Glossary of Financial Terms

G-Secs
The Government securities comprise dated securities issued by the Government of India and state governments
as also, treasury bills issued by the Government of India. Reserve Bank of India manages and services these
securities through its public debt offices located in various places as an agent of the Government.
Account Deficit
In accounting, a deficit is the negative balance in the retained earnings account that is caused by cumulative
losses exceeding the amount of Profits.
Asset Liquidity Management
Asset Liability Management (ALM) can be defined as a mechanism to address the risk faced by a bank due to a
mismatch between assets and liabilities either due to liquidity or changes in interest rates.
Base Rate
Base rate is the minimum rate below which banks are not permitted to lend barring certain exceptions. It is the
minimum rate of interest that a bank is allowed to charge from its customers.
Asset bubble
When the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed
valuations justified by fundamentals, making a sudden collapse likely - at which point the bubble "bursts"
Banking Liberalization
Liberalization means relaxation of various government restrictions in the areas of social and economic policies.
Liberalizing trade policy by the government that is removal of tariff, subsidies and other restrictions on the flow
of goods and services between countries is also termed as liberalization.
BPLR

By definition, the Benchmark Prime Lending Rate (BPLR), is the reference interest rate based on which a bank
lends to its credit worthy borrowers. Normally, loans are given out a little more or a little less that this reference
interest rate
According to RBI, banks are free to fix their BPLR with the approval of their respective boards. Banks are free
to decide the BPLR but their interest rates have to have a reference to the BPLR fixed. DEEPAK MOHANTY is
the chairman of BPLR committee.
A
BSE

Established in 1875, BSE Ltd. (formerly known as Bombay Stock Exchange Ltd.), is Asias first Stock
Exchange and one of Indias leading exchange groups. Over the past 137 years, BSE has facilitated the growth
of the Indian corporate sector by providing it an efficient capital-raising platform. Popularly known as BSE, the
bourse was established as "The Native Share & Stock Brokers' Association" in 1875. BSE is a corporatized and
demutualized entity, with a broad shareholder-base which includes two leading global exchanges, Deutsche
Bourse and Singapore Exchange as strategic partners. BSE provides an efficient and transparent market for
trading in equity, debt instruments, derivatives, mutual funds. It also has a platform for trading in equities of
small-and-medium enterprises (SME). More than 5000 companies are listed on BSE making it world's No. 1
exchange in terms of listed members. The companies listed on BSE Ltd command a total market capitalization
of USD 1.32 Trillion as of January 2013. It is also one of the worlds leading exchanges (3rd largest in
December 2012) for Index options trading.


BOP DEFICIT

Balance of Payment (Bop) of a country is defined as, "Systematic record of all economic transactions with the
residents of a foreign country" Thus balance of payments includes all visible and non-visible transactions of a
country during a given period, usually a year. It represents a summation of country's current demand and supply
of the claims on foreign currencies and of foreign claims on its currency. Balance of payments accounts are an
accounting record of all monetary transactions between a country and the rest of the world. These transactions
include payments for the country's exports and imports of goods, services, financial capital, and financial
transfers. The BOP accounts summarize international transactions for a specific period, usually a year, and are
prepared in a single currency, typically the domestic currency for the country concerned.

An imbalance in a nation's balance of payments in which payments made by the country exceed payments
received by the country. This is also termed an unfavourable balance of payments. It's considered unfavourable
because more currency is flowing out of the country than is flowing in. Such an unequal flow of currency will
reduce the supply of money in the nation and subsequently cause an increase in the exchange rate relative to the
currencies of other nations. This then has implications for inflation, unemployment, production, and other facets
of the domestic economy.
\
Basel Committee on Bank Supervision

A committee established by the central bank governors of the Group of Ten countries in 1974 that seeks to
improve the supervisory guidelines that central banks or similar authorities impose on both wholesale and retail
banks. The committee makes banking policy guidelines for both member and non-member countries and helps
authorities to implement its suggestions.


WM/Reuters Benchmark Rates

Spot and forward foreign exchange rates that are used as standard rates for portfolio valuation and performance
measurement. The WM/Reuters benchmark rates are provided by State Street subsidiary the WM Company and
Thomson Reuters. The WM/Reuters Closing Spot Rate service was introduced in 1994 to prove standard forex
rates that would enable portfolio valuations to be compared more accurately against each other and financial
benchmarks, without having to account for currency differentials.

Budget Deficit

The status of financial health in which expenditures exceed revenue. Budget deficit is most commonly used to
refer to govt. spending rather than business or individual spending.

Generally Accepted Accounting Principles (GAAP)
The common set of accounting principles, standards and procedures that companies use to compile their
financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the
commonly accepted ways of recording and reporting accounting information.
Capital Adequacy ratio (CAR)
This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the
world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being
required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so
provides a lesser degree of protection to depositors.
Capital Inflow
The movement of capital into market or economy. Changes in capital inflow are used to measure the growth of
an economy, and steady or increasing capital inflows are usually indicative of positive perceptions of a market
in the global economy, or an attractive business environment due to favourable tax structures or business-
friendly regulations.

