ECONOMY (Key Terminologies)

MARKS BOOSTER
SERIES
ECONOMY
(Key Terminologies)
PRELIMS 2024
TABLE OF CONTENTS
1. ECONOMIC GROWTH................................................................................................................... 1
2. PLANNING AND ECONOMIC REFORMS IN INDIA............................................................... 3
3. AGRICULTURE................................................................................................................................ 5
4. INDUSTRY......................................................................................................................................... 10
5. INFLATION....................................................................................................................................... 12
6. FINANCIAL MARKET.................................................................................................................... 14
7. SECURITY MARKET IN INDIA .................................................................................................... 18
8. BANKING SECTOR IN INDIA ...................................................................................................... 23
9. TAXATION ....................................................................................................................................... 31
10. PUBLIC FINANCE .......................................................................................................................... 34
11. EXTERNAL SECTORS OF INDIA ................................................................................................. 37
12. POVERTY, HUMAN DEVELOPMENT AND SUSTAINABLE DEVELOPMENT ................. 43
13. UNEMPLOYMENT.......................................................................................................................... 45
14. MISCELLANEOUS........................................................................................................................... 46
1. Economic Growth
Previous Year Questions
Year Term Explanation
2018 Per Capita Real GNP Per capita real Gross National Product (GNP) is a measure of a
country's economic output that accounts for inflation and is adjusted
for population size.
• It is calculated by dividing the total real GNP of a country by its
population.
2013 National Income The total income earned by a country's residents in a given period,
including wages, salaries, profits, and other sources of income.
• National income is an important indicator of a country's
economic performance.
2011 GDP Growth Rate Gross Domestic Product (GDP) growth rate is a measure of the
change in a country's economic output over a specific period of time,
usually a year or a quarter.
• It is calculated by comparing the current period's GDP with the
previous period's GDP and expressing the change as a
percentage.
2011 Base Effect The distortion in economic data is caused by a significant change in
the underlying conditions or data used as a reference point.
• Base effects can occur in data related to inflation, economic
growth, or other economic indicators.
Important Terms in News
Terms Explanation
GDP It is defined as the total value of all final goods and services produced in an
economy in a given period of time, usually a year.
• The Base Year of the GDP Series was revised from 2004-05 to 2011-12.
Nominal GDP Nominal GDP is GDP given in current prices, without adjustment for inflation.
Real GDP Real GDP is GDP given in constant prices and refers to the volume level of GDP.
Potential GDP Potential gross domestic product (GDP) is the level of output that an economy
could produce at a constant inflation rate.
GDP Calculation • Production Approach: It sums the “value-added” at each stage of

Methods production.
• Income approach: It measures the total income earned by the factors of
production.
• Expenditure approach: It measures the total expenditure incurred by all
entities on goods and services.
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NDP Net Domestic Product is defined as the difference in Gross Domestic Product and
Depreciation.
NDP = GDP - Depreciation
GNP Gross national product (GNP) includes GDP, income earned by residents from
overseas investments, minus income earned by foreign residents.
GVA According to the RBI, the Gross value added (GVA) of a sector is defined as the
value of output minus the value of its intermediary inputs.
• Thus it is the value addition done to a product resulting in the production of
the final product.
GDP Deflator It measures the average change of prices of all goods and services in the economy
which is an indication of overall inflation across all goods and services in the
economy compared to the base year.
NNP Net National Product is defined as the difference in Gross National Product and
Depreciation
NNP=Gross National Product−Depreciation
Per Capita Income Per capita income = (National Income / Population)
Gross National OECD defines it as (GDP + Net factor income from abroad + Net taxes and
Income subsidies receivable from abroad).
GNP = GDP + Factor income from abroad - Factor income sent abroad
= GDP + Net Factor Income from abroad
GFCF As per RBI, Gross Fixed Capital Formation refers to the aggregate of gross
additions to fixed assets (i.e. fixed capital formation) plus changes in stocks
during the counting period.
• Fixed asset refers to the construction, machinery, and equipment etc.
Capital Output It refers to the amount of capital needed to produce one unit of output.
Ratio
ICOR Incremental Capital Output Ratio refers to the marginal investment capital
amount necessary for an entity to generate the next unit of production.
V-shaped It is characterised by a quick and sustained recovery in measures of economic

Recovery performance after a sharp economic decline.
K-shaped It occurs when, following a recession, different parts of the economy recover at
Recovery different rates, times, or magnitudes
Middle Income A middle-income trap is a situation in which a country attains a certain average
Trap income and gets stuck at that level, failing to graduate to a high income group.
Anarcho- Anarcho-capitalism, political philosophy and political-economic theory that

Capitalism advocates the voluntary exchange of goods and services in a society broadly
regulated by the market rather than by the state.
• The term anarcho-capitalism was coined by Murray Rothbard, a leading figure
in the American libertarian movement from the 1950s.
• Anarcho-capitalists assert that private companies in a free market can
efficiently provide policing and legal services.
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2. Planning and Economic Reforms in India
2020 Rural Rural employment refers to the work or jobs available in the countryside
Employment or rural areas.
• It includes a variety of occupations and industries such as farming,
forestry, fishing, mining, construction, manufacturing, and service
sector jobs such as healthcare, education, and retail.
• Rural employment can be both formal and informal, and may
include self-employment, wage employment, or a combination of
both.
Five -Year Plan Five-Year Plans are a series of centralized economic planning initiatives
2019 that were introduced in the former Soviet Union and later adopted by
India.
• They are essentially a set of guidelines that establish specific
economic and social targets, goals, and policies for a period of five
years, and serve as a blueprint for the government's economic
development programs.
2017 FDI Inflows FDI inflows refer to the investment made by foreign companies or
individuals in the domestic economy of a country.
• FDI stands for Foreign Direct Investment, and it is the process by
which a company or investor acquires a controlling interest in an
existing company or establishes a new business in a foreign country.
Foreign Exchange Foreign exchange reserves refer to the assets that a country's central bank
2017 Reserves holds in foreign currencies, such as US dollars, Euros, and Japanese Yen.
• These reserves are used to ensure that a country can meet its
international obligations, including trade and debt payments, and to
maintain stability in the foreign exchange market.
2014 Inclusive Growth Inclusive growth is a concept that refers to the process of economic
growth that is broad-based and benefits all segments of society, including
the most vulnerable and marginalized groups.
2014 Sustainable Sustainable growth refers to a type of economic development that can be
Growth maintained over the long term without degrading the natural
environment, exploiting resources unsustainably, or compromising the
well-being of future generations.
• Sustainable growth aims to meet the needs of the present generation
without compromising the ability of future generations to meet their
own needs.
2012 District Planning District Planning Committees are committees set up under the 73rd
Committees Amendment to the Constitution of India, which aims to strengthen the
(DPCs) Panchayati Raj system in the country.
• DPCs are responsible for preparing and coordinating the district
plans for economic development and social justice.
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2012 Government Government spending refers to the use of public funds by the
Spending government to finance various programs, projects, and services for
improving public infrastructure, providing public goods and services,
promoting economic growth, reducing poverty, and ensuring social
welfare.
Terms Explanation
Factors of These are basic productive resources (labour, capital, and natural resources) that are
Production essential inputs to every economic activity.
Liberalization It is the process of reducing or removing governmental controls over economic

