing change. By overseeing payment and settlement systems, central banks help to maintain systemic stability and reduce systemic risk, and to maintain public confidence in payment and settlement systems. The Payment and Settlement Systems Act, 2007 and the Payment and Settlement Systems Regulations, 2008 framed there under, provide the necessary statutory backing to the Reserve Bank of India for undertaking the Oversight function over the payment and settlement systems in the country. Over the counter market In this market, a participant, who wants to buy or sell a government security, may contact a bank / Primary Dealer / financial institution either directly or through a broker registered with SEBI and negotiate for a certain amount of a particular security at a certain price. Such negotiations are usually done on telephone and a deal may be struck if both counterparties agree on the amount and rate. In the case of a buyer, like an urban co-operative bank wishing to buy a security, the bank's dealer (who is authorized by the bank to undertake transactions in Government Securities) may get in touch with other market participants over telephone and obtain quotes. Offshore Banking Unit (OBU) of a bank is a deemed foreign branch of the parent bank situated within India, and shall undertake International Banking business involving foreign currency denominated assets and liabilities. Depository is an organization where the securities of a shareholder are held in the electronic form. This is done at the request of the shareholder through the medium of a Depository Participant (DP). A depository is similar to a Bank. If an Investor wants to utilize the services offered by a depository, he/she has to open an account with the depository through a DP. ECS (electronic clearing service) is a mode of electronic funds transfer for transactions that are repetitive and periodic in nature. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of amounts towards telephone / electricity / water dues, cess / tax collections, loan instalment repayments, periodic investments in mutual funds, etc. Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa using the services of a ECS Centre at a ECS location.
ECS Credit is used for affording credit to a large number of beneficiaries having accounts with bank branches at various locations within the jurisdiction of a ECS Centre by raising a single debit to an account of a bank (that maintains the account of the user institution). ECS Credit enables payment of amounts towards distribution of dividend, interest, salary, pension, etc., of the user institution.
ECS Debit is used for raising debits to a large number of accounts maintained with bank branches at various locations within the jurisdiction of a ECS Centre for single credit to an account of a bank (that maintains the account of the user institution). ECS Debit is useful for payment of telephone / electricity / water bills, cess / tax collections, loan instalment repayments, periodic investments in mutual funds, etc., that are periodic or repetitive in nature and payable to the user institution.
MICR is an acronym for Magnetic Ink Character Recognition. The MICR Code is a numeric code that uniquely identifies a bank-branch participating in the ECS Credit scheme. This is a 9 digit code to identify the location of the bank branch; the first 3 characters represent the
Page | 10
city, the next 3 the bank and the last 3 the branch. The MICR Code allotted to a bank branch is printed on the MICR band of cheque leaves issued by bank branches.
PIN (personal identification number) is a unique 4 digit number that allows you to access your account through Debit Card at ATMs. For safety, your PIN should always be kept completely confidential and your card too should remain in your possession and not to be handed over to anyone else. Neither writes PIN on the Back of the Debit card nor Keep Debit Card along with PIN. Debit Card provides access to ATMs for cash withdrawals, balance enquiries and mini statement, on-line electronic payment for purchases from your savings / current (individual) accounts. You can also transfer funds through ATM to your own / other accounts and also transfer / receive funds to / from any MasterCard or Maestro card holder (Debit or Credit card) of other selected banks. OMOs (open market operations) are the market operations conducted by the Reserve Bank of India by way of sale/ purchase of Government securities to/ from the market with an objective to adjust the rupee liquidity conditions in the market on a durable basis. When the RBI feels there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, the RBI will buy securities from the market, thereby releasing liquidity into the market. The Banking Codes and Standard Board of India (BCSBI) constituted a Working Group comprising members from select banks, Indian Banks Association, Rural Planning & Credit Department of Reserve Bank of India to formulate a Banking Code for SME Customers. On the basis of discussions with Industry Associations, banks, SIDBI and Government agencies, The Banking Codes and Standard Board of India (BCSBI) has formulated a Code of Bank's Commitment to Micro and Small Enterprises. This is a voluntary Code, which sets minimum standards of banking practices for banks to follow when they are dealing with Micro and Small Enterprises (MSEs) as defined in the Micro Small and Medium Enterprises Development (MSMED) Act, 2006 Sick unit As per the extant guidelines, a unit is considered as sick when any of the borrowal account of the unit remains substandard for more than 6 months or there is erosion in the net worth due to accumulated cash losses to the extent of 50% of its net worth during the previous accounting year and the unit has been in commercial production for at least two years. The criteria will enable banks to detect sickness at an early stage and facilitate corrective action for revival of the unit. Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990. It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors. Subsequently, primary dealers and all-India financial institutions were also permitted to issue CP to enable them to meet their short-term funding requirements for their operations