Capital Outflow

The movement of assets out of a country. Capital outflow is considered undesirable and results from political or
economic instability. It occurs when foreign and domestic investors sell off their assets in a particular country
because they no longer perceive it as a safe investment. The capital is withdrawn from the country (flows out)
and may end up in another country or back in the investor's home country.

Capital Market
Markets for buying and selling equity and debt instruments. Capital markets channel savings and investment
between suppliers of capital such as retail investors and institutional investors, and users of capital like
businesses, government and individuals. Capital markets are vital to the functioning of an economy, since
capital is a critical component for generating economic output. Capital markets include primary markets, where
new stock and bond issues are sold to investors, and secondary markets, which trade existing securities.
Capital to risk Asset Ratio (CRAR)
It is one of the most widely used analytical measures of bank capital adequacy and a tool for controlling bank
risk. Since risk assets are always less than total assets, the capital/risk asset ratio is naturally higher than the
capital/total asset ratio for any given computational period.


Also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

CCI
An oscillator used in technical analysis to help determine when an investment vehicle has been overbought and
oversold. The Commodity Channel Index (CCI), first developed by Donald Lambert, quantifies the
relationship between the asset's price, a moving average (MA) of the asset's price, and normal deviations (D)
from that average. It is computed with the following formula:

CREDIT RISK

The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or
otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash
flows to pay a current debt.



DEBT SERVICE COMMITMENT

The cash that is required for a particular time period to cover the repayment of interest and principal on a debt.
Debt service is often calculated on a yearly basis. Debt service for an individual often includes such financial
obligations as a mortgage and student loans.

DEMATERIALIZED TRADING
It is a process by which the physical share certificates of an investor are taken back by the company and an
equivalent number of securities are credited in electronic form at the request of the investor.
OR
The move from physical certificates to electronic book keeping. Actual stock certificates are slowly being
removed and retired from circulation in exchange for electronic recording.
E.g.: With the age of computers and the Depository Trust Company, securities no longer need to be in certificate
form. They can be registered and transferred electronically.

DEMUTUALIZATION

When a mutual company owned by its users/members converts into a company owned by shareholders. In
effect, the users/members exchange their rights of use for shares in the demutualized company.

CRR (CASH RESERVE RATIO)
CRR refers to the liquid cash that banks have to maintain with the Reserve Bank of India (RBI) as a certain
percentage of their demand and time liabilities.
OR
It is the amount of funds that the banks have to keep with RBI.


CURRENT EXPENDITURE

Current expenditure is recurring spending or, in other words, spending on items that are consumed and only last
a limited period of time. They are items that are used up in the process of providing a good or service.




CREDIT ALLOCATION

Allocation is the determination of the amount of credits a given property will have available for transfer. There
are a number of ways to allocate credits. Credit allocation can be based on the number of lost development units
or square footage, the gross area of the land characteristic or the monetary value of lost development potential.

Derivative Markets
Derivative markets are markets that are based upon another market, which is known as the underlying market.
Derivatives market can be based upon almost any underlying market, including individual stock markets and
currency markets.
The market can be divided into two, one is exchange traded derivatives and the other is over-the-counter
derivatives market.
The derivatives market can take different forms, some of which are traded the same as their underlying asset, for
example futures market and contract for difference market, and some of which are not traded same as their
underlying asset, for example options market and warrants market.
Derivative Exchange
Derivative exchange is an exchange where future contracts or options are traded.
Disinvestment
Disinvestment may be defined as an action of an organization or government selling or liquidating an asset or
subsidiary. It is also known as divestiture.
It may also be a reduction in capital expenditure, or the decision of a company not to replenish depleted capital
goods.
Deregulation
The reduction or elimination of government power in a particular industry, usually enacted to create more
competition within the industry.
Equity markets
The market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also
known as the stock market, it is one of the most vital areas of a market economy because it gives companies
access to capital and investors a slice of ownership in a company with the potential to realize gains based on its
future performance.
This market can be split into two main sectors: the primary and secondary market. The primary market is where
new issues are first offered. Any subsequent trading takes place in the secondary market.

Exchange traded derivative contracts
These are standardized derivative contracts (e.g. futures contract and options) that are transacted on an
organized futures exchange. They are standardized and require payment of an initial deposit settled through a
clearing house.




Equity Market

The market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also
known as the stock market, it is one of the most vital areas of a market economy because it gives companies
access to capital and investors a slice of ownership in a company with the potential to realize gains based on its
future performance.

EXCHANGE-TRADED DERIVATIVE?

A DERIVATIVE contract, traded through an authorized EXCHANGE and cleared through
a CLEARINGHOUSE, that is characterized by standard terms and conditions, and is subject to standard
MARGIN requirements and clearing rules. Trading in exchange derivatives may occur in physical OPEN
OUTCRY form, or increasingly in electronic form. The three main classes of exchange traded derivatives are
FUTURES, OPTIONS, and FUTURES OPTIONS. Contracts are available on a broad range of national and
international ASSET references, including INTEREST RATES, FOREIGN EXCHANGE, EQUITIES,
and commodities. Also known as LISTEDDERIVATIVE. See also OVER THE COUNTER DERIVATIVE.