activities like business, commerce etc.
• It provides a greater autonomy to the business enterprises in decision-making
and eliminates government interference
Globalization It is a scenario in which nations allow free flow of goods, services, labor, capital,
investment, technology, ideas and innovations.
• It describes the growing interdependence of the world’s economies, cultures,
and populations, brought about by cross-border trade in goods and services,
technology, and flows of investment, people, and information.
Privatisation It refers to allowing private sectors to enter into sectors which were reserved for public
sector companies only.
• It involves converting PSUs to private sector companies by reducing government
holding below 50%.
Circular The circular economy is a model of production and consumption, which involves
Economy sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and
products as long as possible.
• In a circular economy, resources are kept in use as long as possible and
maximum value is extracted out of it.
Unicorn Club These are start-up companies whose valuation is $1 billion or more. It is commonly
used in the venture capital industry.
Sick industries It is an entity that has accumulated more losses than its capital.
• As per RBI, a small scale unit should be considered as sick if it has at the end of
any accounting year, accumulated losses equal to or exceeding 50% of its peak
net worth in the immediately preceding 5 accounting years
IPR Intellectual property rights are the rights given to persons over the creations of their
minds which includes inventions, literary and artistic works, and symbols, names and
images used in commerce.
Compulsory It is a mechanism permitted under WTO’s TRIPS in which the government can use,
Licensing manufacture, import, or sell a patented invention without the patent owner’s
consent for larger public interest.
Evergreening It is an unethical practice of obtaining a patent by slightly modifying the original

of Patent formula to create a new product. The Indian patent act prohibits evergreening.
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3. Agriculture
2023 'Small Farmer Large Many marginal farmers in an area organize themselves into groups
Field' and synchronize and harmonize selected agricultural operations.
2020 Minimum Support It is a price at which the government purchases agricultural produce
Price from the farmers to support their income and ensure that they get a
fair price for their crops.
• MSP is announced by the government at the beginning of each
sowing season and is usually higher than the market price to
provide an incentive to farmers to produce more.
• Commission for Agricultural Costs & Prices (CACP) recommends
MSPs for 22 mandated crops & fair and remunerative price (FRP)
for Sugarcane.
2020 Government's It refers to the buying and selling of goods and services by the
Trading government in the market.
• The government engages in trading activities for various reasons,
such as to meet the demand for essential goods, to maintain price
stability, to regulate the market, or to promote certain economic
policies or objectives.
2020 Government's It refers to the accumulation and storage of essential commodities,

Stockpiling such as food grains, oil, and fuel, by the government in large quantities
to meet any future shortages or emergencies.
• Stockpiling is an important strategy for the government to ensure
food security, price stability, and energy security in the country.
Consumer Subsidies These are financial assistance provided by the government to reduce
2020 the cost of certain essential goods or services for consumers.
• The objective of consumer subsidies is to make essential goods or
services affordable and accessible to everyone, especially for low-
income groups and vulnerable populations.
2020 Agricultural Credit These are cooperative societies that provide credit facilities to farmers
Societies and other rural people at reasonable rates of interest.
• These societies are established under the Cooperative Societies
Act and are regulated by the Registrar of Cooperative Societies in
each state.
2020 Social Capital Social capital development refers to the process of building and
Development strengthening the social networks, relationships, and institutions that
facilitate collective action and cooperation in a community.
• Social capital development has a positive impact on poverty
reduction, improved health and education outcomes, and
increased economic growth.
2020 Loan Waiver Loan waiver is a policy tool used by the government to waive off or
forgive the outstanding loans of certain categories of borrowers, such
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as farmers, small and medium enterprises, or low-income groups
who might not be able to repay their loans due to various reasons, such
as crop failure, economic downturn, or natural disasters.
2020 Kisan Credit Card The Kisan Credit Card (KCC) Scheme is a government scheme
Scheme launched by the Reserve Bank of India (RBI) to provide affordable
credit facilities to farmers in India.
• The objective of the scheme is to support agricultural activities and
provide timely and adequate credit to farmers for their production
and investment needs.
2020 Short-term Credit Short-term credit refers to a type of credit facility that is typically used
to finance working capital needs or short-term cash flow
requirements of businesses or individuals.
• Short- term credit is usually provided for a period of up to one
year and is meant to be repaid within a short time frame.
2020 Working Capital Working Capital is the capital used for maintenance of farm assets and
activities allied to agriculture.
2020 Consumption Consumption requirements refer to the basic needs that individuals or
Requirements households require to sustain their daily lives.
• These requirements typically include food, water, shelter, clothing,
and healthcare.
2020 Post-harvest Expense Post-harvest expenses are the costs incurred after crops or agricultural
products have been harvested from the field.
• These expenses are an important part of the agricultural value
chain and can include various activities that are necessary to
process, store, transport, and market the harvested products.
2019 Economic Cost of The economic cost of food grains refers to the total cost involved in
Food Grains the production, processing, and distribution of food grains.
• It includes both the monetary and non-monetary costs associated
with the production and distribution of food grains, including the
cost of inputs, labor, transportation, storage, and marketing.
2019 Agricultural Agricultural commodities refer to raw materials or products derived

Commodities from agricultural activities that can be traded on markets.
• These commodities are often used as inputs in other industries,
such as food processing, livestock feed, and biofuels.
2019 Ceiling Laws Ceiling laws in India refer to the legislation that sets a limit on the
maximum amount of land that an individual or a family can own.
• These laws were introduced in India in the 1950s as a means of
promoting land reforms and ensuring a more equitable
distribution of land resources.
2019 Family/ Individual Family land holdings refer to the land owned by a family or a group
Holdings of related individuals.
• These holdings can be inherited over generations and can be used
for a variety of purposes, such as agriculture, residential,
commercial, and industrial use.
• Individual land holdings refer to the land owned by an individual
or a group of individuals.
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• These holdings can include agricultural land, residential land,
commercial land, and industrial land. Individual land holdings can
be used for a variety of purposes, such as farming, construction,
and development.
2019 Cash Crops Cash crops are typically cultivated on a large scale and are intended
for commercial use, either for domestic consumption or for export.
• Cash crops can vary depending on the region, climate, and market
demand.
• Some common cash crops include coffee, cocoa, tea, cotton,
tobacco, sugarcane, and oilseeds such as soybeans, sunflowers,
and canola.
2019 Agricultural Agricultural commodity trading is the buying and selling of

Commodity Trading agricultural commodities such as grains, oilseeds, livestock, and other
products on organized exchanges or markets.
• These commodities are traded globally and are used as inputs in
a variety of industries, such as food processing, biofuels, and
animal feed.
2019 Procurement Procurement incidentals are expenses incurred

