economics 2 markers

8/7/2019 economics 2 markers

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What are Swiss issues ?What is Swiss Formula ?

What is Public spending ?Expenditure by government, covering the military, health, education, infrastructure, development projects, and the cost of servicing (paying off the interest on

) overseas borrowing.

What is Gross domestic product (GDP) ?It refers to the market value of all goods and services produced within a country in a given period. It is often considered an indicator of a country's standard of living.

What are Plan and non plan expenditures ?Plan expenditure is spending on programmes under the Five-Year Plan, be it for creation of assets or payment of salaries. Once a plan scheme completes its durat

ion, the spending towards maintenance of the assets created and the salaries isnot treated as plan expenditure. For instance, building a new school may be a part of Plan expenditure, but once construction is over paying for the teachers and amenities will be Non-Plan expenditure. Non-Plan expenditure includes spendingon defence, interest payments and subsidies, among others.

What is Recapitalization ?Recapitalization allows one to sell part of his/her business and generate personal cash while still maintaining significant ownership in the business. While theaim of a recapitalization is normally to improve a company's debt/equity ratio,it can also be used to fend off a hostile takeover.

What Does Foreign Institutional Investor - FII Mean?An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. The term is usedmost commonly in India to refer to outside companies investing in the financialmarkets of India.

What does Foreign Direct Investment mean ?Foreign direct investment (FDI) refers to long term participation by country A i

nto country B. It usually involves participation in management, joint-venture, transfer of technology and expertise.

What is Nifty Junior ?The CNX Nifty Junior is an index for companies on the National Stock Exchange ofIndia. It represents the next rung of liquid securities after S&P CNX Nifty. Itconsists of 50 companies representing approximately 10% of the traded value ofall stocks on the National Stock Exchange of India.

What is Diamond coconut model ?The Diamond coconut model is an economic model constructed by the American econo


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mist and 2010 Nobel laureate Peter Diamond which analyzes how a search economy in which traders cannot find partners instantaneously operates.

The main implication of the model is that people's expectations as to the levelof aggregate activity play a crucial role in actually determining this level ofaggregate economic activity. A frequent interpretation of its conclusion, as applied to the labor market, is that the so called Natural Rate of Unemployment may

not be unique and even if it is unique, it may not be efficient. Diamond's model was of interest to new Keynesian economists who saw it as potential source ofcoordination failure, which could cause markets to fail to clear.

He envisioned an island (a closed economy) populated by individuals who only consume coconuts. Coconuts are obtained by being picked (they are "produced") frompalm trees at a cost. Because of a particular taboo existing on this island a person who has picked a coconut cannot consume it themselves but must find anotherperson with a coconut. At that point the two individuals can trade their respective coconuts and eat them. The key point is that when an individual finds a palm tree, because climbing the tree is costly, they will only be willing to climbit to get a coconut if there are a sufficiently high number of other individuals

who are willing to do likewise. If nobody else is obtaining coconuts then therewon't be any potential trading partners and climbing the tree is not worth it.Hence, what individuals believe others will do plays a crucial role in determining the overall outcome. As a result people's (fully rational) expectations become a self-fulfilling prophecy and the economy can wind up with multiple equilibria, most if not all of them characterized by inefficiency.

What is the role of National Payments Corporation of India ?Reserve Bank of India, after setting up of the Board for Payment and SettlementSystems in 2005, released a vision document incorporating a proposal to set up an umbrella institution for all the RETAIL PAYMENT SYSTEMS in the country. The core objective was to consolidate and integrate the multiple systems with varying

service levels into nation-wide uniform and standard business process for all retail payment systems. The other objective was to facilitate an affordable payment mechanism to benefit the common man across the country and help financial inclusion.

What Does Fiscal Drag Mean?Fiscal drag is an economics term referring to a situation where a government's net fiscal position (equal to its spending minus taxation) does not meet the netsavings goals of the private economy. This can result in deflationary pressure attributed to either lack of state spending or to excess taxation.

One cause of fiscal drag is the consequence of expanding economies with progressive taxation. In general, individuals are forced into higher tax brackets as their income rises. The greater tax burden can lead to less consumer spending. Forthe individuals pushed into a higher tax bracket, the proportion of income as tax has increased, resulting in fiscal drag.

This fiscal drag has the effect of reducing Aggregate Demand and becomes an example of deflationary fiscal policy. It could also be viewed as an automatic fiscal stabiliser because higher earnings growth will lead to higher tax and therefore moderate inflationary pressure in the economy.


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What is revenue deficit ?When the net amount received (revenues less expenditures) falls short of the projected net amount to be received. This occurs when the actual amount of revenuereceived and/or the actual amount of expenditures do not correspond with predict

ed revenue and expenditure figures. This is the opposite of a revenue surplus, which occurs when the actual amount exceeds the projected amount.

What is fiscal deficit ?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.

A fiscal deficit is regarded by some as a positive economic event. For example,economist John Maynard Keynes believed that deficits help countries climb out ofeconomic recession. On the other hand, fiscal conservatives feel that governmen

ts should avoid deficits in favor of a balanced budget policy.

What is 'rating inflation' ?A little less than 1 per cent of all corporate bonds get an AAA rating. During the lending boom, preceding the financial crash of 2007-09, close to 60 per centof all assetbackedsecurities were rated AAA. What was the magic behind these securities being rated so highly? The ability to create packages by mixing and matching mortgages can

cause some of this rating inflation. But there are other reasons as well. The popular practice of creating securities of different seniority can also contribute to this.

Suppose a bank sells two mortgages of ` 100 each and suppose each of these mortgages has a risk of default equal to one-eighth. Further assume that the risks ofthe two mortgages are un-correlated. Now, suppose that a clever finance consultant advises the bank to put these two mortgages together and create two new securities of Rs100 each and sell them off to two buyers. These two securities are,however, given different levels of seniority.

The junior security will see a default if any of the mortgages defaults. The senior security will incur a default only if both mortgages go into default. Note that the juniorsecurity is a little worse than one of the original mortgages because the risk of default is two-eighths. On the other hand, the senior security is vastly better because it is likethe original mortgage but with the risk of default reduced to one-sixty-fourth.It is this method of exploiting the laws of probability and elevating certain pools of mortgagesinto inflated rating categories that was among the causes of the lending boom. Since by mixing and matching nothing fundamental at aggregate level is changed, the subsequentfinancial meltdown was all but inevitable.


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What Does Purchasing Power Parity - PPP Mean?An economic theory that estimates the amount of adjustment needed on the exchang

e rate between countries in order for the exchange to be equivalent to each currency's purchasing power. In other words, the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in thesame currency.

What is Big Mac Index ?The Big Mac Index is published by The Economist as an informal way of measuringthe purchasing power parity (PPP) between two currencies and provides a test ofthe extent to which market exchange rates result in goods costing the same in different countries.

What is headline inflation ?The raw inflation figure as reported through the Wholesale Price Index (WPI) inIndia and released weekly by the Central Statistics Office. Like most of the price indices, WPI is based on Laspeyres formula for reason of practical convenience. Therefore, once the concept of wholesale price is defined and the base yearis finalized, the exercise of index compilation involve finalization of item basket, allocation of weights (W) at item, groups/ sub-groups level. Simultaneously, the exercise to collect base prices (Po), current prices (P1), finalization ofitem specifications, price data sources, and data collection machinery is undertaken.

What is Deflationary Spiral?It is a situation when decrease in the prices leads to lower production, lower wages and demand, which can lead to further decrease in the prices. A deflationary spiral is when decrease in prices lead to a vicious circle (a trouble leads toanother that aggravates the first).