Foreign Currency Convertible Bond - FCCB

A type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the
money being raised by the issuing company is in the form of a foreign currency. A convertible bond is a mix
between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but
these bonds also give the bondholder the option to convert the bond into stock.

These types of bonds are attractive to both investors and issuers. The investors receive the safety of guaranteed
payments on the bond and are also able to take advantage of any large price appreciation in the company's stock.
(Bondholders take advantage of this appreciation by means warrants attached to the bonds, which are activated
when the price of the stock reaches a certain point.) Due to the equity side of the bond, which adds value, the
coupon payments on the bond are lower for the company, thereby reducing its debt-financing costs.





Foreign Exchange Management Act (FEMA)



When a business enterprise imports goods from other countries, exports its products to them or makes
investments abroad, it deals in foreign exchange. Foreign exchange means 'foreign currency' and includes: - (i)
deposits, credits and balances payable in any foreign currency; (ii) drafts, travellers' cheques, letters of credit or
bills of exchange, expressed or drawn in Indian currency but payable in any foreign currency; and (iii) drafts,
travellers' cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India,
but payable in Indian currency.
In India, all transactions that include foreign exchange were regulated by Foreign Exchange Regulations Act
(FERA), 1973. The main objective of FERA was conservation and proper utilisation of the foreign exchange
resources of the country.
In the light of economic reforms and the liberalised scenario, FERA was replaced by a new Act called
the Foreign Exchange Management Act (FEMA), 1999.The Act applies to all branches, offices and agencies
outside India, owned or controlled by a person resident in India. FEMA emerged as an investor friendly
legislation which is purely a civil legislation in the sense that its violation implies only payment of monetary
penalties and fines.
Broadly, the objectives of FEMA are: (i) To facilitate external trade and payments; and (ii) To promote the
orderly development and maintenance of foreign exchange market. The Act has assigned an important role to
the Reserve Bank of India (RBI) in the administration of FEMA. The rules, regulations and norms pertaining
to several sections of the Act are laid down by the Reserve Bank of India, in consultation with the Central
Government.
FEMA permits only authorised person to deal in foreign exchange or foreign security. Such an authorised
person, under the Act, means authorised dealer, money changer, off-shore banking unit or any other person for
the time being authorised by Reserve Bank. The Act thus prohibits any person who:-
Deal in or transfer any foreign exchange or foreign security to any person not being an authorized
person;
Make any payment to or for the credit of any person resident outside India in any manner;
Receive otherwise through an authorized person, any payment by order or on behalf of any person
resident outside India in any manner;
Enter into any financial transaction in India as consideration for or in association with acquisition or
creation or transfer of a right to acquire, any asset outside India by any person is resident in India
which acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable
property situated outside India.
Foreign Exchange Regulation Act, 1973

Foreign Exchange Management Act, 1973
[As amended by the Foreign Exchange Regulation (Amendment) Act, 1973
An Act to consolidate and amend the law regulating certain payments, dealings in foreign exchange and
securities, transactions indirectly affecting foreign exchange and the import and export of currency, for the
conservation of the foreign exchange resources of the country and the proper utilisation thereof in the interests
of the economic development of the country .
OBJECTIVES :
To regulate certain payments.
To regulate dealings in foreign exchange and securities.
To regulate transactions, indirectly affecting foreign exchange.
To regulate the import and export of currency.
To conserve precious foreign exchange.
The proper utilization of foreign exchange so as to promote the economic development of the country.

Definition of 'FII

FIIs are those institutional investors which invest in the assets belonging to a different country other than that
where these organizations are based.

Definition: Foreign institutional investors (FIIs) are those institutional investors which invest in the assets
belonging to a different country other than that where these organizations are based.

Description: Foreign institutional investors play a very important role in any economy. These are the big
companies such as investment banks, mutual funds etc, who invest considerable amount of money in the Indian
markets. With the buying of securities by these big players, markets trend to move upward and vice-versa. They
exert strong influence on the total inflows coming into the economy


Financial despotism
Punishing people's individual successes is a system of despotism.

Financial Market
A financial market is a market in which people and entities can trade financial securities, commodities, and
other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities
include stocks and bonds, and commodities include precious metals or agricultural goods.

Financial repression
A term that describes measures by which governments channel funds to themselves as a form of debt reduction.
This concept was introduced in 1973 by Stanford economists Edward S. Shaw and Ronald I. McKinnon.
Financial repression can include such measures as directed lending to the government, caps on interest rates,
regulation of capital movement between countries and a tighter association between government and banks.

Example:
Following the 2008 economic crisis,

Reinhart and Sbrancia indicate that financial repression features:

1. Caps or ceilings on interest rates
2. Government ownership or control of domestic banks and financial institutions
3. Creation or maintenance of a captive domestic market for government debt
4. Restrictions on entry to the financial industry
5. Directing credit to certain industries

Fiscal balances
Amount of money government has from tax revenue and the proceeds of assets sold, minus any government
spending. When the balance is negative, the government has a fiscal deficit. When the balance is positive, the
government has a fiscal surplus.

The Fiscal Deficit of India currently is 4.6% of Indias GDP.