Incidentals during procurement till the food grains reach the first point of
godown.
2019 Customs Duty Customs duty is a tax imposed by a government on goods that are
imported into a country.
• The purpose of customs duty is to protect domestic industries by
making foreign goods more expensive and less competitive in the
domestic market.
2018 Cabinet Committee The Cabinet Committee on Economic Affairs (CCEA) is a committee
on Economic Affairs of the Union Cabinet that is responsible for making decisions on
economic and financial matters that are of national significance.
• The primary mandate of the CCEA is to review and approve
proposals related to economic policies, investment proposals,
foreign investments, and reforms in key sectors such as agriculture,
industry, and infrastructure.
2017 National Agriculture The National Agriculture Market (NAM) is an online trading platform
Market for agricultural commodities in India.
• The NAM was launched in 2016 with the aim of creating a unified
national market for agricultural commodities by integrating
various APMC (Agricultural Produce Market Committee) Mandis
across the country.
2016 Drip Irrigation Drip irrigation is an efficient method of irrigation as it minimizes

water loss due to evaporation and runoff.
• It also helps in the conservation of water by reducing water usage
compared to other irrigation methods.
• Additionally, it enables the efficient use of fertilizers and
nutrients by delivering them directly to the plant roots.
2015 Fair and FRP is a price mechanism in India that is fixed by the government to
Remunerative Price ensure a fair price to sugarcane farmers for their produce.
(FRP)
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• The FRP is announced by the central government at the beginning
of every sugarcane season and is applicable to all sugarcane-
producing states in the country.
• The FRP is determined based on the recommendations of the
Commission for Agricultural Costs and Prices (CACP).
2015 CACP The Commission for Agricultural Costs and Prices (CACP) is an
advisory body in India that provides recommendations to the
government on agricultural pricing policies.
• The primary mandate of the CACP is to recommend the Minimum
Support Prices (MSP) for various agricultural commodities such
as crops, pulses, oilseeds, and FRP for sugarcane.
2015 APMC It is a statutory body established by state governments in India under

the Agricultural Produce Market Committee Act.
• It aims at regulating and facilitating the sale and purchase of
agricultural produce in the market yard or mandi.
2015 AIBP is a central government scheme in India launched in 1996 with the aim
of providing financial assistance to states for the completion of ongoing
irrigation projects and the creation of new irrigation infrastructure.
The program is implemented by the Ministry of Jal Shakti.
2015 Command Area The Command Area Development Programme (CADP) is a centrally
Development sponsored scheme.
Programme • The program is implemented by the Ministry of Jal Shakti.
• The CADP focuses on the comprehensive development of the
command area of major and medium irrigation projects, with the
aim of increasing agricultural productivity and production.
2015 Capital- Augmenting It is a type of technological progress in which the productivity of

Technological capital is increased through the introduction of new technology or
Progress innovations.
• This type of technological progress is characterized by the
development of new and improved capital goods such as
machinery, equipment, and tools that can be used to produce more
output with the same amount of capital.
2015 Seed Village Concept It is a program that was initiated by the Indian Council of
Agricultural Research (ICAR) with the aim of promoting the
production and distribution of quality seeds to farmers.
• The program aims to develop a network of farmers who can
produce and distribute quality seeds for different crops in their
local areas.
Terms Explanation
Producer Organisation It is a legal entity formed by primary producers, viz. farmers, milk producers,
(PO) fishermen, weavers, rural artisans, craftsmen.
• A PO can be a producer company, a cooperative society or any other legal
form which provides for sharing of profits/benefits among the members.
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• In some forms like producer companies, institutions of primary
producers can also become member of PO
“Farmers Producer It is one type of PO where the members are farmers.

Organisation” (FPO)
Contract Farming A company extends loans, technical knowledge and material inputs to a
number of small farmers in an area so that they produce the agricultural
commodity required by the company for its manufacturing process and
commercial production.
Cobweb Phenomenon This refers to a phenomenon where the prices of certain goods witness
fluctuations that are cyclical in nature. It happens due to faulty producer
expectations.
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4. Industry
2020 West Texas West Texas Intermediate (WTI) is a grade of crude oil that is used as
Intermediate a benchmark for pricing oil in the United States.
• WTI is traded on the New York Mercantile Exchange (NYMEX)
and the Intercontinental Exchange (ICE) in London.
• WTI is widely used as a benchmark for crude oil prices in the
United States and serves as a reference price for other crude oils
in the global market.
2020 Trade-Related TRIMs are rules and regulations that are applied by countries to
Investment Measures regulate and control foreign investment within their borders.
(TRIMs) • These measures can include requirements for local content,
technology transfer, export performance, and domestic
ownership requirements.
2019 Nationalized Nationalized industries refer to industries that are owned and
Industries (Coal operated by the government rather than private individuals or
Sector) companies.
• In India, several industries have been nationalized over the years.
• The nationalization of industries in India began with the
Industrial Policy Resolution of 1948, which identified key sectors
that were deemed to be of strategic importance and nationalized.
2016 ‘UDAY Scheme’ ‘UDAY' stands for Ujjwal DISCOM Assurance Yojana, and it is a
scheme launched by the Government of India in 2015 to help
financially stressed state electricity distribution companies
(DISCOMs).
• The UDAY scheme aims to improve the operational efficiency of
DISCOMs and reduce their financial losses.
2016 District Mineral The District Mineral Foundation (DMF) is a trust set up in India as a
Foundation part of the Mines and Minerals (Development and Regulation)
Amendment Act, 2015.
• The purpose of the DMF is to provide financial and other
assistance for the welfare of people and areas affected by
mining-related operations in the country.
National Investment The (NIMZs) is an initiative of the Government of India to promote

2012 and Manufacturing industrialization in the country.
Zones • The NIMZs are envisaged as large integrated industrial
townships with world-class infrastructure and facilities for
manufacturing industries.
Single Window Single Window Clearance (SWC) is a mechanism that is designed to

2012 Clearance simplify and streamline the process of obtaining regulatory
approvals for businesses.
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2012 Technology The TADF is a scheme launched by the Government of India to
Acquisition and facilitate the acquisition of technology by Micro, Small, and Medium
Development Fund Enterprises (MSMEs) in the country.
(TADF) • The fund is managed by the Small Industries Development Bank
of India (SIDBI).
2012 Core Industries • The core industries in India refer to the eight core industries
sectors that are essential for the growth and development of the
economy.
○ These sectors are coal, crude oil, natural gas, petroleum refinery
products, fertilizers, steel, cement, and electricity.
2012 Index of Industrial The Index of Industrial Production (IIP) is a measure of the growth
Production in the production output of the industrial sector in India.
• It is calculated on a monthly basis and is released by the Central
Statistics Office (CSO) of India.
• The IIP includes three major sectors - mining, manufacturing,
and electricity.
○ It also covers a wide range of industries within these sectors,
including textiles, chemicals, machinery, food and beverages
etc.
2012 Purchase Manage It is a composite index. It measures the economic health of a country's
Index manufacturing sector.
• It is based on a survey of purchasing managers. Purchasing
managers are responsible for buying goods and services for
businesses.
Terms Explanation
Reverse Flip Reverse flipping is the process of shifting the domicile of an Indian company back to
India after it had moved its headquarters overseas, usually for tax or regulatory
reasons. It is also known as 're-domiciling'.
Special SEZ is a specifically delineated duty-free enclave, deemed to be foreign territory for
Economic trade operations, duties and tariffs.
Zones (SEZ)
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5. Inflation
2021 Inflation Inflation is a sustained increase in the general price level of goods and
services in an economy over a period of time.
• It is typically measured by an index of consumer prices, such as the
Consumer Price Index (CPI) or the Wholesale Price Index (WPI).
Economic An economic recession is a period of general economic decline, typically