What are Index of Industrial Production (IIP) numbers?IIP number is a measurement which represents the status of production in the industrial sector for a given period of time compared to a reference period of time. IIp number is one of the best statistical data, which helps us to measure thelevel of industrial activity in Indian economy. Please note that IIP data is a short-term indicator of our industrial growth till the actual results from AnnualSurvey of Industries (ASI) is published. IIP data is a very important indicatorto the Government for planning purposes and is also used by various organisations like Industrial Associations, Research Institutes, Financial Institues and Academicians.


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What is the significance of Repo rate, Reverse repo rate, SLR and CRR ?The repo rate, often referred to as the short term lending rate, is the interestcharged by the central bank on borrowings by commercial banks. A hike in the rates makes cost of borrowing costlier for the commercial banks.

The reverse repo rate, referred to as the short term borrowing rate, is the rateat which the central bank borrows money from commercial banks. A hike in this r

ate makes it more lucrative for banks to park funds with the RBI.

The cash reserve ratio and statutory liquidity ratio determines the amounts banks have to retain in liquid assets, gold and government bonds against deposits, and form a part of traditional instruments that help in checking liquidity in thesystem.

What is Tobin tax ?

A Tobin tax, suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another. The Tobintax was developed with the intention of penalizing short-term currency speculation, and to place a tax on all spot conversions of currency. Rather than a consumption tax paid by consumers, the Tobin tax was meant to apply to financial sector participants as a means of controlling the stability of a given country's currency. Money raised would be used to fight poverty and climate change in both home and abroad.

What is Robin hood tax ?

The Robin Hood tax is a package of financial transaction taxes, proposed by a campaigning group largely composed of civil society NGOs. The campaign has proposed to set taxes on a range of financial transactions - the rate would vary but would average at about 0.05%. The tax would be applied to those trading in financial products such as stocks, bonds, currencies, commodities, futures, and options.

What is Destination principle ?The principle in international taxation that value added taxes be kept only by the country where the taxed product is being sold. Under the destination principle, value added taxes are collected on imports and rebated on exports. Contrastswith the origin principle.

Following the destination principle, GST structure would include imports while exports would be zero-rated. For inter-State transactions in India, the State taxwould apply in the State of destination as opposed to that of origin.

What is GST ? How does it work ?

GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producers point and service providers point upto the retailers level. It is essentially a tax only on value addition at each stage, and a


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supplier at each stage is permitted to set-off, through a tax credit mechanism,the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Why is GST required ?The present forms of CENVAT and State VAT have remained incomplete in removing fully the cascading burden of taxes already paid at earlier stages. Besides, there are several other taxes, which both the Central Government and the State Government levy on production, manufacture and distributive trade, where no set-off is available in the form of input tax credit. These taxes add to the cost of goods and services through tax on tax which the final consumer has to bear. Since,with the introduction of GST, all the cascading effects of CENVAT and service tax would be removed with a continuous chain of set-off from the producers point tothe retailers point, other major Central and State taxes would be subsumed in GST and CST will also be phased out, the final net burden of tax on goods, under GST would, in general, fall. Since there would be a transparent and complete chai

n of set-offs, this will help widening the coverage of tax base and improve taxcompliance. This may lead to higher generation of revenues which may in turn lead to the possibility of lowering of average tax burden.

Why does introduction of GST require a Constitutional Amendment?The Constitution provides for delineation of power to tax between the Centre andStates. While the Centre is empowered to tax services and goods upto the production stage, the States have the power to tax sale of goods. The States do not have the powers to levy a tax on supply of services while the Centre does not havepower to levy tax on the sale of goods. Thus, the Constitution does not vest express power either in the Central or State Government to levy a tax on the supply

of goods and services. Moreover, the Constitution also does not empower the States to impose tax on imports. Therefore, it is essential to have Constitutional Amendments for empowering the Centre to levy tax on sale of goods and States forlevy of service tax and tax on imports and other consequential issues.

As part of the exercise on Constitutional Amendment, there would be a special attention to the formulation of a mechanism for upholding the need for a harmonious structure for GST along with the concern for the powers of the Centreand the States in a federal structure.

What is Octroi ?Tax on entry of goods for use/consumption within areas of the Local Bodies.

What are Taccavi loans ?Taccavi loans are both short term as well as long-term loans given to farmers bythe government generally in times of natural calamities and crises. The rate ofinterest is low.

What is an equity fund ?A mutual fund that invests principally in stocks. It can be actively or passively (index fund) managed.


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What is GATT?General Agreement on Tariffs and Trade. Treaty organization affiliated with theUnited Nations whose purpose was to facilitate international trade. The primaryactions of the organization were to freeze and reduce tariff levels on various commodities. GATT was created in 1947, and was originally intended to become a pa

rt of the International Trade Organization (ITO); however, the ITO failed to becreated, so the GATT was left as an independent organization. In 1994, GATT wassuperseded by the WTO.

What are Multilateral trade negotiations ?The term multilateral trade negotiations initially applied to negotiations between General Agreement on Tariffs and Trade (GATT) member nations conducted underthe auspices of the GATT and aimed at reducing tariff and nontariff trade barriers. In 1995 the World Trade Organization replaced the GATT as the administrativebody. A current round of multilateral trade negotiations was conducted in the Doha Development Agenda round.

Prior to the ongoing Doha Development Round, eight GATT sessions took place:

1st Round: Geneva Tariff Conference, 19472nd Round: Annecy Tariff Conference, 19493rd Round: Torquay Tariff Conference, 1950-514th Round: Geneva Tariff Conference, 1955-565th Round: Dillon Round, 1960-616th Round: Kennedy Round, 1963-677th Round: Tokyo Round , 1973-798th Round: Uruguay Round, 1986-94

What is Uruguay round ?The Uruguay Round was the 8th round of Multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986-1994 and embracing 123 countries as contracting parties. TheRound transformed the GATT into the World Trade Organization.The Round came into effect in 1995 and has been implemented over the period to 2000 (2004 in the case of developing country contracting parties) under the administrative direction of the newly created World Trade Organization (WTO).

What is Doha Development Round ?The Doha Development Round or Doha Development Agenda (DDA) is the current trade-negotiation round of the World Trade Organization (WTO) which commenced in November 2001. Its objective is to lower trade barriers around the world, which allows countries to increase trade globally. As of 2008, talks have stalled over a divide on major issues, such as agriculture, industrial tariffs and non-tariff barriers, services, and trade remedies. The most significant differences are between developed nations led by the European Union (EU), the United States (USA), and Japan and the major developing countries led and represented mainly by Brazil,China, India, South Korea, and South Africa. There is also considerable contention against and between the EU and the USA over their maintenance of agricultural subsidiesseen to operate effectively as trade barriers.


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What are NAMA products?NAMA refers to all products not covered by the Agreement on Agriculture. In other words, in practice, it includes manufacturing products, fuels and mining products, fish and fish products, and forestry products. They are sometimes referredto as industrial products or manufactured goods.

Why is NAMA so important?Over the past years, NAMA products have accounted for almost 90% of the world merchandise exports.

Why are there NAMA negotiations in the DDA?Despite the significant improvements in market access for NAMA products that previous GATT rounds and the Uruguay Round produced, tariffs continue to be an important barrier to world trade, as tariff peaks, high tariffs, and tariff escalation remain.

