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FINANCE

The part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term
investments.

Money market

The trade in short-term loans between banks and other financial institutions. Money markets are used on a short-
term basis, usually for assets up to one year. Conversely, capital markets are used for long-term assets, which are
assets with maturities greater than one year.

Cash Reserve Ratio(CRR)

Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, Banks don't
hold these as cash with themselves but deposit such cases with Reserve Bank of India (RBI) / currency chests, which
is considered as equivalent 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.

Statutory Liquidity Ratio(SLR)

This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in the
form of gold, cash or other approved securities. Thus, we can say that it is the ratio of cash and some other approved
securities to liabilities (deposits).

Repo (Repurchase) rate

It is the rate at which the RBI lends short-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(Reduce money supply in the market), it increases the repo rate; similarly,
if it wants to make it cheaper for banks to borrow money(Increase money supply in the market), it reduces the repo
rate.

Reverse Repo rate

It 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.

Market capitalisation (market cap)

It is the total market value of the shares outstanding of a publicly traded company; it is equal to the share price
times the number of shares outstanding.

Speculation

It involves trading a financial instrument involving high risk, in expectation of significant returns. The motive is to
take maximum advantage of fluctuations in the market.

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G-Sec

A bond (or debt obligation) issued by a government authority, with a promise of repayment upon maturity that is
backed by the issuing government. Government securities may be issued by the government itself or by one of the
government agencies. These securities are considered low-risk since they are backed by the taxing power of the
government.

A company's bottom line can also be referred to as net earnings or net profits. The top line refers to a company's
gross sales or revenues.

Budget deficit

Status of financial health in which expenditures exceed revenue.

Bank assurance

An arrangement in which a bank and an insurance company form a partnership so that the insurance company can
sell its products to the bank's client base.

Generally Accepted Accounting Principles (GAAP)

GAAP, the common set of accounting principles, standards and procedures that companies use to compile their
financial statements.

General Anti-Avoidance Rule

It was introduced by Finance Minister Pranab Mukherjee in his Budget presented in March 2012 for the year starting
on 1 April 2012 with the objective to "counter aggressive tax avoidance schemes.

Amortization

It is an accounting term that refers to the process of allocating the cost of an intangible asset over a period of time. It
also refers to the repayment of loan principal over time.

Arbitrage

The simultaneous purchase and sale of an asset in order to profit from a difference in the price. Investors look for
this opportunity to earn a profit without any investment. This opportunity, however, doesn't exist for a long time.

Compound annual growth rate

The mean annual growth rate of an investment over a specified period longer than one year.

Inflation

It is described as a rise in the prices of goods and services in an economy over a period, generally, a year. Inflation
erodes the purchasing power of money.

Inflation rate = (this year’s price index – last year price index) / last year’s price index

Deflation

Deflation is a general decrease in the price level of goods and services. Deflation occurs when the inflation rate falls
below 0%. Deflation increases the real value of money.

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 Financial Statements
Balance Sheet

A balance sheet is a financial statement which tells us about the financial position of a company at a specific point in
time. It tells us about the financial health of a business. The two sides of the business are- Assets and Liabilities.

Income Statement

An income statement is a statement that covers the incomes and expenditures incurred by a company over a period
(a month, a quarter, a financial year).

Cash Flow Statement

This statement indicates about how much cash was consumed and spent over the period in question.

Economics
Economies of scale

They are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of
output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Diseconomies of scale

They are the forces that cause larger firms and governments to produce goods and services at increased per-unit
costs. The concept is the opposite of economies of scale. Examples: 1. Communication cost 2. Duplication of effort 3.
Office politics 4. Top-heavy companies 5. Slow response time.

Opportunity Cost

Opportunity cost is the loss of other alternatives when one alternative is chosen.

Balance of payments

Balance of payments is the record of all economic transactions between the residents of the country and the rest of
the world in a particular period.

Balance of trade

It is the difference between value of a country's imports and it's exports in the given period.

Dumping

In economics, "dumping" is a kind of predatory pricing, especially in the context of international trade. It occurs
when manufacturers export a product to another country at a price either below the price charged in its home
market or below its cost of production.

Gross domestic product (GDP)

It is the monetary value of all the finished goods and services produced within a country's borders in a specific time
period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well.

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Gross national product (GNP)

It is the market value of all the products and services produced in one year by labour and property supplied by the
citizens of a country.

Monetary policy

It is the process by which monetary authority of a country, generally a central bank, controls the supply of money in
the economy by exercising control over interest rates, in order to maintain price stability and achieve high economic
growth.

Fiscal policy

It is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's
economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money
supply.

Types of Industries-

1. Monopoly

It is characterized by a single seller of a product or commodity with no close substitutes. Monopoly has high barriers
to entry which protects it from competition and empowers them to choose the price at which they want to sell.

2. Perfect competition

It refers to the market in which many firms produce identical products, barriers to entry are low, and firms compete
with each other only by price.

3. Monopolistic competition

It is different from perfect competition in that products are not identical. There is differentiation based on product
quality, product features and marketing.

4. Monopsony

The concept is similar to 'Monopoly' except that a large buyer and not the seller controls a large proportion of the
market and drives the prices.

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