2021 Recession characterized by a decrease in gross domestic product (GDP), employment,
and trade.
• It is usually marked by a slowdown in economic activity, a rise in
unemployment, and a decline in consumer spending.
2021 Demand Pull Demand-pull inflation is caused by an increase in demand and when the
Inflation demand in the economy outgrows the supply in the economy.
• It can be summed up as a condition of “too much money chasing too
few goods”.
2021 Expansionary Money in the market rises when the government spends more freely. It leads
Policies to an increase in demand for the goods and fuels demand-pull inflation.
2021 Fiscal Stimulus Government policies aimed at increasing aggregate demand and
stimulating economic growth during a recession or period of low economic
activity.
• Fiscal stimulus may take the form of tax cuts, increased government
spending, or other measures designed to stimulate consumer spending
and investment.
2021 Inflation- It means wages are linked to inflation to ensure that wages change when
Indexing inflation changes in the economy.
Wages • Such indexing is provided to reduce the effect of inflation on wages. It
can not lead to demand pulling inflation in the economy.
2021 Purchasing Purchasing power is the value of a currency expressed in terms of the
Power number of goods or services that one unit of money can buy.
• Consumers feel more confidence and spend more when they have a
better income.
2020 Consumer A comprehensive measure used for estimation of price changes in a basket
Price Index of goods and services representative of consumption expenditure in an
(CPI) economy is called consumer price index.
2020 Wholesale Wholesale stage i.e. goods that are sold in bulk and traded between
Price Index organizations instead of consumers. WPI is used as a measure of inflation
(WPI) in some economies.
2013 Debtors A debtor is a person or an entity that owes money to another, which could
be any individual or institution (including the government).
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• In most cases, the debtor has to pay interest on debt along with the
principal debt.
• A debtor is commonly known as a borrower, but when a company's debt
is in the form of securities, it is called an issuer.
2013 Bond-holders A bondholder is an investor or the owner of debt securities that are typically
issued by corporations and governments.
• Bondholders are essentially lending money to the bond issuers.
• In return, bond investors receive their principal i.e. initial investment
back when the bonds mature.
Terms Explanation
Cost Push Inflation Price rise due to increased cost of inputs leads to cost push inflation. Eg.
increase in crude oil prices leads to increased cost for transport companies.
Disinflation Disinflation is a decrease in the rate of inflation – a slowdown in the rate of
increase of the general price level of goods and services in a nation's gross
domestic product over time.
Deflation When the overall price level decreases so that inflation rate becomes negative,
it is called deflation. It is the opposite of the often-encountered inflation.
Stagflation It refers to persistent high inflation, high unemployment and low growth
resulting in a stagnant economy.
Skewflation It refers to the relative price rise of one or a group of commodities. Eg. Onion
or Tomato inflation in India.
Shrinkflation Shrinkflation is the reduction in the size of a product in response to rising
production costs or market competition.
• Rather than increase the price of a product, the company simply offers a
smaller package for the same sticker price.
Headline Inflation It is the measure of total inflation within an economy. It includes price rise in
food, fuel and all other commodities.
Core Inflation Core inflation excludes food and fuel items from headline inflation. Core
inflation excludes these items because their prices are much more volatile.
Reflation It is a policy which is enacted after a period of economic slowdown or
contraction so as to expand output, stimulate spending and curb the effects of
deflation.
Hyper-Inflation A situation of extremely rapid inflation (reaching 100% per year or more),
often resulting from a condition of economic or political breakdown.
Inflationary Gap The excess of total government spending above the national income (i.e.,
fiscal deficit) is known as the inflationary gap.
Deflationary Gap The shortfall in total spending of the government (i.e., fiscal surplus) over the
national income creates deflationary gaps in the economy.
Inflation Premium The bonus brought by inflation to the borrowers is known as the inflation
premium
Giffen Goods Giffen goods are non-luxury items that generate higher demand when prices
rise, creating an upward-sloping demand curve contrary to standard laws of
demand.
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6. Financial Market
2022 Debt Financing Raising funds by borrowing money from lenders, such as banks or
bondholders.
• Debt financing requires the borrower to repay the loan with interest
over a specified period.
2022 Equity Raising funds by selling ownership shares in a company to investors.

Financing
• Equity financing does not require the borrower to repay the funds, but
it does dilute ownership and profits.
2020 Commercial Commercial Paper is a money market instrument for financing working
Paper capital requirements of companies.
It is an unsecured instrument issued in the form of promissory notes which
can be issued for a period ranging from 15 days to one year.
2020 Commercial Bill Commercial paper is a short-term, unsecured debt instrument issued by
corporations typically for the financing of short-term liabilities.
2020 Promissory A promissory note is a legal document outlining a borrower's promise to

Notes repay a specific amount to a lender.
2020 Participatory P-notes are Offshore Derivative Instruments (ODIs) issued by registered
Notes Foreign Portfolio Investors (FPIs) to overseas investors who wish to be a part
of the Indian stock markets without registering themselves directly.
• P-notes have Indian stocks as their underlying assets.
2020 Certificate of Certificate of Deposit or CD are short term money market instruments
Deposit issued by Commercial Banks and special financial institutions which are
freely transferable between parties.
• They are issued at a discount provided on face value.
• CDs can be issued in India for a minimum deposit of ₹1 lakh and in
subsequent multiples of it.
Call Call money/ Notice money is a money market instrument used by the banks
2020 Money/Notice to meet their temporary requirement of cash.
Money
• Call money has a maturity period of one day whereas Notice money's
maturity period is two to fourteen days andis used by banks for
adjusting to their short-term liquidity imbalances.
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2020 Zero-Coupon It is a type of bond that is issued at a discount to its face value, at which it
Bonds will be redeemed.
There are no intermittent interest payments and they are generally issued
for long tenure.
2016 Zero-Coupon These instruments are not stocks or bonds but instruments for donating
Zero Principal money to the NPOs listed in the Socia Stock Exchange.
• As the name indicates, ZCZP neither offers interest nor returns the
principal.
2016 Bitcoin/Cryptoc Bitcoin is a digital currency that is not tied to any formal institution like
urrency bank or government and it also allows users to transact anonymously.
• Generally, the coins are created by users who ''mine'' them by lending
computing power to verify other users' transactions.
2016 Sovereign Gold These are government securities denominated in grams of gold issued by
Bond the RBI on behalf of the Government.
2016 Gold It aims to minimise the nation's dependency on gold imports by enabling
Monetization the use of gold held by households and facilitating their mobilisation for
Scheme productive uses.
Venture Capital It is a form of private equity and a type of financing that investors provide
2014 to startup companies and small businesses that are believed to have long-
term growth potential.
• The majority of venture capital is often provided by wealthy
individuals, investment banks, and other financial organizations.
• However, it is not always in the form of money; it can also come in the
form of managerial or technological know-how.
2012 G-Sec Government securities are debt instruments issued by the government to
finance its budget deficits or other financial obligations.
● G-Secs carry practically no risk of default and, hence, are called risk-
free gilt-edged instruments
2012 State SDLs are dated securities issued through normal auctions by the State
Development Governments similar to Dated G-Secs.
Loans (SDLs)
2012 Treasury Bills These are short term debt instruments issued by the Centre in three tenors,
(T-bills)
namely, 91day, 182 day and 364 day.
• They are zero coupon securities and pay no interest. Instead, they are
issued at a discount and redeemed at the face value at maturity
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2012 Cash CMBs are similar to T-bills but are issued for maturities less than 91 days.
Management
Bills (CMBs)
2011 Disinvestment It refers to the process of selling or liquidating assets, businesses, or

investments
• It is often done to raise funds or to restructure the organization.
• In the case of a government, disinvestment may involve selling off its
stakes in public sector companies or privatizing state-owned
enterprises.
Terms Explanation
Blue Bonds Blue bonds are a type of sustainable bond specifically designed to finance projects that
protect and restore the ocean and its resources.
Debt for Through a debt-for-nature swap, a debtor country reduces its total outstanding external
Nature Swap debt.
• The debtor country is able to buy back part of its debt in more favorable terms and
pay for conservation initiatives rather than debt service.
Blue washing A marketing tactic used by companies to deceive consumers into believing that they
are working towards achieving sustainable use and conservation of food systems and
water bodies.
Green Greenwashing is the act of making false or misleading statements about the
Washing environmental benefits of a product or practice.
Green Greenwishing, or unintentional greenwashing, describes a practice where a company

Wishing hopes to meet certain sustainability commitments but simply does not have the
wherewithal to do so.
Green Greenhushing refers to a company’s refusal to publicize ESG information.