What are the four modes of GATS ?The General Agreement on Trade and Services covers all internationally-traded services for example, banking, telecommunications, tourism, professional services,etc. It alsodefines four ways (or modes) of trading services:

services supplied from one country to another (e.g. international telephonecalls), officially known as cross-border supply (in WTO jargon, mode 1) consumers or firms making use of a service in another country (e.g. tourism),officially consumption abroad (mode 2) a foreign company setting up subsidiaries or branches to provide services inanother country (e.g. foreign banks setting up operations in a country), officially

commercial presence (mode 3) individuals travelling from their own country to supply services in another(e.g. fashion models or consultants), officially presence of natural persons(mode 4).

What the difference between various mechanisms of TRIPS ?Copyrights, patents, trademarks, etc apply to different types of creations or inventions.They are also treated differently. Patents, industrial designs, integrated circuit designs, geographical indications and trademarks have to be registered in order to receive protection. The registration includes a description of what is being protected the invention, design, brandname, logo, etc and this description ispublic information.

Copyright and trade secrets are protected automatically according to specified conditions.They do not have to be registered, and therefore there is no need to disclose,for example, how copyrighted computer software is constructed. Other conditionsmay also differ, for example the length of time that each type of protection remains in force.

What is a Copyright ?The TRIPS agreement ensures that computer programs will be protected as literary


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works under the Berne Convention and outlines how databases should be protected.It also expands international copyright rules to cover rental rights. Authors ofcomputerprograms and producers of sound recordings must have the right to prohibit thecommercial rental of their works to the public. A similar exclusive right applies tofilms where commercial rental has led to widespread copying, affecting copyright

ownerspotential earnings from their films.

The agreement says performers must also have the right to prevent unauthorizedrecording, reproduction and broadcast of live performances (bootlegging) for noless than 50 years. Producers of sound recordings must have the right to preventtheunauthorized reproduction of recordings for a period of 50 years.

What is a Trademark ?A trademark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services toconsumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities.

What is a Geographical Indicator ?A place name is sometimes used to identify a product. This geographical indicationdoes not only say where the product was made. More importantly it identifies theproducts special characteristics, which are the result of the products origins.

Well-known examples include Champagne, Scotch, Tequila, and Roquefortcheese.

In many countries the protection afforded to geographical indications by law issimilar to the protection afforded to trademarks, and in particular, certification marks. Geographical indications law restricts the use of the GI for the purpose of identifying a particular type of product, unless the product or its constitute materials originate from a particular area and/or meet certain standards

What are Industrial designs ?An industrial design right is an intellectual property right that protects the visual design of objects that are not purely utilitarian. An industrial design consists of the creation of a shape, configuration or composition of pattern or color, or combination of pattern and color in three dimensional form containing aesthetic value. An industrial design can be a two- or three-dimensional pattern used to produce a product, industrial commodity or handicraft.

Under the TRIPS Agreement, industrial designs must be protected for at least 10years.Owners of protected designs must be able to prevent the manufacture, sale or importation

of articles bearing or embodying a design which is a copy of the protected design.


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What are Patents ?Patent protection must be available for both products and processes, inalmost all fields of technology. Governments can refuse to issue a patent for aninvention if its commercial exploitation is prohibited for reasons of public ord

er ormorality. They can also exclude diagnostic, therapeutic and surgical methods, plantsand animals (other than microorganisms), and biological processes for the productionof plants or animals (other than microbiological processes). TRIPS agreement says patent protection must be available for inventions for at least 20 years.

What is Anti-Dumping Agreement ?If a company exports a product at a price lower than the price it normally charg

eson its own home market, it is said to be dumping the product.

The WTO agreement does not pass judgement on dumping. Its focus is on how governments can or cannot reactto dumping it disciplines anti-dumping actions, and itis often called the Anti-Dumping Agreement.

GATT (Article 6) allows countries to take action against dumping. The Anti-Dumping Agreement clarifies and expands Article 6, and the two operate together.

What is TRIMS ?The Agreement on Trade Related Investment Measures (TRIMs) are rules that applyto the domestic regulations a country applies to foreign investors, often as part of an industrial policy. Policies such as local content requirements and tradebalancing rules that have traditionally been used to both promote the interestsof domestic industries and combat restrictive business practices are now banned. TRIMs are rules that restrict preference of domestic firms and thereby enableinternational firms to operate more easily within foreign markets. It also discourages measures which limit a companys imports or set targets for the company toexport (trade balancing requirements).

What are Non-tariff barriers ?Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports butare not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are enacted.

Non-tariff barriers to trade include import quotas, special licenses, unreasonable standards for the quality of goods, bureaucratic delays at customs, export restrictions, limiting the activities of state trading, export subsidies, countervailing duties, technical barriers to trade, sanitary and phyto-sanitary measures, rules of origin, etc.


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What is the difference between bound tarrifs and applied tarrifs ?Bound tariffs are those tariffs at which a country particularly in the World Trade Organization (WTO) context has agreed to not increase the rate of duty beyond. Once a rate has been bound, it can only be raised if all affected parties aresuitably compensated.

Applied tariffs are those that are actually applied by the country concerned. It

may be the bound rate, but frequently is not.

What are TBT(Technical Barriers to Trade) in WTO ?Technical regulations and product standards may vary from country to country. Having many different regulations and standards makes life difficult for producersand exporters. If regulations are set arbitrarily, they could be used as an excuse for protectionism.The Agreement on Technical Barriers to Trade tries to ensure that regulations, s

tandards, testing and certification procedures do not create unnecessary obstacles.

What is SPS - WTO ?Problem: How do you ensure that your countrys consumers are being supplied with food that is safe to eat safe by the standards you consider appropriate? And at thesame time, how can you ensure that strict health and safety regulations are notbeing used as an excuse for protecting domestic producers?

An agreement on how governments can apply food safety and animal and plant healt

h measures (sanitary and phytosanitary or SPS measures) sets out the basic rulesin the WTO.

What is Swiss Formula ?The Swiss Formula is a mathematical formula designed to cut and harmonize tariffrates in international trade. Several countries are pushing for its use in World Trade Organization trade negotiations. It was first introduced by the Swiss Delegation to the WTO during the current round of trade negotiations at the WTO, the Doha Development Round.

The aim was to provide a mechanism where maximum tariffs could be agreed, and where existing low tariff countries would make a commitment to some further reduction.

What is Comparative advantage proposed by David Ricardo ?In economics, the law of comparative advantage refers to the ability of a party(an individual, a firm, or a country) to produce a particular good or service ata lower opportunity cost than another party. It is the ability to produce a product with the highest relative efficiency given all the other products that could be produced. It can be contrasted with absolute advantage which refers to the

ability of a party to produce a particular good at a lower absolute cost than another.


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Comparative advantage explains how trade can create value for both parties evenwhen one can produce all goods with fewer resources than the other. The net benefits of such an outcome are called gains from trade. It is the main concept of the pure theory of international trade.

What is the role of EXIM bank ?Export-Import Bank of India is the premier export finance institution of the country, set up in 1982 under the Export-Import Bank of India Act 1981.

Government of India launched the institution with a mandate, not just to enhanceexports from India, but to integrate the countrys foreign trade and investment with the overall economic growth. Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment.

What is free trade area ?Free trade area is a type of trade bloc, a designated group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods and services traded between them.

What is common market ?Group formed by countries within a geographical area to promote duty free tradeand free movement of labor and capital among its members. European community (asa legal entity within the framework of European Union) is the best known example. Common markets impose common external tariff (CET) on imports from non-member

What is a Footloose industry ?Footloose industry is a general term for an industry that can be placed and located at any location without effect from factors such as resources or transport.These industries often have spatially fixed costs, which means that the costs ofthe products do not change despite where the product is assembled. Diamonds andcomputer chips are some examples of footloose industries.