KYC is an acronym for Know your Customer, a term used for customer identification process. It involves making reasonable efforts to determine true identity and beneficial ownership of accounts, source of funds, the nature of customers business, reasonableness of operations in the account in relation to the customers business, etc which in turn helps the banks to manage their risks prudently. The objective of the KYC guidelines
Page | 11
is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering. A Government security is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Governments debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). Government securities carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. Government of India also issues savings instruments (Savings Bonds, National Saving Certificates (NSCs), etc.) or special securities (oil bonds, Food Corporation of India bonds, fertiliser bonds, power bonds, etc.). They are, usually not fully tradable and are, therefore, not eligible to be SLR securities. Gilt funds, as they are conveniently called, are mutual fund schemes floated by asset management companies with exclusive investments in government securities. The schemes are also referred to as mutual funds dedicated exclusively to investments in government securities. Government securities mean and include central government dated securities, state government securities and treasury bills. The gilt funds provide to the investors the safety of investments made in government securities and better returns than direct investments in these securities through investing in a variety of government securities yielding varying rate of returns gilt funds, however, do run the risk.. The first gilt fund in India was set up in December 1998. Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury bill of Rs.100/- (face value) may be issued at say Rs. 98.20, that is, at a discount of say, Rs.1.80 and would be redeemed at the face value of Rs.100/-. EMI: You repay the loan in Equated Monthly Installments (EMIs) comprising both principal and interest. Repayment by way of EMI starts from the month following the month in which you take full disbursement Micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh. Small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore Medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore
Authorised capital It is the maximum amount of capital the company is legally authorised to raise. Micro Credit It is a term used to extend small loans to very poor people for self- employment projects that generate income, allowing them to care for themselves and their families.
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
Page | 12
interest, in order to attain a set of objectives oriented towards the growth and stability of the economy. Active money is all the coins and paper currency in the hands of the public. The total value of coins and paper currency in circulation amongst the public. The amount of active money fluctuates seasonally, monthly, weekly and daily. In the United States, the Federal Reserve Banks distribute new currency for the US Treasury Department. Banks lend money out to customers which become classified as active money once it is actively circulated.
Estate duty is a tax on the total market value of a person's assets (cash and non-cash) at the date of his or her death. It does not matter if the person has a Will or not, the assets are still subject to estate duty. The deceased person's assets, as a whole, are called an estate.
Marginal Standing Facility Rate :Under this scheme, Banks will be able to borrow upto 1% of their respective Net Demand and Time Liabilities". The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission. In the policy statement RBI has also declared "The stance of monetary policy is, among other things, to manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission nor a large deficit choking off fund flows." RBI in its Monetary Policy announced on 03rd May, 2011 that it will soon be introducing Marginal Standing Facility (MSF). Later on RBI announced that MSF scheme has become effective from 09th May, 2011.
Volatility Index is a measure of expected stock market volatility, over a specified time period, conveyed by the prices of stock / index options. It depicts the collective sentiment of the market on the implied future volatility.
Bond: A negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan.
RMB is abbreviation for Ren Min Bi, when loosely translated into English means People's Money / notes. Which is the official currency of China: RMB is the official currency in China. What is the base unit for RMB: Yuan is the base unit for RMB - just as Dollar in USD. This is the currency system in China
Dear money which has to be borrowed at a high interest rate, and so restricts expenditure by companies A situation in which money or loans are very difficult to obtain in a given country. If you do have the opportunity to secure a loan, then interest rates are usually extremely high. Also known as "tight money". This situation can be a result of a restricted money supply, causing interest rates to be pushed up due to the forces of supply and demand. Businesses may have a tough time raising capital during a period of dear money. Letter of credit (L/C): A written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank). letter of hypothecation: Written agreement, which authorizes a bank or lender to repossess and sell the pledged item in case of a default. In international trade, a letter of hypothecation enables an accepting bank to sell the shipment in case of the non-acceptance or non-payment of the associated bill of exchange by the buyer.