Hushing
• The company may fear pushback from stakeholders who would find its
sustainability efforts lacking or from investors who believe ESG undermines returns.
• On the surface, greenhushing is not overtly dishonest; however, it limits the
quantity and quality of publicly available information.
Municipal A municipal bond is a debt obligation issued by a nonprofit organization, a private-

Bond sector corporation, or another public entity using the loan for public projects, such as
constructing schools, hospitals, and highways.
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New Fund A new fund offer (NFO) is the first subscription offering for any new fund offered
Offer (NFO) by
an investment company.
Sovereign Green bonds are issued by companies, countries and multilateral organizations to
Green Bonds exclusively fund projects that have positive environmental or climate benefits and
provide investors with fixed income payments
Vanilla Debt Plain vanilla debt comes with fixed-rate borrowing and no other features, so the
Products borrower has no convertibility rights.
• A plain-vanilla approach to financing is called a vanilla strategy.
Negative A negative bond yield means that an investor receives less income from the bond than
Yield Bonds they paid for it.
• A negative bond yield can result when the price paid for the bond is much greater
than par.
Inverted In finance, an inverted yield curve is a yield curve in which short-term debt instruments
Yield Curve (typically bonds) have a greater yield than longer term bonds.
Fixed Rate Fixed-rate bonds are suitable for investors seeking stable returns with a low-risk
Bond tolerance, unlike equities, which may be volatile.
• Fixed-rate bonds typically have a lock-in period of one to five years.
• Investors who want to lock their funds into low-risk passive instruments can invest
in fixed-rate bonds.
Floating rate A floating rate bond is a debt instrument that does not have a fixed coupon rate, but its
Bond interest rate fluctuates based on the benchmark the bond is drawn.
Social Impact A SIB is an innovative financing mechanism in which governments enter into
Bond (SIB) agreements with social service providers, such as NGOs, and investors to pay for the
delivery of pre-defined social outcomes.
• The Pimpri Chinchwad Municipal Corporation (PCMC) in Maharashtra's Pune
district signed a Memorandum of Understanding (MoU) with the United Nations
Development Programme (UNDP) India to co-create India’s first Social Impact Bond
(SIB).
Surety Bonds These are a type of insurance policy protecting parties involved in a transaction or
contract from potential financial losses due to a breach of contract or other types of
non-performance.
• The issuing insurer provides guarantee, for a premium, in the case of a default in
execution of a project.
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7. Security Market in India
2023 Intangible An intangible asset is an asset that is not physical in nature, such as a patent,
asset brand, trademark, or copyright.
• Businesses can create or acquire intangible assets.
• An intangible asset can be considered indefinite (a brand name, for
example) or definite, like a legal agreement or contract.
2023 Beta a numeric value that measures the fluctuations. of a stock to changes in the
overall stock market.
2023 Asset It is an investment strategy that a portfolio manager uses to balance risk and
allocation reward. It helps decide which financial security and asset to work in the
market.
2023 Arbitrage It refers to the process of simultaneous buying and selling of an asset from
different platforms, exchanges or locations to cash in on the price difference.
• In this case, only the price difference is captured as the net pay-off from
the trade.
2023 Basis Risk It is a type of systematic risk that arises where perfect hedging is not
possible.
2022 Convertible Bonds can be converted into a predetermined number of shares of common
Bonds stock at a specified time or the option of the bondholder.
• Convertible bonds offer the potential for capital appreciation if the
underlying stock price increases while providing fixed income through
coupon payments.
2022 Non Non-convertible debentures (NCDs) are those that cannot be converted into
convertible the equity of the issuing company.
Debentures
2022 Inflation Bonds issued by the government are indexed to inflation.

Indexed • The principal amount and interest payments are adjusted based on the
Bonds (IIBs) inflation rate, protecting investors against inflation.
2021 Bond Yield The return on investment that an investor receives from holding a bond.
• The annual interest payment is divided by the bond's current market
price.
2021 Demat A dematerialised account that holds securities in electronic form.

Account • It eliminates the need for physical certificates and provides a
convenient way to buy, sell, and transfer securities.
2021 Negotiated An electronic platform used by the Reserve Bank of India (RBI) for trading
Dealing government securities.
System- Order • It allows market participants to place bids and offers for government
Matching securities and matches them automatically.
(NDS-OM)
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Terms Explanation
Gilt Edged Risk-free government securities that are considered the highest quality securities
Security available.
Masala Bond Rupee-denominated bonds issued by Indian entities in foreign markets to raise
money in Indian currency, with interest and principal repayments in dollar terms.
• The investor, not the issuer, bears the currency risk.
SPAC Special Purpose Acquisition Company is a company that does not produce goods
or services and is sometimes called a shell or blank check company.
IPO Initial Public Offering the process of issuing shares of a private firm to the public
in a new stock issuance.
• It is the selling of securities to the public in the primary market.
Follow-on- It is a type of public offering in which a company already listed on the stock
Public Offer exchange issues new shares of its stock to the public.
Greenshoe A greenshoe option is a provision in an initial public offering (IPO) underwriting

agreement that grants the underwriter the right to sell more shares than originally
planned if the demand for a security issue proves higher than expected.
• It is also called an over-allotment option.
Offer for Sale It is a mechanism enabling existing shareholders of a listed company, typically
promoters, to sell or dilute their holdings through an exchange-based bidding
platform.
ASIA Applications Supported by Blocked Amount, a system where the funds of IPO
applicants are blocked in their respective accounts.
• The money is released to the Company only after the allotment.
Insider Trading A malpractice in which trades of a company's securities are carried out by people
with access to non-public information that can be crucial for making investment
decisions.
Algo Trading In computer-assisted buying and selling of stocks, pre-programmed computer

strategies execute trades depending on set instructions or market patterns and
conditions.
Mutual funds Investment vehicles consist of a portfolio of stocks, bonds, or other securities,
which collect investors' money and invest it on their behalf.
• They give small or individual investors access to diversified, professionally
managed portfolios.
Exchange ETF is a basket of securities that trades on an exchange like a stock.