What is a Hundi ?Hundis were legal financial instruments that evolved in India. Technically, a Hundi is an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order. Being a part of an informal system, hundis now have no legal status and were not covered under the Negotiable Instruments Act, 1881. They were mostly used as cheques by indigenous bankers.

What is a Repo Market ?

The repo market is one in which two participants agree that one will sell securities to another and make a commitment to repurchase equivalent securities on a future specified date, or on call, at a specified price. In effect, it is a way o


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f borrowing or lending stock for cash, with the stock serving as collateral.

What are Countervailing duties ?Countervailing duties (CVDs) are duties imposed under WTO Rules to neutralize the negative effects of subsidies. They are imposed after an investigation finds that a foreign country subsidizes its exports, injuring domestic producers in theimporting country.

What Does Hedge Mean?

Making an investment to reduce the risk of adverse price movements in an asset.Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

What Does Futures Mean?A financial contract obligating the buyer to purchase an asset (or the seller tosell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price.

What Does Option Mean?A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financialasset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).Call options give the option to buy at certain price, so the buyer would want the stock to go up. Put options give the option to sell at a certain price, so thebuyer would want the stock to go down.

What Does Call Mean?An option contract giving the owner the right (but not the obligation) to buy aspecified amount of an underlying security at a specified price within a specified time.

What Does Put Mean?An option contract giving the owner the right, but not the obligation, to sell aspecified amount of an underlying asset at a set price within a specified time.The buyer of a put option estimates that the underlying asset will drop below t

he exercise price before the expiration date.


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What is the difference between Options and Futures ?The primary difference between options and futures is that options give the holder the right to buy or sell the underlying asset at expiration, while the holderof a futures contract is obligated to fulfill the terms of his/her contract.

What Does Double Hedging Mean?Hedging a position by using futures and options, thereby doubling the size of the hedge.

What Does Eurobond Mean?A bond issued in a currency other than the currency of the country or market inwhich it is issued. Usually, a eurobond is issued by an international syndicateand categorized according to the currency in which it is denominated. A eurodollar bond that is denominated in U.S. dollars and issued in Japan by an Australian

company would be an example of a eurobond. The Australian company in this example could issue the eurodollar bond in any country other than the U.S.

What Does Tax Evasion Mean?An illegal practice where a person, organization or corporation intentionally av

oids paying his/her/its true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties.

What Does Tax Avoidance Mean?The use of legal methods to modify an individual's financial situation in orderto lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal.

What Does Tax Haven Mean?A country that offers individuals and businesses little or no tax liability.

What Does Angel Investor Mean?An investor who provides financial backing for small startups or entrepreneurs.Angel investors are usually found among an entrepreneurs family and friends. Thecapital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.


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What Does Venture Capitalist Mean?An investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to public funding. Venture capitalists usually expect higher returns for the additional risks taken.

What Is the Difference Between an Angel Investor & a Venture Capitalist?Angel investors are usually wealthy individuals (or occasionally groups of individuals) who invest their own independently earned funds. Venture capital operations are corporate entities that use funds from other investors--sometimes largeinstitutions--and manage that money by investing it in growth businesses.

What Does Mid Cap Mean?A company with a market capitalization between $2 and $10 billion, which is calculated by multiplying the number of a company's shares outstanding by its stock

price. Mid cap is an abbreviation for the term "middle capitalization". As thename implies, a mid cap company is in the middle of the pack between large cap and small cap companies.

What Does Blue Chip Mean?A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services. Blue chip companies are known to weather downturns and operate profitably in the face ofadverse economic conditions, which helps to contribute to their long record ofstable and reliable growth.

What is NASDAQ ?"NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". A computerized system that facilitates trading and provides price quotations on more than 5,000 of the more actively traded over the counter stocks. Created in 1971, the Nasdaq was the world's first electronic stock market. The Nasdaq is traditionally home to many high-tech stocks, such as Microsoft,Intel, Dell and Cisco.

What Does New York Stock Exchange - NYSE Mean?A stock exchange based in New York City, which is considered the largest equities-based exchange in the world based on total market capitalization of its listedsecurities.

What is parallel economy ?A black economy is also known as an underground economy. It is a type of marketwhere many of the rules of taxation and trade are not adhered to. It is also referred to as underdog, black market, shadow economy and parallel economy.

Feige defines hidden economy as including those economic activities which go unreported or are unmeasured by the society's current techniques for monitoring activity.


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What Does Disinflation Mean?A slowing in the rate of price inflation. Disinflation is used to describe insta

nces when the inflation rate has reduced marginally over the short term. Although it is used to describe periods of slowing inflation, disinflation should not be confused with deflation.

Disinflation is commonly used by the Federal Reserve to describe situations of slowing inflation. Instances of disinflation are not uncommon and are viewed as normal during healthy economic times. Although sometimes confused with deflation,disinflation is not considered to be as problematic because prices do not actually drop and disinflation does not usually signal the onset of a slowing economy.

What Does Stagnation Mean?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.

What is Stagflation ?A condition of slow economic growth and relatively high unemployment - a time ofstagnation - accompanied by a rise in prices, or inflation.

Stagflation occurs when the 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 increasedthe inflationary effects.

What is trickle down theory ?An economic theory which advocates letting businesses flourish, since their profits will ultimately trickle down to lower-income individuals and the rest of theeconomy.Proponents of this theory believe that when government helps companies, they will produce more and thereby hire more people and raise salaries. The people, in turn, will have more money to spend in the economy.

What is Tier 1 Capital ?A term used to describe the capital adequacy of a bank. Tier I capital is core capital, this includes equity capital and disclosed reserves. Tier 1 capital refers to the financial health of a bank. Often used by regulatory agencies in developed economies, tier 1 capital is looked upon to determine the solvency of a fin

ancial institution.


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What is Tier 2 capital ?A term used to describe the capital adequacy of a bank. Tier II capital is secondary bank capital that includes items such as undisclosed reserves, general lossreserves, subordinated term debt, and more. Tier 2 capital is a measure of a bank's financial strength with regard to the second most reliable form of financial capital from a regulatory point of view.

What does Tier 3 Capital mean?Tertiary capital held by banks to meet part of their market risks, that includesa greater variety of debt than tier 1 and tier 2 capitals. Tier 3 capital debtsmay include a greater number of subordinated issues, undisclosed reserves and general loss reserves compared to tier 2 capital.

What is Capital Adequacy Ratio (CAR) ?

A measure of a bank's capital. It is expressed as a percentage of a bank's riskweighted credit exposures. This ratio is used to protect depositors and promotethe stability and efficiency of financial systems around the world.

CAR = (Tier One Capital + Tier Two Capital) / Risk Weighted Assets

What is Human Development Report ?The Human Development Report is an independent report, commissioned by UNDP since 1990. Four new composite indices for human development have been developed --

the Human Development Index, the Inequality-adjusted Human Development Index, the Gender Inequality Index and the Multidimensional Poverty Index to capture important aspects of the distribution of well-being for inequality, gender equity and poverty.

What is the New Methodology adopted for HDI from 2010 ?Starting with the 2010 report the HDI combines three dimensions:1. A long and healthy life: Life expectancy at birth2. Access to knowledge: Mean years of schooling and Expected years of schooling3. A decent standard of living: GNI per capita (PPP US$)

What is the difference between old and new methodology for calc. of HDI ?Health is still measured by life expectancy at birth. But the 2010 HDI measuresachievement in "knowledge" by combining the expected years of schooling for a school-age child in a country today with the mean years of prior schooling for adults aged 25 and older. The income measurement, meanwhile, has changed from purchasing-power-adjusted per capita Gross Domestic Product (GDP) to purchasing-power-adjusted per capita Gross National Income (GNI); GNI includes remittances and foreign assistance income, for example, providing a more accurate economic picture of many developing countries.