Page | 13
Letter of indemnity: A written undertaking by a third party (such as a bank or insurance company), on behalf of one of the parties (the first party) to a transaction or contract, to cover the other party (the second party) against specific loss or damage arising out the action (or a failure to act) of the first party. Also called indemnity bond, bond of indemnity. Capital account: An account that tracks the movement of funds for investments and loans into and out of a country. The capital account makes up part of the balance of payments. An account in which a firm records expenditure on capital items.
LAF(liquidity adjustment facility) is a facility extended by the Reserve Bank of India to the scheduled commercial banks (excluding RRBs) and primary dealers to avail of liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an overnight basis against the collateral of Government securities including State Government securities. Basically LAF enables liquidity management on a day to day basis. The operations of LAF are conducted by way of repurchase agreements (repos and reverse repos) with RBI being the counter-party to all the transactions. The interest rate in LAF is fixed by the RBI from time to time
Non-performing assets A loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue. More generally, an asset which is not producing income.
Usance The length of time allowed for the payment of a bill of exchange.
Nifty is an indicator of all the major companies of the NSE. The Nifty represents the top stocks of the NSE. NSE is the National Stock Exchange. The NSE is situated at Delhi.
Zero coupon bond A bond issued at a discount (i.e. below par value), earning no interest but redeemable at its par value, thus providing a guaranteed capital gain.
Net worth: For a company, total assets minus total liabilities. Net worth is an important determinant of the value of a company, considering it is composed primarily of all the money that has been invested since its inception, as well as the retained earnings for the duration of its operation. Net worth can be used to determine creditworthiness because it gives a snapshot of the company's investment history also called owner's equity, shareholders' equity, or net assets. For an individual, the value of a person's assets, including cash, minus all liabilities. The amount by which the individual's assets exceed their liabilities is considered the net worth of that person. Merchant bank This is a specialist bank which advises large companies on mergers, takeovers, raising capital and so on.
Bancassurance Reserve Bank of India (RBI) has recognized "Bancassurance" wherein banks are allowed to provide physical infrastructure within their selected branch premises to insurance companies for selling their insurance products to the banks customers with adequate disclosure and transparency, and in turn earn referral fees on the basis of premium collected. This would utilize the resources in the banking sector in a more profitable manner.
Mutual fund An investment product in which money of many investors are pooled & professional manager(s) uses the pooled money to buy a portfolio of investments or securities, and monitors each of the investments on an ongoing basis. There are many varieties of mutual funds, each with specific objectives. By investing in a mutual fund, you purchase units of that fund. The value of your units can go up or down depending on the type and performance of the mutual fund.
Page | 14
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on printing the national currency, which usually serves as the nation's legal tender. Examples include the European Central Bank (ECB), the Federal Reserve of the United States, and the People's Bank of China.
The LIBOR (London interbank offered rate) is the world's most widely used benchmark for short-term interest rates. It's important because it is the rate at which the world's most preferred borrowers are able to borrow money. It is also the rate upon which rates for less preferred borrowers are based. For example, a multinational corporation with a very good credit rating may be able to borrow money for one year at LIBOR plus four or five points. Countries that rely on the LIBOR for a reference rate include the United States, Canada, Switzerland and the U.K. An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year. 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. SAVING DEPOSITS / ACCOUNTS: These deposits / 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. The interest on these accounts at present is regulated by Reserve Bank of India. Banks in India at present offer 4.00% p.a. interest rate on such deposits on daily balance basis. Under directions of RBI, now banks are also forced to open no frill accounts which do not have any minimum balance requirements. RECURRING DEPOSITS / ACCOUNTS: These kinds 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 instalments) 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. However, some Banks besides offering a fixed installment RD, have also introduced a flexible / variable RD. Under these flexible RDs the person is allowed to deposit even higher amount of installments, with an upper limit fixed for the same e.g. 10 times of the minimum amount agreed upon. Such accounts are normally allowed for maturities ranging from 6 months to 120 months. 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
Page | 15
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. FIXED DEPOSIT ACCOUNTS / TERM DEPOSITS 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 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 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. 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 earlier trend that private sector and foreign banks offer higher rate of interest is no more valid these days. However, small banks are forced to offer higher rate of interest to attract more deposits. 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