Traded Fund • It holds assets such as stocks, commodities, or bonds and generally operates
with an arbitrage mechanism.
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Social Stock SSE is a segment of the existing Stock Exchange that can help Social Enterprises,
Exchange such as NPOs or For Profit Enterprises (FPEs), to raise funds from the public through
the stock exchange mechanism.
• Eligible activities for demonstrating primacy of Social Impact includes
Eradicating hunger, poverty, malnutrition, and inequality, promoting
education, financial inclusion, slum area development etc
Hedge Fund A limited partnership of private investors whose money is managed by

professional fund managers who use a wide range of strategies to earn above-
average investment returns.
Infrastructure Like a mutual fund, it enables direct investment of small amounts of money from
Investment possible individual/institutional investors in infrastructure to earn a small portion
Trusts (InvITs) of the income as a return.
Side Pocketing An accounting method that allows mutual funds to segregate the bad assets in a
separate portfolio within their debt schemes.
Systematic An investment method wherein a particular sum of money is invested regularly,

Investment Plan and usually into the same security, which could be a mutual fund or funds.
(SIP)
Alternative Any privately pooled investment fund (whether from Indian or foreign sources) in
Investment the form of a trust, a company, a body or a Limited Liability Partnership (LLP).
Fund (AIF) • Category I AIF: Mainly invests in start-ups, SMEs or any other sector that the
government considers economically and socially viable.
• Category II AIF: Alternative Investment Funds such as private equity funds or
debt funds for which no specific incentives or concessions are given by the
government or any other regulator.
• Category III AIF: Alternative Investment Funds such as hedge funds or funds
which trade with a view to make short term returns or such other funds which
are open ended and for which no specific incentives or concessions are given
by the government or any other regulator.
Derivatives Financial instruments or contracts between two parties which derive their value
from an underlying asset.
The most common types include futures, options, forwards, and swaps.
Commodity Commodity derivatives are financial instruments linked to the price movements
Derivatives of underlying commodities, such as oil, gold, wheat, or natural gas.
Call Option An options contract that gives the call option buyer the right, but not the
obligation, to buy a stock or other financial instrument at a specific price – the strike
price of the option – within a specified time frame.
Put Option An options contract that gives the buyer the right, but not the obligation, to sell the
underlying security at a specified price and at a predetermined date.
Rights Issue A rights issue is an invitation to existing shareholders to purchase additional new
shares in the company. This type of issue gives existing shareholders securities
called rights.
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T+1 Settelement T+1 settlement cycle means any trade-related settlements must be completed
Cycle within one day from the day of the transaction.
Standing SDF allows the RBI to absorb liquidity (deposit) from banks without giving
Deposit Facility government securities in return to the banks.
(SDF)
Ways and The RBI gave a temporary loan facility to the central and state governments to meet
Means Advances mismatches in the receipts and payments of the governments.
(WMA)
Paid-up Capital The amount of money a company raises when it sells its shares to the shareholders
and investors directly through the primary market.
High Frequency High-frequency trading (HFT) is a trading method that uses powerful computer
Trading programs to transact a large number of orders in fractions of a second.
Authorized The maximum capital which a company can raise in its lifetime. It is also called
Capital Registered Capital or Nominal Capital.
Windfall Gains Windfall gain (or windfall profit) is an unexpected gain in income which could be
due to winning a lottery, unforeseen inheritance or shortage of supply.
• Windfall gains are transitory in nature.
Short Selling Short selling is a trading strategy where investors speculate on a stock's decline.
Short sellers bet on, and profit from a drop in a security's price.
Venture Capital Investment by wealthy investors in start-up companies.
Yield to if an investment is held till its maturity date, the rate of return that it will generate
Maturity will be Yield to Maturity. It is also known as redemption yield.
Dabba Trading Dabba trading is informal trading that takes place outside the purview of stock
exchanges.
• Traders bet on stock price movements without incurring a real transaction to
take physical ownership of a particular stock as is done in an exchange.
• Since there are no proper records of income or gain, it helps dabba traders
escape taxation.
• It is recognised as an offence under Securities Contracts (Regulation) Act
(SCRA), 1956.
Disgorgement Disgorgement is the legally mandated repayment of ill-gotten gains imposed on

wrongdoers by the courts.
• Funds that were received through illegal or unethical business transactions are
disgorged, or paid back, often with interest and/or penalties to those affected
by the action.
Front Running It is considered a form of market manipulation in many markets.

• Cases typically involve individual brokers or brokerage firms trading stock in
and out of undisclosed, unmonitored accounts of relatives or confederates.
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Depository A Depository Receipt (DR) is a negotiable financial instrument issued by a
Receipt (DR) company in a foreign jurisdiction
GDR Global depositary receipt, a negotiable financial instrument that represents shares
in a foreign company and trades on local stock exchanges in investors' countries.
American A certificate issued in the United States in lieu of a foreign security.

Depository • The original securities are lodged in Bank/Custodian abroad, and the American
Receipts Depository Receipts (ADRs) are traded in the US for all intents and purposes
as if they were a domestic stock.
Indian An Indian Depository Receipt is an instrument denominated in Indian Rupees.