Fiscal policies
Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the
economy, or else it involves the government changing the levels of taxation and government spending in order
to influence aggregate demand and the level of economic activity.
[1]
The two main instruments of fiscal policy
are changes in the level and composition of taxation and government spending in various sectors. These changes
can affect the following macroeconomic variables, amongst others, in an economy:
Aggregate demand and the level of economic activity;
The distribution of income;
The pattern of resource allocation within the government sector and relative to the private sector.
Fiscal policy refers to the use of taxation and government spending to influence economic activity.
[2]
This is
distinguished from monetary policy in that fiscal policy only deals with taxation and spending and is often
administered by an executive under laws of a legislature, whereas monetary policy deals with the money supply,
lending rates and interest rates and is often administered by a central bank.

Foreign Currency Convertible Bonds

Foreign currency convertible bonds (FCCBs) are a special category of bonds. FCCBs are issued in currencies
different from the issuing company's domestic currency. Corporates issue FCCBs to raise money in foreign
currencies. These bonds retain all features of a convertible bond, making them very attractive to both the
investors and the issuers.
A type of convertible bond issued in a currency different than the issuer's domestic currency. In other words, the
money being raised by the issuing company is in the form of a foreign currency. A convertible bond is a mix
between a debt and equity instrument. It acts like a bond by making regular coupon and principal payments, but
these bonds also give the bondholder the option to convert the bond into stock.
These types of bonds are attractive to both investors and issuers. The investors receive the safety of guaranteed
payments on the bond and are also able to take advantage of any large price appreciation in the company's stock.
(Bondholders take advantage of this appreciation by means warrants attached to the bonds, which are activated
when the price of the stock reaches a certain point.) Due to the equity side of the bond, which adds value, the
coupon payments on the bond are lower for the company, thereby reducing its debt-financing costs.
Foreign Currency Swap

An agreement to make a currency exchange between two foreign parties. The agreement consists of swapping
principal and interest payments on a loan made in one currency for principal and interest payments of a loan of
equal value in another currency. The Federal Reserve System offered this type of swap to several developing
countries in 2008.

Foreign Direct Investment - FDI

An investment made by a company or entity based in one country, into a company or entity based in another
country. Foreign direct investments differ substantially from indirect investments such as portfolio flows,
wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct
investments typically have a significant degree of influence and control over the company into which the
investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger
amounts of foreign direct investment than closed, highly regulated economies.

Forex - FX

The market in which currencies are traded. The forex market is the largest, most liquid market in the world with
an average traded value that exceeds $1.9 trillion per day and includes all of the currencies in the world.

There is no central marketplace for currency exchange; trade is conducted over the counter. The forex market is
open 24 hours a day, five days a week and currencies are traded worldwide among the major financial centres of
London, New York, Tokyo, Zrich, Frankfurt, Hong Kong, Singapore, Paris and Sydney.

The forex is the largest market in the world in terms of the total cash value traded, and any person, firm or
country may participate in this market.


Cover

The act of completing an offsetting transaction so as to eliminate a liability or obligation. It is generally used in
the context of risk exposure, as when an investor decides to cover a short position in a stock to eliminate the risk
of a "short squeeze." Covers normally reduce both risk and return of a particular position.

The term "cover" is distinct from "coverage," which, in the world of finance, indicates financial ratios that
measure a company's margin of safety in servicing its debt and making dividend payments.



Forward Rate Agreement - FRA

An over-the-counter contract between parties that determines the rate of interest, or the currency exchange rate,
to be paid or received on an obligation beginning at a future start date. The contract will determine the rates to
be used along with the termination date and notional value. On this type of agreement, it is only the differential
that is paid on the notional amount of the contract.

Global Depositary Receipt GDR

Global Depositary Receipt. A negotiable certificate held in the bank of one country representing a
specific number of shares of a stock traded on an exchange of another country.

Globalization

The tendency of investment funds and businesses to move beyond domestic and national markets to other
markets around the globe, thereby increasing the interconnectedness of different markets. Globalization has had
the effect of markedly increasing not only international trade, but also cultural exchange.

Hedging instrument
An instrument used by investors to balance any risk of losing money with other investments they hold. When
people decide to hedge, they are insuring themselves against a negative event. This doesn't prevent a negative
event from happening, but if it does happen and you're properly hedged, the impact of the event is
reduced. Technically, to hedge you would invest in two securities with negative correlations.

GDP
The monetary value of all the finished goods and services produced within a country's borders in a specific time
period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption,
government outlays, investments and exports less imports that occur within a defined territory.

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

Import License
It is a document issued by a national government authorizing the importation of certain goods into its
territory. Import licenses are considered to be non-tariff barriers to trade when used as a way to
discriminate against another country's goods in order to protect a domestic industry from foreign
competition.
Each license specifies the volume of imports allowed, and the total volume allowed should not exceed
the quota.
Licenses can be sold to importing companies at a competitive price, or simply a fee. However, it is
argued that this allocation methods provides incentives for political lobbying and bribery. Government
may put certain restrictions on what is imported as well as the amount of imported goods and services.
For example, if a business wishes to import agricultural products such as vegetables, then the
government may be concerned about the impact of such importations of the local market and thus
impose a restriction.