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What is "Inequality-adjusted HDI (IHDI)" ?It is a "measure of the average level of human development of people in a society once inequality is taken into account. It captures the HDI of the average person in society, which is less than the aggregate HDI when there is inequality inthe distribution of health, education and income. Under perfect equality, the HDI and IHDI are equal; the greater the difference between the two, the greater the inequality."

What is Gender Inequality Index ?The Gender Inequality Index is a composite measure reflecting inequality in achievements between women and men in three dimensions: reproductive health, empowerment and the labour market. It varies between zero (when women and men fare equally) and one (when men or women fare poorly compared to the other in all dimensions).

The health dimension is measured by two indicators: maternal mortality ratio and

the adolescent fertility rate. The empowerment dimension is also measured by two indicators: the share of parliamentary seats held by each sex and by secondaryand higher education attainment levels. The labour dimension is measured by womens participation in the work force. The Gender Inequality Index is designed to reveal the extent to which national human development achievements are eroded bygender inequality, and to provide empirical foundations for policy analysis andadvocacy efforts.

What is Multidimensional Poverty Index (MPI) ?Like development, poverty is multidimensional but this is traditionally ignored

by headline figures. The Multidimensional Poverty Index (MPI) is a new measure designed to capture the severe deprivations that people face at the same time. The Multidimensional Poverty Index (MPI) identifies multiple deprivations at the individual level in health, education and standard of living. According to the 2010 Human Development Report (HDR) about 1.7 billion people in the countries covered a third of their entire population - live in multidimensional poverty.

What is Human Poverty Index (HPI) ?Rather than measure poverty by income, the HPI uses indicators of the most basicdimensions of deprivation: a short life, lack of basic education and lack of access to public and private resources. The HPI concentrates on the deprivation inthe three essential elements of human life already reflected in the HDI: longevity, knowledge and a decent standard of living. The HPI is derived separately for developing countries (HPI-1) and a group of select high-income OECD countries(HPI-2) to better reflect socio-economic differences and also the widely different measures of deprivation in the two groups.

1. The first deprivation relates to survival: the likeliness of death at a relatively early age and is represented by the probability of not surviving to ages 40 and 60 respectively for the HPI-1 and HPI-2.

2. The second dimension relates to knowledge: being excluded from the world of reading and communication and is measured by the percentage of adults who are illiterate.


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3. The third aspect relates to a decent standard of living, in particular, overall economic provisioning.

What are Gender-related Development Index (GDI) and Gender Empowerment Measure (GEM) ?The Human Development Report 1995 introduced two new measures of human development that highlight the status of women. The first, Gender-related Development Index (GDI), measures achievement in the same basic capabilities as the HDI does, but takes note of inequality in achievement between women and men. The methodology used imposes a penalty for inequality, such that the GDI falls when the achievement levels of both women and men in a country go down or when the disparity between their achievements increases. The greater the gender disparity in basic capabilities, the lower a country's GDI compared with its HDI. The GDI is simply the HDI discounted, or adjusted downwards, for gender inequality.

The second measure, Gender Empowerment Measure (GEM), is a measure of agency. Itevaluates progress in advancing women's standing in political and economic forums. It examines the extent to which women and men are able to actively participate in economic and political life and take part in decision-making. While the GDI focuses on expansion of capabilities, the GEM is concerned with the use of those capabilities to take advantage of the opportunities of life.

What are the limitations of previous gender indices - GDI and GEM ?The GDI is not a measure of gender inequality; it is the HDI adjusted for gender

disparities in its basic components and cannot be interpreted independently ofthe HDI. The difference between the HDI and the GDI appears to be small becausethe differences captured in the three dimensions tend to be small, giving a misleading impression that gender gaps are irrelevant.

GEM indicators reflect a strong elite bias making the measure more relevant fordeveloped countries and urban elites in developing countries.

What are Genuine Savings ?Genuine savings is a simple indicator devised by World Bank researchers to assess an economy's sustainability. It defines wealth more broadly than orthodox national accounts, and recalculates national savings figures based on this new definition.Genuine savings aim to represent the value of the net change in the whole range ofassets that are important for development: produced assets, natural resources,environmental quality, human resources, and foreign assets.

The Bank explains that genuine savings figures differ from standard national accountscalculations in that they:a) deduct the value of depletion of natural resources (where forests, water and

otherassets are unsustainably managed);b) deduct pollution damages, including lost welfare in the form of human sicknes


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sand health;c) treat current expenditure on education (on books, teachers salaries, etc.) assaving rather than as consumption, as it increases countries human capital;d) deduct net foreign borrowing and add net official transfers;e) deduct the value of resource depletion.

What is Green Index?The term Green index is a numerical indicator of the measures of various parameters that have an impact on the environment. It indicates ones (organisation, business or product) responsibility to the Earth, to Its entire creatures and to the human beings. It aims to promote sustainability.

What is Green GDP ?The green gross domestic product (green GDP) is an index of economic growth withthe environmental consequences of that growth factored in. Green GDP monetizesthe loss of biodiversity, and accounts for costs caused by climate change.

The most promising national activity on the Green GDP has been from India. The country's Environmental Minister, Jairam Ramesh, stated in 2009 that It is possible for scientists to estimate green GDP. An exercise has started under the countrys chief statistician Pronab Sen and by 2015, Indias GDP numbers will be adjustedwith economic costs of environmental degradation."

What is RBI's role with regard to conduct of Government's banking transaction?In terms of Section 20 of the RBI Act 1934, RBI has the obligation to undertakethe receipts and payments of the Central Government and to carry out the exchange, remittance and other banking operations, including the management of the public debt of the Union. Further, as per Section 21 of the said Act, RBI has the right to transact Government business of the Union in India.

State Government transactions are carried out by RBI in terms of the agreement entered into with the State Governments in terms of section 21 A of the Act. As of now, such agreements exist between RBI and all the State Governments except with the Govts of Jammu and Kashmir and Sikkim.

What is OLTAS?Online Tax Accounting System (OLTAS) is a system introduced in April, 2004 for collection, accounting and reporting receipts and payments of Direct Taxes on-line through a network of bank branches. The tax payers data flow from banks directly to Tax Information Network (TIN) maintained by National Securities DepositoryLtd.


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What is the Banking Ombudsman Scheme?The 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.

Who is a Banking Ombudsman?The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.

What is Commercial Paper (CP) ?Commercial Paper (CP) is an unsecured money market instrument issued in the form

of a promissory note. 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 satellite dealers were also permitted to issue CP to enable themto meet their short-term funding requirements for their operations. So, now Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) areeligible to issue CP. CP can be issued for maturities between a minimum of 15 days and a maximum up to one year from the date of issue.

What is Micro Credit ?

Micro Credit is defined as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urbanareas for enabling them to raise their income levels and improve living standards. Micro Credit Institutions are those which provide these facilities.

What are the terms & conditions for accessing micro credit ?Banks have been given freedom to formulate their own lending norms keeping in view ground realities. They have been asked to devise appropriate loan and savingsproducts and the related terms and conditions including size of the loan, unitcost, unit size, maturity period, grace period, margins, etc. Such credit coversnot only consumption and production loans for various farm and non-farm activities of the poor but also include their other credit needs such as housing and shelter improvements.

What is a Self-Help Group (SHG) ?A Self-Help Group (SHG) is a registered or unregistered group of micro entrepreneurs having homogenous social and economic background voluntarily, coming together to save small amounts regularly, to mutually agree to contribute to a commonfund and to meet their emergency needs on mutual help basis. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment thereof. In fact, peer pressure has been recognized as an effective substitute for collaterals.