Appreciation (the opposite of depreciation) is the measure of a continued rise in the worth of an asset. In other words how an asset (whether that be a house, a product or a market) has gone from its initial value to a higher value. For example you may have bought your house in the 1980s and it has appreciated in value ever since. Of course in some economies it may have lost its value. In the property market causes of appreciation usually occur because of inflation. Bank accounts represent financial accounts in banks in which financial institutions hold money for account holders, resulting in a debt balance or positive balance. Alternatively, banks loan money to customers and this leads to a credit or negative balance. Bank accounts are used to deposit savings, unlike brokerage accounts which are used to sell and buy securities. Savings and checking accounts are two main types of bank accounts. An automated teller machine or ATM is a computerized device which serves bank clients by providing access to financial transactions (e.g. money withdrawals). This is done without a bank teller, clerk, or cashier. With ATMs, clients access their bank accounts and can check their account balance, make cash advance or cash withdrawal, or buy prepaid phone credit. An additional benefit is that you can withdraw money in another currency, which is converted at the daily exchange rate. In fact, automated teller machines offer the best possible rate in many cases. A bank account balance stands for the net of credits and debits of an account as of the end of every reporting period. This is applicable to all account types. The amount your bank owes you is shown in the bank account balance while what you owe to your credit card issuer is shown in the credit card balance. In simple words, an account balance is the money you presently have in your bank account. In banking, account balances give important information. They determine if account holders have enough money to cover living expenses,
Page | 16
outstanding debts, or emergency expenses. Account balances are also important in margin accounts as they determine whether account holders can carry out margin transactions. Banks are financial institutions that play the role of financial intermediaries, channeling funds between deficit and surplus sources. An example of an intermediary is a banking institution which turns deposits into loans. Financial intermediation is a function of banks through which certain liabilities and assets are transformed into different kinds of liabilities and assets. In this way, banking institutions channel funding from savers, who have deposited extra money, to borrowers who need additional financing for certain objectives and planned activities. Offshore banking is a type of banking conducted at an offshore bank, which is a bank located outside the depositors own country, usually in an area where the taxes are low, and there are other financial and legal benefits. These benefits include, but are not limited to greater privacy due to bank secrecy, easy access to deposits and protection against local economic, financial, or political risks. The term offshore banking is quite fitting because most offshore banks are located in islands, as was the very first one, from where the term originated. However, the term today has come to include banks in Switzerland, Luxembourg, and other landlocked countries in Europe and other places around the world. Repo rate Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive CRR Rate in India Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. Inflation is defined 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. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are 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. It can cause the money to be drawn out of the banking system. 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...What are the effects of Deflation? During deflation the price of goods and services is falling and consumers will tend to delay their purchases until prices fall further. This will cause for a lower production, lower wages and demand which will lead to further decrease in prices. This is known as deflationary spiral.
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.
Page | 17
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. With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds.
"Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfilment to the value of a specified real or financial asset or to an index of securities.
Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables the settlement of obligations arising out of the future/option contract in cash.
Options Contract is a type of Derivatives Contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer / holder of the option purchase the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc.
Bond index is used to measure the performance of bond markets. The index is used as a benchmark against which investment managers measure their performance. It is also used as a measure to compare the performance of different asset classes. The government bond market is the most liquid segment of the bond market.
Interest Rate Futures means a standardised interest rate derivative contract traded on a recognized stock exchange to buy and sell a notional security or any other interest bearing instrument or an index of such instruments or interest rates at a specified future date, at a price determined at the time of the contract.
Acquirer means any person who, whether by himself, or through, or with persons acting in concert with him, directly or indirectly, acquires or agrees to acquire shares or voting rights in, or control over a target company. An acquirer can be a natural person, a corporate entity or any other legal entity.
SENSEX was first formed on 1-1-1986 and used the market capitalization of the 30 most traded stocks of BSE. The base was 1979 and taken as 100. The 30 scrips of 1986 and no more the same - some have been removed while some have been added. At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions. SENSEX is the short term for the words "Sensitive Index" and is associated with the Bombay (Mumbai) Stock Exchange (BSE).