INDEX FUTURE CONTRACTS
In finance, a futures contract is a standardized contract between two parties to buy or sell a specified
asset of standardized quantity and quality for a price agreed upon today (the futures price) with
delivery and payment occurring at a specified future date, the delivery date. The contracts are
negotiated at a futures exchange, which acts as an intermediary between the two parties. The party
agreeing to buy the underlying asset in the future, the "buyer" of the contract, is said to be "long", and
the party agreeing to sell the asset in the future, the "seller" of the contract, is said to be "short".

A futures contract on a stock or financial index. For each index there may be a different multiple for
determining the price of the futures contract.


For example, the S&P 500 Index is one of the most widely traded index futures contracts in the U.S.
Stock portfolio managers who want to hedge risk over a certain period of time often use S&P 500
futures to do so. By shorting these contracts, stock portfolio managers can protect themselves from the
downside price risk of the broader market. However, by using this hedging strategy, if perfectly done,
the manager's portfolio will not participate in any gains on the index; instead, the portfolio will lock in
gains equivalent to the risk-free rate of interest.

Alternatively, stock portfolio managers can use index futures to increase their exposure to movements
in a particular index, essentially leveraging their portfolios.


Hybrid Capital
Hybrid capital is a form of debt that has been substituted for equity. This type of capital has both debt and
equity features. This covers a variety of instruments, such as preference shares, that are not pure equity but have
traditionally been deemed close enough to it to count towards a bank's tier one capital ratio - the key measure of
financial strength.

Inflation

It is a sustained increase in the general price level of goods and services in an economy over a period of time. It
can be defined as too much money chasing too few goods. When the general price level rises, each unit
of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing
power per unit of money a loss of real value in the medium of exchange and unit of account within the
economy.

Initial public offering (IPO) or stock market launch

It is a type of public offering where shares of stock in a company are sold to the general public, on a securities
exchange, for the first time. Through this process, a private company transforms into a public company. Initial
public offerings are used by companies to raise expansion capital, to possibly monetize the investments of early
private investors, and to become publicly traded enterprises.



Interest rate deregulation
Deregulation is defined as the removal of rules and regulation that constrainthe operation of market forces an
d
control over business for efficiency. It is an
intentional means of removing barriers affecting business in an economy. Interest
rate is the price charged for loan or fund borrowed. Thus, deregulation of interest
rate is the removal of government rules, control on the amount charged by
commercial banks for efficient credit system in the economy.

Investment licensing
A certificate allows the investor to make an investment and to earn a guaranteed interest rate for a
predetermined amount of time. The product rules and specifics can vary depending on the company selling the
certificates.

IRF (Interest Rate Future)
An agreement to buy and sell a debt obligation at a certain date at a certain price.
For example, Investor A may make a contract with Creditor B in which Agrees to buy a certain number
of B's bonds at a certain date for a certainamount. The value of an interest rate futures contract varies accordi
ng to changes in the interest rates.
LIBERALIZATION
The removal or reduction of restrictions or barriers on the free exchange of goods between nations. This
includes the removal or reduction of both tariff (duties and surcharges) and non-tariff obstacles (like licensing
rules, quotas and other requirements). The easing or eradication of these restrictions is often referred to as
promoting "free trade".
Liquidity
The ability to convert an asset to cash quickly. Also known as "marketability".
Liquidity Adjustment Facility (LAF)
A tool used in monetary policy that allows banks to borrow money through repurchase agreements.
This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic
stability in the financial markets.
Monetisation

Monetization is the process of converting or establishing something into legal tender. It usually refers to the
coining of currency or the printing of bank notes by central banks.
The term "monetization" may also be used informally to refer to exchanging possessions for cash or cash
equivalents, including selling a security, charging fees for something that used to be free, or attempting to make
money on goods or services that were previously unprofitable or had been considered to have the potential to
earn profits.

National multi commodity Exchange

The NMCE is India's third-largest commodities exchange behind the Multi-Commodity Exchange (MCX) and
the National Commodity & Derivatives Exchange (NCDEX) and has grown significantly as commodity trading
in India has rebounded from the 2008 financial crisis. NMCE is India's top lister of coffee and rubber contracts
and seeks to broaden into the currency derivatives and spot markets.
NMCE is currently India's third-largest commodity and derivatives exchange as measured by average daily
turnover, behind market dominator MCX and close rival NCDEX. However, NMCE recorded a spectacular
year-on-year leap in trading for the first half of 2009 of over 500%, according to India's Economic Times, to
12.8 billion Indian rupees compared to rival NCDEX's more modest 30% increase to 26.3 billion rupees.

Merger

The combining of two or more companies, generally by offering the stockholders of one company securities in
the acquiring company in exchange for the surrender of their stock.
Basically, when two companies become one. This decision is usually mutual between both firms.

MCX

Multi Commodity Exchange of India is a de-mutualized online commodity exchange of India promoted by
Financial Technologies (I) Ltd, SBI, Fidelity International, NSE, NABARD, HDFC Bk, SBI Life Insurance Co.,
and Union Bank of India, Canara Bk, Bank of India, Bank of Baroda and Corporation Bank.

