rbi final final

7/27/2019 Rbi Final Final

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Established on April 1, 1935 with share capital of FiveCrores on recommendation of Hilton Young

Commission.

Central Office was initially established in Calcutta andmoved to Mumbai in 1937

RBI was Nationalized in Year 1949.

RBI has 20 directors.


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Bank of IssueBanker to Government

Bankers Bank & Lender of Last Resort

Controller of Credit

Custodian of Foreign Reserves

Promotional Functions


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Dilkash


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Foreign Direct Investment (FDI)An investment that a parent company makes in a

foreign countryParticipation in management, joint venture andtransfer of technology and expertiseAn example of international factor movementsMajor economic driver of globalizationDirected at developing nationsA way to internationaliseAvoid governmental pressure and coming closer tothe consumer


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By mergers and acquisitions, and internalization of production in a range of industries, inward FDI for

developing countries rose from $ 481 billion in 1998 to $

636 billion in 2006


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Foreign Institutional Investor Investment made by an investor in the markets of

a foreign nation An institution that is a legal entity established or incorporated outside India proposing to makeinvestments in India only insecurities - SEBIReasons India attracts FIIsRoadblocks in FII investment

FII also known as HOT MONEY FII investment flows only into secondary market


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Hedging Price Risk in CommoditiesA person resident in India is permitted to enter into a contract in acommodity exchange or market outside India to hedge price risk in

commodities imported/ exported, domestic transactions, freight risk, etc.There are two channels through which residents can undertake hedge i.e.Authorised Dealers Delegated Route and Reserve Banks Approval Route.With a view to achieving greater clarity on the rules / guidelines governing

hedging of commodity price risk, clarifications on process and variousoperational issues relating to commodity hedging are given below:

A. Commodity HedgingHedging facilities available to oil companiesEntities permitted to Hedge oil price riskHedging facilities permitted for entities in Special Economic Zones (SEZs)

B. Freight Hedging Entities permitted by RBI to hedge freight risk


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RBI - Arbitrage Arbitrage trading is simply the trading of securities

Arbitrage trading takes place all day long on most days thatthe markets are active.Market Arbitrage involves purchasing and selling the samesecurity at the same time in different markets (BSE & NSE)

Bond market for Arbitrage Gain for Banks Making profit from arbitrage by lending liquid adjustment facility (LAF)

borrowing in money market.

Prevailing practice of lending cheap borrowed money from RBI under LAFin overnight market, which leads to a straight profit of 50-75 basis points .


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Inflation is a sustained increase in the average price of all goods and services produced in an economyInterest rates directly affect the credit market (loans)because higher interest rates make borrowing more

costly. By changing interest rates, the Fed tries toachieve maximum employment, stable prices and agood level growth. As interest rates drop, consumer

spending increases, and this in turn stimulateseconomic growth.

The "real interest rate" is the rate of interest aninvestor expects to receive after allowing for inflation.


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Long term inflation occurs when the money supply(currency and check writing deposits) grows at a faster

rate than the output of goods and services.

Consumer price index(CPI)

Producer price index(PPI)


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Repo is a collateralized lending.A repo or repurchase Agreement

is an instrument of moneymarket.

Borrower of funds is called asseller of repo and lender of

funds is called as buyer of repo.Reserve bank charges some

interest rate on the cashborrowed by banks. This interest

rate is called repo rate


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Export CreditExport finance

Timely and hassle free flow of credit

export finance for agricultural exports

Gold Card Scheme

freedom to Banks

Role of Reserve Bank of India in ExportPromotion


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An agreement reached by a group of 10 countries (G10) in 1971that effectively ended the fixed exchange rate system established

under the Bretton Woods Agreement. The SmithsonianAgreement reestablished an international system of fixed

exchange rates without the backing of silver or gold, and allowedfor the devaluation of the U.S. dollar. This agreement was the first

time in which currency exchange rates were negotiated.

The Smithsonian Agreement led to an approximately 8%devaluation of the U.S. dollar, and raised the price of gold from

$35 to $38. The agreement was praised by then-U.S. PresidentRichard Nixon as "the most significant monetary agreement inworld history." However, the par value system began to lose its

popularity in 1972-1975, and economic forces compelled severalcountries to switch.

Smithsonian Agreement


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1. The Annual Policy for 2011-12 is set in conditions significantly different than they were ayear ago. Last years policy was made in an environment of incipient domestic recovery amidstuncertainty about the state of the global economy, a perception that was reinforced with the

precipitation of the Greek sovereign debt crisis a few weeks later. While signs of inflation werevisible, they were driven primarily by food. However, food price pressure spilling over into

more generalized inflation was clearly a risk as the recovery consolidated and domestic

resource utilization rose to levels which stretched capacities. Throughout the year, the goal of monetary policy was to nurture the recovery in the face of persistent global uncertainty while

trying to contain the spillover of supply-side inflation.2. The trend of moderating inflation and consolidating growth in the second and third quarters

of 2010-11 justified the calibrated policy approach of the Reserve Bank. However, theresurgence of inflation in the last quarter of 2010-11 was a matter of concern. Although thetrigger was the sharp uptrend in international commodity prices, the fact that these were

quickly passing through into the entire range of domestic manufactured goods indicated thatpricing power is significant. In other words, demand has been strong enough to allow

significant pass-through of input price increases. Significantly, this is happening even as thereare visible signs of moderating growth, particularly in capital goods production and investment

spending, suggesting that cumulative monetary actions are beginning to have an impact ondemand.

Reserve Bank of IndiaMonetary Policy Statement 2011-12

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