Depository • It is in the form of a depository receipt created by a Domestic Depository
Receipts (IDRS) (custodian of securities registered with the Securities and Exchange Board of
India) against the underlying equity of issuing company.
• It is to enable foreign companies to raise funds from the Indian Securities
Markets.
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8. Banking Sector in India
2022 Credit Rating These companies evaluate the creditworthiness of individuals, businesses,
Agencies and governments by assigning credit ratings to their debt instruments.
• These ratings reflect the agencies' assessment of the borrower's ability to
repay the debt and the likelihood of default.
• In India, the Securities and Exchange Board of India (SEBI) regulates
all credit rating firms under the SEBI (Credit Rating Agencies)
Regulations, 1999.
• There are seven credit rating agencies in India: CRISIL; CARE; ICRA;
Acuité Ratings; Brickwork Rating; India Rating and Research Pvt. Ltd.,
and Infomerics Valuation and Rating Pvt. Ltd.
2022 Banks Board It is an autonomous body established by the Government of India to improve
Bureau (BBB) the governance of public sector banks (PSBs).
• The Bureau's primary role is to recommend candidates for the positions
of chairpersons and non-executive directors on the boards of PSBs.
2022 Price Stability It refers to maintaining a low and stable inflation rate in the economy over
time.
• It is a key objective of the Reserve Bank of India (RBI), the central bank
of India.
• The RBI aims to achieve this objective through its monetary policy, which
involves regulating the supply of money in the economy and setting
interest rates.
2021 Urban These financial institutions provide banking services to urban and semi-
Cooperative urban areas in India.
Banks • They are governed by the provisions of the Cooperative Societies Act of
the respective states in which they operate and are registered under the
Banking Regulation Act 1949.
• UCBs are owned and managed by their members and their customers.
2021 Lender of Last The lender of last resort is a central bank, such as the Reserve Bank of India
Resort (RBI).
• This involves providing short-term loans and other forms of funding to
banks facing a liquidity crunch, typically at higher interest rates than
those prevailing in the market.
2020 Interest It is a debt and profitability ratio used to determine how easily a company
Coverage can pay interest on its outstanding debt.
Ratio • It is calculated by dividing a company's earnings before interest and
taxes (EBIT) by its interest expense during a given period.
• Lenders, investors, and creditors often use this formula to determine a
company's riskiness relative to its current debt or for future borrowing.
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Expansionist It is a strategy used by the Reserve Bank of India (RBI) to stimulate
2020 Monetary economic growth by increasing the money supply.
Policy • This can be achieved through various measures, such as lowering interest
rates, reducing bank reserve requirements, and buying government
securities in the open market.
2020 Statutory The SLR is a regulatory requirement set by the RBI that mandates banks to
Liquidity maintain a certain percentage of their net demand and time liabilities
Ratio (NDTL) in the form of liquid assets such as government securities, gold, and
cash.
• The RBI sets the ratio from time to time and is currently at 18% of NDTL.
2020 Marginal The MSF is a facility introduced by the RBI to provide a secondary window
Standing for banks to borrow money from the central bank in case of an emergency.
Facility Rate • The MSF rate is the interest rate at which banks can borrow funds from
the RBI under this facility, which is typically higher than the repo rate.
2020 Repo Rate The Repo Rate is the interest rate at which the RBI lends short-term funds
to commercial banks to meet their liquidity needs.
• It is a key tool the RBI uses to manage monetary policy.
2020 District DCCBs are cooperative institutions that provide banking services to rural
Central and semi-urban areas in India.
Cooperative • They are registered under the Cooperative Societies Act of the respective
Banks states in which they operate and are governed by the Reserve Bank of
India (RBI) under the Banking Regulation Act 1949.
2019 Service Area The Service Area Approach (SAA) is a scheme introduced by the Reserve
Approach Bank of India (RBI) to ensure that banking services reach rural and remote
areas of the country.
• Under the SAA, each commercial bank is assigned a specific service area
consisting of a cluster of villages or small towns.
2019 Assets of a The assets of a commercial bank typically include various types of loans and
Commercial investments that the bank has made with the funds it has raised from its
Bank customers or from other sources such as borrowings.
• Some of the common types of assets held by a commercial bank are:
Loans, Investments, Cash and cash equivalents, Property and
equipment.
2019 Participatory These are financial instruments foreign investors use to invest in Indian
Note securities without having to register with the Securities and Exchange Board
of India (SEBI). ‘
PNs are issued by registered foreign institutional investors (FIIs) to clients
who wish to invest in Indian securities but do not want to go through the
registration process.
2018 Capital It is the ratio of a bank's capital in relation to its risk-weighted assets and
Adequacy current liabilities.
Ratio (CAR)
2018 Legal Tender Legal tender is any official medium of payment recognized by law which the
creditor is obligated to accept towards repayment of a debt.
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2018 Treasury Bills Treasury Bills (T-bills) are short-term money market instruments issued by
the Reserve Bank of India (RBI) on behalf of the Government of India.
• T-bills are issued for a maturity period of 91 days, 182 days, and 364 days.
2018 Bank Bank Rate is the rate at which the central bank lends money to commercial
Rate/Discount banks for long-term periods.
Rate • In India, the Reserve Bank of India (RBI) uses the term Bank Rate as a
synonym for the discount rate.
2017 Monetary The Monetary Policy Committee (MPC) is a six-member committee

Policy constituted by the Government of India, under the Reserve Bank of India
Committee Act, 1934, to determine the policy interest rate required to achieve the inflation
target set by the Government.
• The MPC was established in 2016, and it replaced the earlier practice of
the RBI Governor being the sole decision-maker in the interest rate setting
process.
2016 Payment Payment Banks are a new category of banks introduced by the Reserve Bank
Banks of India (RBI) in 2015.
• Payment Banks are licensed to provide a limited range of banking
services such as accepting deposits, issuing debit cards, and facilitating
payments and remittances, but they are not allowed to offer credit
facilities or loans.
Core Banking Core Banking Solution (CBS) is a network (back-end system) of bank
2016 Solution branches, which allows customers to manage their accounts, and use various
banking facilities from any part of the world.
2015 Marginal Cost Marginal Cost of Funds based Lending Rate (MCLR) is the minimum interest
of Funds rate at which commercial banks can lend to their customers.
based • The MCLR system was introduced by the Reserve Bank of India (RBI) in
Lending Rate April 2016 to replace the earlier base rate system.
(MCLR) • Under the MCLR system, banks are required to calculate their lending
rates based on the marginal cost of funds, which includes the cost of
borrowings, the cost of maintaining statutory reserves, and other costs
associated with the lending business.
2015 Basel III The Basel III Accord is a set of international regulatory standards on bank
Accord capital adequacy, stress testing, and market liquidity risk that was developed
by the Basel Committee on Banking Supervision in response to the global
financial crisis of 2008.
• It was introduced to enhance the resilience of the global banking system,
improve risk management, and prevent the buildup of excessive risk.
2015 Open Market It is the quantitative monetary policy tool the RBI uses to buy or sell
Operations government securities in the open market to adjust the money supply in the
economy.
• If there is excess liquidity, RBI resorts to the sale of securities and sucks
out the rupee liquidity.
• Similarly, when the liquidity conditions are tight, RBI buys securities
from the market, thereby releasing liquidity into the market.
2013 Money It refers to the total amount of money in circulation within an economy.
Supply
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• It includes all of the physical currency in circulation, as well as deposits
held in checking accounts, savings accounts, and other types of bank
accounts.
2012 Non-Banking Non-Banking Financial Companies (NBFCs) are financial institutions that
Financial provide financial services and products similar to those provided by banks,
Companies but do not hold a banking license.
• NBFCs are regulated by the Reserve Bank of India (RBI) in India. NBFCs
can provide a range of financial services, such as loans, leasing, hire
purchase, and investments in securities.
Important terms in News
Terms Explanation
Fiat Money It must fill two conditions -

• It should be tangible in nature or virtual coin or digital coin or crypto coin.
• It must be issued by order of king or queen or government or central bank.
Seigniorage It is the difference between the value of currency/money and the cost of producing
it.
• It can also be termed as a source of revenue for governments as the value of
money printed is generally higher than the cost of producing it.
Demonetization It is the act of stripping a currency unit of its status as legal tender. Thus it is the
wholesale withdrawal of a currency unit’s notes from circulation.
Redenomination It is the process of decreasing the face value of a currency.