Macroeconomic stabilization
A reserve fund established by the country of Venezuela. Also known as the "FEM," it was created at the behest
of the IMF to stabilize the national cash flow generated from oil production. It receives all monies generated
from oil production above a certain price per barrel and pays out the difference if the price falls below this level.

Market stabilisation scheme
Following the recommendations contained in the Report of the Reserve Bank of India (RBI) Working Group on
Instruments of Sterilization submitted in December 2003, the Government of India has confirmed its intention to
strengthen the Reserve Bank in its ability to conduct exchange rate and monetary management operations in a
manner that would maintain stability in the foreign exchange market and enable it to conduct monetary policy in
accordance with its stated objectives.
In this regard the Reserve Bank has proposed to the Government of India to authorize issuance of existing debt
instruments, viz., Treasury Bills and dated securities up to a specified ceiling to be mutually agreed upon
between the Government and the Reserve Bank by way of a Memorandum of Understanding (MoU) under the
Market Stabilization Scheme (MSS). The bills/bonds issued under MSS would have all the attributes of the
existing Treasury Bills and dated securities. The bills and securities will be issued by way of auctions to be
conducted by the Reserve Bank. The Reserve Bank will decide and notify the amount, tenure and timing of
issuance of such treasury bills and dated securities. Whenever such securities are issued by the Reserve Bank for
the purpose of market stabilization and sterilization, a press release at the time of issue would indicate such
purpose

MONETARY POLICY

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 of promoting economic growth and stability.

MONETARY TIGHTENING

Restriction of Money supply in an economy by the central bank through -- (1) Tightening of Credit
Qualifications, (2) Soaking up cash by selling govt bonds, and/or (3) Raising the banks' reserve requirements.


MULTI COMMODITY EXCHANGE

An entity, usually an incorporated non-profit association that determines and enforces rules and procedures for
the trading of commodities and related investments, such as commodity futures. Commodities exchange also
refers to the physical centre where trading takes place.

MUTUAL FUNDS

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of
investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are
operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for
the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives
stated in its prospectus.

NATIONAL COMMODITY AND DERIVATIVE EXCHANGE

National Commodity & Derivatives Exchange Limited (NCDEX) is a professionally managed on-line multi
commodity exchange. The shareholders of NCDEX comprises of large national level institutions, large public
sector bank and companies.

NATIONAL MULTI COMMODITY EXCHANGE

In response to the Press Note issued by the Government of India during May'1999, first state-of-the-art
demutualised multi-commodity Exchange, National Multi Commodity Exchange of India Ltd. (NMCE) was
promoted by commodity-relevant public institutions, viz., Central Warehousing Corporation (CWC), National
Agricultural Cooperative Marketing Federation of India (NAFED), Gujarat Agro-Industries Corporation
Limited (GAICL), Gujarat State Agricultural Marketing Board (GSAMB), National Institute of Agricultural
Marketing (NIAM), and Neptune Overseas Limited (NOL). While various integral aspects of commodity
economy, viz., warehousing, cooperatives, private and public sector marketing of agricultural commodities,
research and training were adequately addressed in structuring the Exchange, finance was still a vital missing
link. Punjab National Bank (PNB) took equity of the Exchange to establish that linkage. Even today, NMCE is
the only Exchange in India to have such investment and technical support from the commodity relevant
institutions. These institutions are represented on the Board of Directors of the Exchange and also on various
committees set up by the Exchange to ensure good corporate governance. Some of them have also lent their
personnel to provide technical support to the Exchange management. The day-to-day operations of the
Exchange are managed by the experienced and qualified professionals with impeccable integrity and expertise.
None of them have any trading interest. The structure of NMCE is impossible to replicate in India.


National Commodity and Derivatives Exchange
It provides a world-class commodity exchange platform for market participants to trade in a wide spectrum of
commodity derivatives driven by best global practices, professionalism and transparency.
Non- Resident Deposit
The Non-Resident Deposits are financial instruments that are being used by the NRIs to store their savings in
Indian Financial Institutions while staying outside the country.
Open Position Limit
The highest number of options or future contracts an investor is allowed to hold on one underlying security.
Exchanges and/or regulatory bodies establish different position limits for each contract based on trading volume
and underlying share quantity.
NDS-OM (Negotiated Dealing System & Order Matching)
NDS- OM is a screen based electronic anonymous order matching system for secondary market trading in
Government securities owned by RBI. Presently the membership of the system is open to entities like Banks,
Primary Dealers, Insurance Companies, Mutual Funds etc. i.e. entities who maintain SGL accounts with RBI.
These are Primary Members of NDS and are permitted by RBI to become members of NDS-OM.
T+1 settlement
It refers to the settlement date of security transactions. The T stands for transaction date, which is the day the
transaction takes place. The numbers 1, 2 or 3 denote how many days after the transaction date the settlement or
the transfer of money and security ownership takes place.
Non - Performing assets
A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments
to the designated lender for an extended period of time. The non-performing asset is therefore not yielding any
income to the lender in the form of principal and interest payments
OTC (Over-The-Counter)
A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The
phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a
centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which
are traded through a dealer network.
Reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to
meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-
dealers who negotiate directly with one another over computer networks and by phone.