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What does the priority sector comprise ?Ans : Broadly, the priority sector comprises the following :1. Agriculture2. Small scale industries (including setting up of industrial estates)3. Small business (Original cost of equipment used for business not to exceed Rs

20 lakh)4. Retail trade (advances to private retail traders upto Rs.10 lakh)5. Professional and self-employed persons (borrowing limit not exceeding Rs.10 lakh of which not more than Rs.2 lakh for working capital; in the case of qualified medical practitioners setting up practice in rural areas, the limits are Rs 15 lakh and Rs 3 lakh respectively and purchase of one motor vehicle within theselimits can be included under priority sector)6. State sponsored organisations for Scheduled Castes/Scheduled Tribes7. Education (educational loans granted to individuals by banks)8. Housing9. Consumption loans (under the consumption credit scheme for weaker sections)10. Micro-credit provided by banks either directly or through any intermediaty;

Loans to self help groups(SHGs) / Non Governmental Organisations (NGOs) for onlending to SHGs11. Loans to specified industries in the food and agro-processing sector havinginvestment in plant and machinery up to Rs 5 crore.12. Investment by banks in venture capital (venture capital funds/ companies registered with SEBI)

What type of investments made by banks are reckoned under priority sector ?Investments made by the banks in special bonds issued by the following specified

institutions could be reckoned as part of priority sector advances:State Financial Corporations (SFCs)/State Industrial Development Corporations (SIDCs)Rural Electrification Corporation (REC)NABARDSmall Industries Development Bank of India (SIDBI)The National Small Industries Corporation Ltd. (NSIC)National Housing Bank (NHB)Housing & Urban Development Corporation (HUDCO)

What are the weaker sections within the priority sector ?The weaker sections under priority sector include the following:1. Small and marginal farmers with land holding of 5 acres and less and landlesslabourers, tenant farmers and share croppers.2. Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000/-3. Beneficiaries of Swarnjayanti Gram Swarojgar Yojana (SGSY)4. Scheduled Castes and Scheduled Tribes5. Beneficiaries of Differential Rate of Interest (DRI) scheme6. Beneficiaries under Swarna Jayanti Shahari Rojgar Yojana (SJSRY)7. Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavanger

s (SLRS).8. Self Help Groups (SHGs)


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What is the meaning of "I promise to pay" clause on bank note?As per Section 26 of Reserve Bank of India Act, 1934, the Bank is liable to pay

the value of banknote. This is payable on demand by RBI, being the issuer. The Bank's obligation to pay the value of banknote does not arise out of a contract but out of statutory provisions.

The promissory clause printed on the banknotes i.e., "I promise to pay the bearer an amount of X" is a statement which means that the banknote is a legal tenderfor X amount. The obligation on the part of the Bank is to exchange a banknotefor coins of an equivalent amount.

Why is One Rupee liability of the Government of India?The Government of India derives authority to issue Rupee coins from the CoinageAct. As such the rupee coins issued by Government constitute the liabilities ofthe Government.The Government of India has the sole right to mint coins. Coins are minted at the four India Government Mints at Mumbai, Alipore(Kolkata), Saifabad(Hyderabad),Cherlapally (Hyderabad) and NOIDA (UP).

What is the role of the Reserve Bank of India in currency management?The Reserve Bank derives its role in currency management from the Reserve Bank of India Act, 1934.The Reserve Bank manages currency in India. The Government, on

the advice of the Reserve Bank, decides on various denominations of banknotes to be issued. The Reserve Bank also co-ordinates with the Government in the designing of banknotes, including the security features. The Reserve Bank estimates the quantity of banknotes that are likely to be needed denomination-wise and accordingly, places indent with the various printing presses. Banknotes received from banks and currency chests are examined and those fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of banknotes in circulation.

What is the role of Government of India in currency management?In terms of Section 25 of RBI Act, 1934 the design of banknotes is required to be approved by the Central Government on the recommendations of the Central Boardof the Reserve Bank of India. The responsibility for coinage vests with the Government of India on the basis of the Coinage Act, 1906 as amended from time to time. The Government of India also attends to the designing and minting of coinsin various denominations.

Who decides on the volume and value of banknotes to be printed and on what basis

?The Reserve Bank decides the volume and value of banknotes to be printed each year. The quantum of banknotes that needs to be printed, broadly depends on the re


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quirement for meeting the demand for banknotes due to inflation, GDP growth, replacement of soiled banknotes and reserve stock requirements.

Who decides on the quantity of coins to be minted?The Government of India decides the quantity of coins to be minted on the basisof indents received from the Reserve Bank.

What is a currency chest?To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has authorised select branches of scheduled banks to establish Currency Chests. These are actually storehouses where banknotes and rupee coins are stocked on behalf of the Reserve Bank.

What is a small coin depot?Some bank branches are also authorised to establish Small Coin Depots to stock small coins. The Small Coin Depots also distribute small coins to other bank branches in their area of operation.

Intaglio Printing: The portrait of Mahatma Gandhi, Reserve Bank seal, Guaranteeand promise clause, Ashoka Pillar Emblem and RBI Governor's signature are print

ed in intaglio i.e. in raised prints in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000banknotes.

What is Liberalised Remittance Scheme ?The Reserve Bank of India had announced a Liberalised Remittance Scheme (the Scheme) in February 2004 as a step towards further simplification and liberalization of the foreign exchange facilities available to resident individuals. As per the Scheme, resident individuals may remit up to USD 200,000 per financial year for any permitted capital and current account transactions or a combination of both.

Who (of persons living outside India) can purchase immovable property in India?Under the general permission available, the following categories can freely purchase immovable property in India:i) Non-Resident Indian (NRI)- that is a citizen of India resident outside Indiaii) Person of Indian Origin (PIO)- that is an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan), who

1. at any time, held Indian passport, or 2. who or either of whose father or grandfather was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955). The general permission, however, covers only p


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urchase of residential and commercial property and not for purchase of agricultural land / plantation property / farm house in India.

Whether NRI/PIO can acquire agricultural land/ plantation property / farm housein India?No. Since general permission is not available to NRI/PIO to acquire agriculturalland/ plantation property / farm house in India, such proposals will require specific approval of Reserve Bank and the proposals are considered in consultationwith the Government of India.

What is the Asian Clearing Union (ACU)?

The Asian Clearing Union (ACU) was established with its head quarters at Tehran,Iran, on December 9, 1974 at the initiative of the United Nations Economic andSocial Commission for Asia and Pacific (ESCAP), for promoting regional co-operation. The main objectives of a clearing union are to facilitate payments among member countries for eligible transactions on a multilateral basis, thereby economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the participating countries.

Who are the members of the ACU?The Central Banks and the Monetary Authorities of Iran, India, Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka, Myanmar and Maldives are currently the members of

the ACU.

What is the unit of settlement of ACU transactions?The Asian Monetary Units (AMUs) is the common unit of account of ACU and is denominated as ACU Dollar and ACU Euro, which is equivalent in value to one US Dollar and one Euro, respectively. All instruments of payment under ACU have to be denominated in AMUs. Settlement of such instruments may be made by AD Category-I banksthrough the ACU Dollar Accounts and ACU Euro Accounts, which should be distinctfrom the other U.S. Dollar and Euro accounts, respectively maintained for non ACU transactions.

What is an EEFC Account and what are its benefits?Exchange Earners' Foreign Currency Account (EEFC) is an account maintained in foreign currency with an Authorised Dealer i.e. a bank dealing in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into Rupees andvice versa, thereby minimizing the transaction costs.