Page | 18
Currency futures are contracts to buy or sell a specific underlying currency at a specific time in the future, for a specific price. Currency futures are exchange-trade contracts and they are standardized in terms of delivery date, amount and contract terms. Currency future contracts allow investors to hedge against foreign exchange risk. Since these contracts are marked-to-market daily, investors can--by closing out their position--exit from their obligation to buy or sell the currency prior to the contract's delivery date
Retail banking is a type of banking with which financial transactions are executed with clients instead of other banks and corporations. Products and services provided include credit and debit cards, transactional and savings accounts, personal loans, mortgages, and many others. Retail banking is designed as a one-stop location for a number of financial products and services. Some retail banks even offer various investment services, including brokerage accounts, wealth management, retirement planning, and more. Some banks also have commercial and merchant branches that cater to businesses. Withdrawal the act of withdrawing the act of taking out money or other capital CHIP and PIN A Chip is a small electronic insert placed into a cheque or credit card. The PIN is a four digit personal identification number which is used with the card by the card-holderAbsolute Advantage: Country A has an absolute advantage over country B if the output per unit of input of A is higher than that of B. Accelerator PrincipleAccelerator Principle of a company is the growth in ouput of the company that would induce a continuation in net investment. Ad Valorem Tax: It is a tax based on the value of the property. Aggregate Demand: It is the total of all the demand in a country. It can also be expressed as Total Exports of a country Total imports of the country. Aggregate Supply: Total value of goods and services produced in an economy + {Imports-Exports} Asset: Any item of monetary value like bank accounts, real estate property, stocks,..etc Barter System: Trade which doesnt involve the exchange of money Bretton-Woods: It is a monetary system that existed from the year 1946-1973. In this monetary system the value of dollar was calculated using gold reserves and every other country held its currency at an exchange rate with US dollars.
Page | 19
Budget Deficit: Budget Deficit = Government Expenditure- Government Revenues. Call Money Market: It is the market in which the Dealers and brokers locate and borrow money to satisfy their investment needs. Capital Gains Tax: Tax paid for the profit made through the sale of an asset. Centrally planned economy: An economic system where the production & pricing of goods and services are determined by the government. Classical Economics: The theory emphasizes the fact that free market can regulate themselves. This theory was framed by Adam Smith, David Ricardo, Thomas Malthus and John Stuart Mill Closed economy: The economy is closed and doesnt have any contact with the rest of the world. Countervailing Duties: These are the duties that are imposed by a country on Foreign producers in order to neutralize the negative effects of other duties. Currency Appreciation: Increase in the value of a currency over the other. It takes place when the market exchange rates change. Current Account Deficit: Current account deficit= Export-Import Current GDP: Current GDP is GDP expressed in the current prices of the period being measured Customs Duty: Duty levied on imports. Direct Tax: These are the taxes that are levied on us directly. Taxes on Corporate Income, Capital Gains tax, Personal Income tax and Fringe benefit tax fall under this category. Dividends: It is the portion of the profits made by a company that is paid to the share holders. Exchange rate: Also called as Foreign Exchange Rates or FOREX of a country specifies how much the countrys currency is worth in terms of the other currency. Fiscal Deficit: Fiscal Deficit= Government Expenditure in the current fiscal year- Goverment Revenues in the fiscal year. Fiscal Policy: It is the use of government revenue to influence the countrys economic situation. Foreign Direct Investment: It is the investment made by a company in one country on building a factory in another country. Foreign Institutional Investor: Investor from a foreign country.
Page | 20
Free Trade: In this type of trade there is no tariffs to the imported or exported goods between two countries. Fringe Benefit: These are the benefits that are offered to employees in addition to their salaries like lunch coupons, cars, free petrol etc. GATT: The General Agreement on Tariffs and Trade{GATT} was created in 1947 as a replacement to International Trade Organization (ITO). GATT was replaced by World Trade Organization in the year 1995. Skewflation Skewflation refers to inflation in some commodities, deflation in others. Indias Economic survey 2010-11 says: The year 2010-11 has been a year of more than one such skewflationary episode. At the beginning of the calendar year 2010 and even in the first months of the fiscal year 2010-11 inflation was high for food grains, sugar, and pulses. During the course of the year, inflation in these commodities stabilized, but by November there was another spike in prices of another set of commodities, led by onions, cabbage, milk, and a couple of other products.