Pledge
Offering assets to a lender as collateral security for a loan. Though the asset will be pledged to the lender, it is
still owned by the borrower unless he/she defaults on the loan. Some examples of pledge are Gold /Jewelry
Loans, Advance against goods,/stock, Advances against National Saving Certificates etc.


PLR (Prime Lending Rate)

The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's best
customers consist of large corporations. The prime interest rate, or prime lending rate, is largely determined by
the federal funds rate, which is the overnight rate which banks lend to one another. The prime rate is also
important for retail customers, as the prime rate directly affects the lending rates which are available for
mortgage, small business and personal loans.

Repatriation

The process of converting a foreign currency into the currency of one's own country. The amount that the
investor will receive depends on the exchange rate between the two currencies being traded at the settlement
time.

Quantitative Restrictions (QR)

A trade restriction placed on the amount of an item or service that can be imported into a country. These are
frequently enacted to protect the price of domestically produced goods or to decrease or eliminate a trade deficit.
Also called trade quota.

Prudential Regulation

Under deposit insurance, prudential regulation replaces the market discipline in control of the banks risk taking.
They intend to pursue two main goals- 1. Investors protection 2. Financial stability
PTLR (Prime Term Lending Rate)

The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's best
customers consist of large corporations. The prime interest rate, or prime lending rate, is largely determined by
the federal funds rate, which is the overnight rate which banks lend to one another. The prime rate is also
important for retail customers, as the prime rate directly affects the lending rates which are available for
mortgage, small business and personal loans.


Quantitative restrictions (QRs)
Specific limits on the quantity or value of goods that can be imported (or exported) during a specific time
period.
A trade restriction placed on the amount of an item or service that can be imported into a country. These are
frequently enacted to protect the price of domestically produced goods or to decrease or eliminate a trade deficit.
Also called trade quota.

Repurchase agreement (repo)
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities
together with an agreement for the seller to buy back the securities at a later date. The repurchase price should
be greater than the original sale price, the difference effectively representing interest, sometimes called the repo
rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively
acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest.
A form of short-term borrowing for dealers in government securities. The dealer sells the government securities
to investors, usually on an overnight basis, and buys them back the following day.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the
other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase
agreements.

Revenue expenditure
A revenue expenditure is a cost that you charge to expense as soon as you incur it. By doing so, you are using
the matching principle to link the expense incurred to revenues generated in the same accounting period. There
are two types of revenue expenditure:

Maintaining a revenue generating asset. This includes repair and maintenance expenses, because they are
incurred to support current operations, and do not extend the life of an asset or improve it.
Generating revenue. This is all day-to-day expenses needed to operate a business, such as sales, rent, office
supplies, and utilities.
Other types of costs are not considered to be revenue expenditures, because they relate to the generation of
future revenues. For example, the purchase of a fixed asset is categorized as an asset and charged to expense
over multiple periods, to match the cost of the asset against multiple periods of revenue generation. These
expenditures are known as capital expenditures.






Risk management
The process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-
making. Essentially, risk management occurs anytime an investor or fund manager analyses and attempts to
quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their
investment objectives and risk tolerance. Inadequate risk management can result in severe consequences for
companies as well as individuals. For example, the recession that began in 2008 was largely caused by the loose
credit risk management of financial firms.

Repatriation benefits
Repatriation is the process of returning a person to their place of origin or citizenship. This includes the process
of returning refugees or military personnel to their place of origin following a war. The term may also refer to
the process of converting a foreign currency into the currency of one's own country. The forced return of a
person to a country where he faces persecution is more specifically known as refoulement.
Repatriation of currency is when foreign currency is converted back to the currency of the home country it is
referred to as repatriation. An example would be an American converting British pounds back to U.S. dollars.

Repatriation also refers to the payment of a dividend by a foreign corporation to a U.S. corporation. This
happens often where the foreign corporation is considered a "controlled foreign corporation" (CFC), which
means that more than 50% of the foreign corporation is owned by U.S. shareholders. Generally, foreign direct
investment in CFC's are not taxed until a dividend is paid to the controlling U.S. parent company, and is thus
repatriated. The foreign direct investment income of the CFC is taxed only by the country where it is
incorporated until repatriation. At that time, income is subject to the (typically higher) U.S. tax rate minus the
Foreign Tax Credits. (FN: See IRC 951-965) There are currently hundreds of billions of dollars of foreign direct
investment in CFC's because of the disincentive to repatriate those earnings. (See Bureau of Economic Analysis,
National Economic Accounts, and Integrated Macroeconomic Accounts for the United States, available at the
Bureau of Economic Analysis.)

SCRA
The Securities Contracts (Regulation) Act, 1956 Act was enacted in order to prevent undesirable transactions
in securities and to regulate the working of stock exchanges in the country. The provision of the Act came into
force with effect from 20th February, 1957 vide Notification No. SRO 528 dated 16th February, 1957.