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What is NEFT?National Electronic Funds Transfer (NEFT) 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 otherbank branch in the country. The NEFT system also facilitates one-way cross-border transfer of funds from India to Nepal. This is known as the Indo-Nepal Remitt

ance Facility Scheme.

What is IFSC?IFSC or Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFT system. This is a 11 digit code with the first 4 alpha characters representing the bank, and the last 6 numeric characters representing the branch. The 5th character is 0 (zero). IFSC is used by the NEFT system to route the messages to the destination banks / branches.

What is RTGS System?The acronym 'RTGS' stands for Real Time Gross Settlement. RTGS system is a fundstransfer mechanism where transfer of money takes place from one bank to anotheron a 'real time' and on 'gross' basis. This is the fastest possible money transfer system through the banking channel. Settlement in 'Real Time' means paymenttransaction is not subjected to any waiting period. The transactions are settledas soon as they are processed. 'Gross Settlement' means the transaction is settled on one to one basis without bunching with any other transaction. Consideringthat money transfer takes place in the books of the Reserve Bank of India, thepayment is taken as final and irrevocable.

How RTGS is different from Electronic Fund Transfer System (EFT) or National Electronics Funds Transfer System (NEFT)?EFT and NEFT are electronic fund transfer modes that operate on a Deferred Net Settlement (DNS) basis which settles transactions in batches. Contrary to this,in RTGS, transactions are processed continuously throughout the RTGS business hours.

What is 'Negotiated Dealing System'?Negotiated Dealing System (NDS) is an electronic platform for facilitating dealing in Government Securities and Money Market Instruments.NDS will facilitate electronic submission of bids/application by members for primary issuance of Government Securities by RBI through auction and floatation.

What are gilt funds ?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.


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What is a Government Security?A Government security is a tradable instrument issued by the Central Governmentor the State Governments. It acknowledges the Governments debt obligation. Such s

ecurities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or datedsecurities 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 StateDevelopment Loans (SDLs). Government securities carry practically no risk of default and, hence, are called risk-free or gilt-edged instruments.

What are Treasury Bills ?

Treasury bills (T-bills) offer short-term investment opportunities, generally upto one year. They are thus useful in managing short-term liquidity. At present,the Government of India issues three types of treasury bills through auctions,namely, 91-day, 182-day and 364-day. There are no treasury bills issued by StateGovernments.

What Does Coupon Mean?The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually.

What does Security (finance) mean ?A security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities (such as banknotes, bondsand debentures) and equity securities, e.g., common stocks; and derivative contracts, such as forwards, futures, options and swaps.

What does Equity Mean?A stock or any other security representing an ownership interest. In finance, ingeneral, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner's equity because he or she can readily sell the item for cash. Stocks are equity because they represent ownership in a company.

What is Zero-coupon bond ?A zero-coupon bond is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity.

(or)A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full facevalue. Also known as an "accrual bond".


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What is STRIPS? What is the benefit of stripping Government securities?STRIPS is the acronym for Separate Trading of Registered Interest and Principalof Securities and are basically "zero-coupon" securities where the investor receives a payment at maturity only. STRIPS allows investors to hold and trade the individual interest and principal components of eligible Government securities asseparate securities of varying tenors. They are popular with investors who wantto receive a known payment on a specific future date and want to hold securitie

s of desired maturity.

What are the Open Market Operations (OMOs)?OMOs are the market operations conducted by the Reserve Bank of India by way ofsale/ purchase of Government securities to/ from the market with an objective toadjust 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 con

ditions are tight, the RBI will buy securities from the market, thereby releasing liquidity into the market.

What is Liquidity Adjustment Facility (LAF)?LAF 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 ofrequirement or park excess funds with the RBI in case of excess liquidity on anovernight basis against the collateral of Government securities including StateGovernment securities. Basically LAF enables liquidity management on a day to da

y 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. Currently the rate of interest on repo under LAF (borrowing by the participants) is 4.75% and that of reverse repo (placing funds with RBI) is 3.25%. LAF is an important toolof monetary policy and enables RBI to transmit interest rate signals to the market.

What is the role of the Clearing Corporation of India Limited (CCIL)?The Clearing Corporation of India Ltd. (CCIL) was set up in April, 2001 for providing exclusive clearing and settlement for transactions in Money, Government securities and Foreign Exchange. The prime objective has been to improve efficiency in the transaction settlement process, insulate the financial system from shocks emanating from operations related issues, and to undertake other related activities that would help to broaden and deepen the money, debt and forex markets in the country. It acts as a Central Counter Party (CCP) for all transactions inGovernment securities by interposing itself between two counterparties. In effect, during settlement, the CCP becomes the seller to the buyer and buyer to the seller of the actual transaction.

What is the role of the Indian Clearing Corporation Limited (ICCL) ?


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Indian Clearing Corporation Limited ("ICCL") has been promoted by Bombay Stock Exchange Ltd ("BSE") as its 100% owned subsidiary company, inter alia, to function as a Clearing Corporation. At present, ICCL undertakes clearing and settlementservices for the Mutual Funds Segment and Corporate Debt Segment of BSE. ICCL also undertakes clearing & settlement functions of the Currency Derivatives Segment of United Stock Exchange of India Limited ("USE")

What is Time Value of Money ?Money has time value, as a Rupee today is more valuable and useful than a Rupeea year later. The concept of time value of money is based on the premise that aninvestor prefers to receive a payment of a fixed amount of money today, ratherthan an equal amount in the future, all else being equal. In particular, if onereceives the payment today, one can then earn interest on the money until that specified future date. Further, in an inflationary environment, a Rupee today will have greater purchasing power than after a year.

What is Money Market?While the Government securities market generally caters to the investors with along term investment horizon, the money market provides investment avenues of short term tenor. Money market transactions are generally used for funding the transactions in other markets including Government securities market and meeting short term liquidity mismatches. By definition, money market is for a maximum tenor of up to one year.

The money market is a component of the financial markets for assets involved inshort-term borrowing and lending with original maturities of one year or shortertime frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit, federal funds, and short-lived mortgage- and asset-backed securities. It provides liquidity funding for theglobal financial system.

What is Call money market ?Call money market is a market for uncollateralized lending and borrowing of funds. This market is predominantly overnight and is open for participation only toscheduled commercial banks and the primary dealers.

What is Certificate of Deposit (CD) ?A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks or other financial institution.Banks can issue CDs for maturities from 7 days to one a year whereas eligible FIs can issue for maturities 1 year to 3 years.

It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur


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a penalty.

What are the forms in which business can be conducted by a foreign company in In

dia?A foreign company planning to set up business operations in India may:

1. Incorporate a company under the Companies Act, 1956, as a Joint Venture or aWholly Owned Subsidiary.

2. Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted underthe Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.

What is the procedure for receiving Foreign Direct Investment in an Indian company?An Indian company may receive Foreign Direct Investment under the two routes asgiven under :

i. Automatic RouteFDI in sectors/activities permitted under automatic route does not require any prior approval either by the Government or RBI. The investors are only required to notify the Regional office concerned of RBI within 30 days of receipt of inwar

d remittances and file the required documents with that office within 30 days ofissue of shares to foreign investors.

ii. Government Route:FDI in activities not covered under the automatic route requires prior approvalof the Government which are considered by the Foreign Investment Promotion Board(FIPB), Department of Economic Affairs, Ministry of Finance.

