Basic Terms Mfi

7/29/2019 Basic Terms Mfi

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India is a South Asian country that is the

seventh largest in area and has the second

largest population in the world. India has great plains, long coastlines and

majestic mountains.

Thus, the land has abundant resources. Indiashares its borders with China, Bangladesh,

Pakistan, Nepal, Sri Lanka and Myanmar.


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The Indian economy is one of the fastest

growing economies and is the 12th largest in

terms of the market exchange rate. In terms of purchasing power parity, the

Indian economy ranks the fourth largest in the

world. However, poverty still remains a majorconcern besides disparity in income.

India was able to keep its economy growing at

a healthy rate even during the 2007-2009recession, managing a 9.668 % growth rate in

2010


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With the massive growth of the Indian middle

class, this vast country may become Asia's first

major 'buy' economy. In 2010, India's PPP Gross Domestic Product

stood at over $4 trillion, and was the fourth

largest economy by volume. The services sector, backed by the IT revolution,

remained the biggest contributor to the national

GDP, with a contribution of 58.4%.

The industry sector contributed 24.1% and the

agriculture sector contributed 17.5% to the GDP.


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The employment scenario was dominated by the

services sector, creating 62.6% of the jobs for the

467 million workforce. The industry sector contributed 25.8% to the

GDP and employed 20% of the workforce.

The agriculture sector contributed 15.8% to the

GDP and created 17.5% jobs (India Labor Force).

The unemployment rate remained around 10% in

2010. However, rising inflation became a major

concern, and measures to check it are beingimplemented.

In 2010, the rate of inflation was around 8.6%

(India Inflation Rate Change).


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In 2010, the per capita income (PPP) of India

was US$ 3,290.55. According to the World

Bank, India is classed as a low-income

economy.


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Terms related to financial institutions

Monetary policy is the process by which

the monetary authority of a country controls

the supply of money, often targeting a rate

of interest for the purpose ofpromoting economic growth and stability.


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Policy rates

Bank rate:-Bank rate is the minimum rate at whichthe central bank provides loans to the commercialbanks. It is also called the discount rate( 9%).

Repo (Repurchase) rate is the rate at which the RBIlends shot-term money to the banks againstsecurities(8%).

Reverse Repo rate is the rate at which banks parktheir short-term excess liquidity with the RBI (7%).


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Reserve ratios

Cash Reserve Ratio :-All commercial banks are

required to keep a certain amount of its

deposits in cash with RBI (4.75%).

Statutory liquidity ratio is the amount of

liquid assets, such as cash, precious metals or

other approved securities, that a financial

institution must maintain as reserves otherthan the cash with the Central Bank(23%)


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Lending/deposit rates

Base rate:-Banks in India have switched to BaseRate system from Benchmark Prime Lending Rate(BPLR) system from July 01, 2010. it is theminimum rate below that no bank set their

interest rate(10.00%-10.50%).

Saving deposit rate :- 4%

Term Deposit rate:-Interest rate paid by adepository institution on the cash on deposit(8%-9.25%).


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Market trends

Capital market:- it includes BSE SENSEX whichcomposed of 30 stocks and S&P CNX NIFTYincludes 50 stock index.

Government securities market:- 91 TBILLS - 8.2275%

182 T BILLS - 8.2475%

364 TBILLS

8.0601%

Money market :- call rates7.05%-8.15%


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Ministry of Finance:- It is responsible foradministration of finances of the Government. Itis concerned with all economic and financial

matters affecting the country as a wholeincluding mobilization of resources fordevelopment and other purposes. It regulatesexpenditure of the Government including transfer

of resources to the states. This Ministry comprises four departments,

namely:

Economic Affairs

Expenditure Revenue

Disinvestment


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FDI Foreign direct investment (FDI) or foreign investment

refers to the net inflows of investment to acquire alasting management interest (10 percent or more ofvoting stock) in an enterprise operating in an economyother than that of the investor.

It is the sum of equity capital, reinvestment of

earnings, other long-term capital, and short-termcapital as shown in the balance of payments.

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

There are two types of FDI: inward foreign directinvestment and outward foreign direct investment,resulting in a net FDI inflow (positive or negative) and"stock of foreign direct investment", which is thecumulative number for a given period.


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A certificate of deposit (CD) is a fixed-deposit

investment option offered by banks and

lending institutions. It offers higher interestrates than conventional savings accounts

because it requires investors to deposit funds

for a specified term ranging from one monthto more than five years. However, like savings

accounts, CDs are a secure form of

investment, as they are insured bygovernment agencies.


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Ad valorem tax:(in Latin: to the value added) -

a tax based on the value (or assessed value) of

property. Ad valorem tax can also be levied on

imported items.

Aggregate demand is the sum of all demand

in an economy. This can be computed by

adding the expenditure on consumer goods

and services, investment, and not exports

(total exports minus total imports).