SEBI
The Securities and Exchange Board of India is the regulator for the securities market in India. It was established
in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act 1992.
SHARE CAPITAL
Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company
has can change over time because each time a business sells new shares to the public in exchange for cash, the
amount of share capital will increase. Share capital can be composed of both common and preferred shares.
SHORT TERM CREDIT
A credit used in the process of production and distribution for the circulation of working capital or of circulating
assets. Such credit is usually granted for a period of up to one year.
SHORT TERM DEBT
An account shown in the current liabilities portion of a companys balance sheet.
This account is comprised of any debt incurred by a company that is due within one year. The debt in this
account is usually made up of short term bank loans taken out by a company.
STATE OWNED ENTERPRISE
A legal entity that is created by the government in order to take part in commercial activities on the
governments behalf. A state owned enterprise can be either wholly or partially owned by a government and is
typically earmarked to participate in commercial activities.
STATUTORY LIQUIDITY RATIO
It is the minimum ratio a bank has to keep with central bank in form of Gold, Cash or other approved securities.

STRUCTURAL REFORMS

Structural Reforms Are Key to Sustained Growth, IMF Study Says

Boosting productivity key to raising living standards in emerging and developing economies

Structural reforms raise productivity by removing impediments to effective resource use.

Reforms need to be calibrated to a countrys stage of development.


Dynamic emerging market and developing countries can continue their strong growth going forward if
they boost productivity through structural reforms.

Such a strategy would allow them to further narrow the gap in living standards with the advanced
economies.

BPLR
By definition, the Benchmark Prime Lending Rate (BPLR), is the reference interest rate based on which a
bank lends to its credit worthy borrowers. Normally, loans are given out a little more or a little less that
this reference interest rate.

All retail loans are linked to the BPLR or the PLR. So, any change in it will affect the cost at which you
take a loan from a bank. The RBI does not set these rates, but in a broad way stipulates the interest rates in
the economy.

The PLR is influenced by RBI's policy rates - the repo rate and cash reserve ratio - apart from the bank's
policy.

In simple words, availability of funds in the banking system and demand for credit by consumers (both
retail and industrial) determine what the BPLR should be.




Stock Price
The cost of purchasing a security on an exchange.


Stock Exchange

Organized and regulated financial market where securities (bonds, shares) are bought and sold at prices
governed by forces of demand and supply.

Primary- where corporations, govt. bodies can raise capital by channelling saving of investors into production
ventures.

Secondary- where investors sell securities for cash.

Swap transaction
A swap is a derivative in which two counterparties exchange cash flows of one party's financial instrument for
those of the other party's financial instrument. The benefits in question depend on the type of financial
instruments involved.
EXAMPLE: In the case of a swap involving two bonds the benefits in question can be the periodic interest
(coupon) payments associated with such bonds. Specifically, two counterparties agree to exchange one stream
of cash flows against another stream. These streams are called the legs of the swap. The swap agreement defines
the dates when the cash flows are to be paid and the way they are accrued and calculated. Usually at the time
when the contract is initiated, at least one of these series of cash flows is determined by an uncertain variable
such as a floating interest rate, foreign exchange rate, equity price, or commodity price.

TAC: TECHNICAL ADVISORY COMMITTEE OF RBI
The objective of the TAC on Monetary Policy is to periodically advise the Reserve Bank on the stance of
monetary policy in the light of macroeconomic and monetary developments. The TAC is an outcome of the
Reserve Banks growing emphasis on strengthening the process of monetary policy formulation.

The terms of reference of the Committee are:
(i) to review macroeconomic and monetary developments, and
(ii) To advise on the stance of monetary policy.

Total Expenditure
The sum of the price paid for one or more products or services multiplied by the amount of each item purchased.

Treasury bills
A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are
sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one
month (four weeks), three months (13 weeks) or six months (26 weeks).

UTI
Unit Trust of India is a financial organization in India, which was created by the UTI Act passed by the
Parliament in 1963(30th Dec 1963).
[2]
For more than two decades it remained the sole vehicle for investment in
the capital market by the Indian citizens.

Ways and means advances (WMA)
Ways and means advances (WMA) is a mechanism used by Reserve Bank of India (RBI) under its credit policy
by which provides to the States banking with it to help them to tide over temporary mismatches in the cash flow
of their receipts and payments.


ZCYC
A yield curve showing discounts for maturities from a starting point to present. This is done through stripping
the yield curve.


TPLR
Tenor linked prime lending rates was introduced in April 1999 to provide banks with freedom to operate
different PLRs for different maturities provided the transparency of treatment that were there under the PLR
system.

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 It does not make periodic interest payments, or have so-called "coupons", hence the term zero-
coupon bond. When the bond reaches maturity, its investor receives its par (or face) value. Examples of zero-
coupon bonds include U.S. Treasury bills, U.S. savings bonds, long-term zero-coupon bonds, and any type of
coupon bond that has been stripped of its coupons.


Zero coupon yield curve

Zero coupon yield curve -Also known as the spot curve or spot yield curve, it is a graph which plots zero
coupon interest rates (rates based on one payment) against time to maturity.

Capital indexed bond

A form of indexed bonds whose proceeds on maturity are linked to movements in the Consumer Price Index,
and which pay a small coupon rate e.g. 1% per quarter of the variable final amount.

Floating rate bond

Bond whose interest amount fluctuates in step with the market interest rates, or some other external measure.
Price of floating rate bonds remains relatively stable because neither a capital gain nor a capital loss occurs as
market interest rates go up or down.