Which are the sectors where FDI is not allowed in India, both under the Automatic Route as well as under the Government Route?FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:i) Retail Trading (except single brand product retailing)ii) Atomic Energyiii) Lottery Businessiv) Gambling and Bettingv) Business of Chit Fundvi) Nidhi Companyvii) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Pl

antations activities (other than Tea Plantations)viii) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent specifi


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ed).ix) Trading in Transferable Development Rights (TDRs).x ) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco orof tobacco substitutes.

What is a nidhi company?Nidhi company is a company registered under Companies Act and notified as a nidhi company by Central Government under Section 620-A of Companies Act. It is a non-banking finance company doing the business of lending and borrowing with its members or shareholders.

What is the significance of overseas investment for the country and for the inve

stor ?Joint Ventures abroad promote economic co-operation between India and the host countries. They result in transfer of technology and skills, sharing the resultsof Research & Development, access to the global market, promotion of the brand image, generation of employment and utilization raw materials available in Indiaand the host country, increased exports of plant and machinery and goods and services from India, foreign exchange earnings through dividend earnings, royalty,technical know-how fee, etc. Since globalization of trade is a two-way process,integration of the Indian economy with the rest of the world with all its attendant benefits is achieved through overseas investment. It is the reverse of Foreign Direct Investment (FDI) i.e. Indian direct investment abroad.

Under the Automatic Route, an Indian Party does not require any prior approval f

rom the Reserve Bank for setting up a Joint Venture /Wholly Owned Subsiary abroad.

What is meant by Intellectual Property ?Intellectual Property is the Property, which has been created by exercise of Intellectual Faculty. It is the result of persons Intellectual Activities. Thus Intellectual Property refers to creation of mind such as inventions, designs for industrial articles, literary, artistic work, symbols which are ultimately used incommerce. Intellectual Property rights allow the creators or owners to have thebenefits from their works when these are exploited commercially. These rights are statutory rights governed in accordance with the provisions of correspondinglegislations. Intellectual Property rights reward creativity & human endeavor which fuel the progress of humankind. The intellectual property is classified intoseven categories i.e . (1) Patent (2) Industrial Design (3) Trade Marks (4) Copyright (5) Geographical Indications (6) Lay out designs of integrated circuits (7) Protection of undisclosed information/Trade Secret according to TRIPs agreements.

What is meant by Design under the Designs Act, 2000 ?Design means only the features of shape, configuration, pattern or ornament or composition of lines or colour or combination thereof applied to any article whethe


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r two dimensional or three dimensional or in both forms, by any industrial process or means, whether manual, mechanical or chemical, separate or combined, whichin the finished article appeal to and are judged solely by the eye, but does not include any mode or principle or construction or any thing which is in substance a mere mechanical device, and does not include any trade mark, as define in clause (v) of sub-section of Section 2 of the Trade and Merchandise Marks Act, 1958, property mark or artistic works as defined under Section 2(c) of the Copyrig

ht Act, 1957.

What are geographical indicators ?Geographical Indications of Goods are defined as that aspect of industrial property which refer to the geographical indication referring to a country or to a place situated therein as being the country or place of origin of that product. Typically, such a name conveys an assurance of quality and distinctiveness which is essentially attributable to the fact of its origin in that defined geographica

l locality, region or country. Under Articles 1 (2) and 10 of the Paris Convention for the Protection of Industrial Property, geographical indications are covered as an element of IPRs. They are also covered under Articles 22 to 24 of theTrade Related Aspects of Intellectual Property Rights (TRIPS) Agreement, whichwas part of the Agreements concluding the Uruguay Round of GATT negotiations.

India, as a member of the World Trade Organization (WTO), enacted the Geographical Indications of Goods (Registration & Protection)Act, 1999 has come into forcewith effect from 15th September 2003.

The Office of the Controller General of Patents, Designs & Trade Marks and Geographical Indicators manages all these.

What is Excise Duty?Excise duty is a tax on manufacture or production of goods. Excise duty on alcohol, alcoholic preparations, and narcotic substances is collected by the State Government and is called "State Excise" duty. The Excise duty on rest of goods iscalled "Central Excise" duty and is collected in terms of Section 3 of the Central Excise Act, 1944. Sales Tax is different from the Excise duty as former is atax on the act of sale while the latter is a tax on the act of manufacture or production of goods.

What is Customs Duty ?Customs duties are levied on the goods and products that are transacted betweenIndia and other countries on the basis of specific rates and procedures in accordance with the monetary value of India with those countries. Central Governmentlevies its duties on both imports and exports.

What is Service tax ?


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Service tax is an Invisible Indirect Tax. Instead of the products and goods, theservices offered are treated as products and here too the incidents(tax payments) lies on the ultimate customers or service receivers.

What is anti dumping? What is its purpose in International Trade?Dumping is said to occur when the goods are exported by a country to another country at a price lower than its normal value. This is an unfair trade practice which can have a distortive effect on international trade. Anti dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect. Thus, the purpose of anti dumping duty is to rectify the tradedistortive effect of dumping and re-establish fair trade. The use of anti dumping measure as an instrument of fair competition is permitted by the WTO. In fact,anti dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry. It provides relief to the domestic industry against the injury caused by dumping.

What does the Income Tax Department consider as income?The word Income has a very broad and inclusive meaning. In case of a salaried person, all that is received from an employer in cash, kind or as a facility is considered as income. For a businessman, his net profits will constitute income.Income may also flow from investments in the form of Interest, Dividend, and Commission etc. Infect the Income Tax Act does not differentiate between legal andillegal income for purpose of taxation. Under the Act, all incomes earned by persons are classified into 5 different heads, such as:

Income from SalaryIncome from House propertyIncome from Business or ProfessionIncome from capital gainsIncome from other sources

I own shares of various Indian companies and receive dividends. Is it taxable?No. The dividend declared by Indian companies is not taxable in the hands of theshare holders because tax on distributed profits have already been borne by thecompany.

I am an agriculturist. Is my income taxable?Your agricultural income is not taxable per se. However, if you have any other source of income like income from investments, property etc, while calculating tax on them, your agricultural income will be taken into account, so that you paytax at a higher rate on that other income.

I have sold a house for Rs.5 lakh, which had been purchased by me 5 years ago for Rs.2 lakh. Am I required to pay any tax on the profit of Rs.3 lakh earned by m


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e?Yes. This profit, which is called capital gain, is taxable subject to certain conditions.

What is TDS?TDS means Tax Deducted at Source. It is the amount withheld from payments of various kinds such as salary, contract payment, commission etc. This withheld amount can be adjusted against your tax due.

What is TAX INFORMATION NETWORK (TIN) ?Income Tax Department has set up a Tax Information Network (TIN) as a repositoryof important tax related information. National Securities Depository Limited (NSDL) hosts TIN. TIN receives on behalf of the tax administration, all returns oftax deduction at source (TDS) & other information for digitization into a centr

al database. TIN receives online information on collection of taxes from the banks through "Online Tax Accounting System" (OLTAS), which also flows into the central database.

What are the various types of financial markets?The financial markets can broadly be divided into money and capital market.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 treasur

y 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 issuedand traded. This also includes private placement sources of debt and equity aswell as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

What is meant by Secondary Market?A market in which an investor purchases a security from another investor ratherthan the issuer, subsequent to the original issuance in the primary market. alsocalled aftermarket.

For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equitymarkets serve as a monitoring and control conduitby facilitating value-enhancingcontrol activities, enabling implementation of incentive-based management contr

acts, and aggregating information (via price discovery) that guides management decisions.


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What is the difference between the primary market and the secondary market?

In the primary market, securities are offered to public for subscription for thepurpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/pre- issued securities are traded amongst investors.Secondary market could be either auction or dealer market. While stock exchangeis the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.

What is SEBI and what

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