Aggregate supply is the total value of the

goods and services produced in a country, plus

the value of imported goods less the value of

exports.


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Alternative minimum tax: An IRS mechanism

created to ensure that high-income

individuals, corporations, trusts, and estatespay at least some minimum amount of tax,

regardless of deductions, credits or

exemptions. Average propensity to consume is the

proportion of income the average family

spends on goods and services. Average propensity to save is the proportion

of income the average family saves (does not

spend on consumption).


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Asymmetric Information is where one party in

a transaction has less information than the

other. Balance of Payment is the summation of

imports and exports made between one

countries and the other countries that ittrades with.

Balance of trade: The difference in value over

a period of time between a country's importsand exports.


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Bill of exchange: A written, dated, and signedthree-party instrument containing anunconditional order by a drawer that directs a

drawee to pay a definite sum of money to apayee on demand or at a specified future date.Also known as a draft.

Birth rate: The number of births in a year per

1,000 population. Bond: A certificate of debt (usually interest-

bearing or discounted) that is issued by agovernment or corporation in order to raise

money; the bond issuer is required to pay a fixedsum annually until maturity and then a fixed sumto repay the principal.


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Cartel: An organization of producers seeking

to limit or eliminate competition among its

members, most often by agreeing to restrictoutput to keep prices higher than would occur

under competitive conditions.

Census: Official gathering of informationabout the population in a particular area.

Government departments use the data

collected in planning for the future in suchareas as health, education, transport, and

housing..


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Countervailing duties: duties (tariffs) that are

imposed by a country to counteract subsidies

provided to a foreign producer Currency board: Form of central bank that

issues domestic currency for foreign exchange

at fixed rates. Currency substitution: The use of foreign

currency (e.g., U.S. dollars) as a medium of

exchange in place of or along with the localcurrency (e.g., Rupees).


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Direct investment: Foreign capital inflow in the

form of investment by foreign-based companies

into domestic based companies. Portfolioinvestment is foreign capital inflow by foreign

investors into shares and financial securities. It is

the ownership and management of production

and/or marketing facilities in a foreign country.

Direct tax: A tax that you pay directly, as

opposed to indirect taxes, such as tariffs and

business taxes. The income tax is a direct tax, as

are property taxes.


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Double taxation: Corporate earnings taxed at

both the corporate level and again as a

stockholder dividend Economic growth: Quantitative measure of

the change in size/volume of economic

activity, usually calculated in terms of grossnational product (GNP) or gross domestic

product(GDP).


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Economic growth: An increase in the nation's

capacity to produce goods and services.

Economic infrastructure: The underlyingamount of physical and financial capital

embodied in roads, railways, waterways,

airways, and other forms of transportationand communication plus water supplies,

financial institutions, electricity, and public

services such as health and education.

Economic integration: The merging to various

degrees of the economies and economic

policies of two or more countries in a given

region.


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Exchange control: A governmental policydesigned to restrict the outflow of domesticcurrency and prevent a worsened balance ofpayments position by controlling the amount offoreign exchange that can be obtained or held bydomestic citizens.

Exchange rate: The price of one currency statedin terms of another currency, when exchanged.

Export incentives: Public subsidies, tax rebates,and other kinds of financial and nonfinancial

measures designed to promote a greater level ofeconomic activity in export industries.


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Externalities: A cost or benefit not accounted

for in the price of goods or services. Often

"externality" refers to the cost of pollutionand other environmental impacts.

Fiscal deficit is the gap between the

government's total spending and the sum ofits revenue receipts and non-debt capital

receipts. The fiscal deficit represents the total

amount of borrowed funds required by the

government to completely meet itsexpenditure


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Fixed exchange rate: The exchange value of a

national currency fixed in relation to another

(usually the U.S. dollar), not free to fluctuateon the international money market.

Foreign aid The international transfer of

public funds in the form of loans or grantseither directly from one government to

another (bilateral assistance) or indirectly

through the vehicle of a multilateral assistance

agency like the World Bank.


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Free trade: Free trade in which goods can beimported and exported without any barriers inthe forms of tariffs, quotas, or otherrestrictions.

Free-trade area A form of economicintegration in which there exists free internal

trade among member countries but eachmember is free to levy different externaltariffs against non-member nations.

Fringe benefit: A benefit in addition to salaryoffered to employees such as use ofcompany's car, house, lunch coupons, healthcare subscriptions etc.


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Poverty gap: The sum of the difference

between the poverty line and actual income

levels of all people living below that line. Tax avoidance: A legal action designed to

reduce or eliminate the taxes that one owes.

Tax base: the total property and resourcessubject to taxation.

Tax evasion: An illegal strategy to decrease tax

burden by underreporting income, overstatingdeductions, or using illegal tax shelters.


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WTO: The World Trade Organization is a global

international organization dealing with the

rules of trade between nations. It was set upin 1995 at the conclusion of GATT negotiations

for administering multilateral trade

negotiations.

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