• Hyperinflation, decimalization, or a country joining a currency union are some
of the reasons that a currency may undergo redenomination.
Merchant MDR is a fee that a merchant must pay to his acquirer bank for every transaction.
Discount Rate It is shared between three parties:
• Customer’s card issuing bank, Merchant acquiring bank and Payment gateway
provider.
Monetary Policy It is a macroeconomic policy designed by the central bank of a country to manage
money supply and interest rate.
Expansionary Monetary policy which results in an increase in money supply in the market is
Monetary policy expansionary monetary policy or hawkish monetary policy.
Contractionary Monetary policy which results in a decrease in money supply in the market is
Monetary policy termed as contractionary monetary policy or dovish monetary policy.
Measures of The total stock of money in circulation among the public at a particular point of
Money Supply time is called money supply.
• RBI publishes figures for four alternative measures of money supply, viz. M1,
M2, M3 and M4.
M0 : The total liability of the monetary authority of the country, RBI, is
called the monetary base or high powered money or M0. It consists of currency
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(notes and coins in circulation with the public and vault cash of commercial banks)
and deposits held by the Government of India and commercial banks with RBI
M1 = Currency (notes plus coins) held by the public + net demand deposits
held by commercial banks
M2 = M1 + Savings deposits with Post Office savings
M3 = M1 + Net time deposits of commercial banks. It is also known as
aggregate monetary resources
M4 = M3 +Total deposits with Post Office savings organizations (excluding
National Savings Certificates)
Narrow money : M1 and M2 are known as narrow money.
Broad money : M3 and M4 are known as broad money.
CDR Currency Deposit Ratio is defined as the ratio of “money held by the public in
cash” to the “public’s deposit in banks”.
RDR Reserve Deposit Ratio is defined as the ratio of “banks reserves in vault cash and
deposit with RBI” to the “public’s deposit in banks”.
Velocity of The velocity of money is the rate at which money is exchanged in an economy,
Money i.e, the number of times it moves from one entity to another.
Circulation • The velocity of money also refers to how much a unit of currency is used in a
given period of time.
Fractional Reserve It describes a system whereby banks can loan out a certain amount of the deposits
Banking that they have on their balance sheets.
• Banks are required to keep a certain amount of the cash depositors placed in
their accounts in reserve.
Reverse Repo • It is the rate of interest at which RBI borrows from banks by mortgaging G-
Rate secs or other acceptable securities.
Cash Reserve It is maintained by banks with the RBI in the form of cash. No interest is given to
Ratio it.
Incremental Cash Incremental Cash Reserve Ratio (ICRR): I-CRR is similar to the CRR, wherein
Reserve Ratio banks need to set aside a certain portion of their money with the RBI.
(ICRR) • They do not earn any interest on this. It has following differences’
• RBI has the option to impose ICRR in addition to the CRR.
• The interest rate charged would be different from CRR.
Open Market Open Market Operations is the selling and purchase of government securities and
Operation treasury bills by the RBI to adjust liquidity in the market.
• All Scheduled Commercial Banks and Financial institutions can participate in
OMO.
Bond Yield Bond yield is the return an investor realizes on a bond.

• The yield of a bond is inversely related to its price. When the price of a bond
falls, yields rise.
Priority Sector Priority Sector means those sectors which the Government of India and Reserve
Lending Bank of India consider as important for the development of the basic needs of
the country and are to be given priority over other sectors.
27
• The banks are mandated to encourage the growth of such sectors with
adequate and timely credit. Such as Agriculture, Education, Housing, Social
Infrastructure, Renewable Energy, Others
Credit Default It is a particular type of swap designed to transfer the credit exposure of fixed
Swap income products to another party.
• It is a type of credit derivative that provides the buyer with protection against
default and other risks.
Card-on-file- Tokenisation is a process where the cardholder's original card number, one which
Tokenization is written on the card and is extensively used for transactions and card
identification, is replaced with a surrogate term called 'token.
Callable Deposits Fixed deposits which allow premature withdrawals are called callable deposits.
Non-Callable Contrary to callable FDs, non-callable fixed deposits have a predetermined lock-
Deposits in period.
• The amount a person invests in this product can't be withdrawn before the
maturity date except in specific situations such as bankruptcy, court order,
business liquidation, or the depositor's demise.
Inverted Yield An inverted yield curve occurs when short-term debt instruments carry higher
Curve yields than long-term instruments of the same credit risk profile.
Negative Bond A negative bond yield is when an investor receives less money at the end of
Yield maturity period than the purchase price of the bond.
Yield gap or Yield It is the ratio of the dividend yield of an equity and the yield of a long-term
ratio government bond.
Loan to Value It is a metric used to assess the level of risk involved in extending a loan to a
Ratio (LTV) borrower by comparing the value of the loan against the value of the underlying
collateral.
• It is calculated by dividing the loan amount by the estimated market value of
the collateral.
Priority Sector Priority Sector Lending means lending to those sectors which the Government of
Lending (PSL) India and Reserve Bank of India consider as important for the development of the
basic needs of the country and are to be given priority over other sectors.
• The banks are mandated to encourage the growth of such sectors with
adequate and timely credit.
Shadow Banking Ir is a term used to describe bank-like activities which occur outside the
traditional banking sector.
• Examples of shadow lenders include Special Purpose Entities, Non Banking
Financial Companies (NBFCs), Hedge Funds etc.
Non Performing If a loan's principal or interest is unpaid for more than 90 days from its due date
Assets (NPA) then such loan account is classified as Non Performing Assets.
SMA - 0 : If a loan’s principal or interest is unpaid for 1 to 30 days from its
due date then such loan account is classified as SMA- 0
SMA - 1 : If a loan’s principal or interest is unpaid for 31 to 60 days from
its due date then such loan account is classified as SMA-1
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SMA - 2 : If loan’s principal or interest is unpaid for 61 to 90 days from its
due date then such loan account is classified as SMA- 2
Sub Standard Assets : Loans and advances which are non- performing
assets for a period of 12 months, fall under the category of Sub-Standard Assets.
Doubtful Assets : The Assets considered as sub standard for a period of
more than 12 months are known as Doubtful Assets.
Loss Assets : All those assets which cannot be recovered by the lending
institutions are known as Loss Assets
Evergreening of Evergreening of loans refers to allocation of fresh loans to pay previous loans.
Loans • It results in reduction in reported defaults in the short run, followed by an
eventual explosion in default rates.
Legal Entity The Legal Entity Identifier (LEI) is a 20-character alpha- numeric code used to
Identifier (LEI) uniquely identify parties to financial transactions worldwide.
Capital-to-Risk It also known as capital adequacy ratio (CAR) is a measurement of a bank's

weighted Assets available capital expressed as a percentage of a bank's risk-weighted credit
Ratio (CRAR) exposures.
Tier 1 Capital It is also known as core capital. It consists of equity capital, ordinary share capital,
intangible assets and audited revenue reserves and is used to absorb losses and
does not require a bank to cease operations.
Tier 2 Capital It comprises unaudited retained earnings, unaudited reserves and general loss
reserves. This capital absorbs losses in the event of a company winding up or
liquidating.
• It is used to absorb losses if a bank loses all its Tier-1 capital.
Liquidity LCR refers to the proportion of highly liquid assets held by financial institutions,
Coverage Ratio to ensure their ongoing ability to meet short-term obligations.
The LCR promotes short-term resilience of banks to potential liquidity
disruptions by ensuring that they have sufficient high quality liquid assets
(HQLAs) to survive an acute stress scenario lasting for 30 days.
LCR = High-Quality Liquid Asset Amount (HQLA) / Total Net Cash Flow
Amount
HQLA: High Quality Liquid Assets are cash or assets which can be converted into
cash quickly with no significant loss of value.
NSFR Net Stable Funding Ratio is defined as the amount of available stable funding
relative to the amount of required stable funding.
• The NSFR promotes resilience over a longer-term time horizon by requiring
banks to fund their activities with more stable sources of funding on an
ongoing basis.
Capital The capital conservation buffer (CCoB) is a capital buffer whose objective is to
Conservation conserve a bank’s capital. It must be made up of Common Equity Tier 1 capital.
Buffer
Term Money It refers to the borrowing or lending of funds for more than 14 days.
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LIBOR The London Interbank Offer Rate is a benchmark interest rate at which major
global banks lend to one another in the international interbank market for short-
term loans.
• Recently, The Reserve Bank of India (RBI) has issued an advisory to banks
and other RBI-regulated entities asking them to take steps to ensure a complete
transition away from the LIBOR.
MIFOR The Mumbai Interbank Forward Offer Rate is a rate that Indian banks use to set
prices on forward-rate agreements and derivatives.
MIBOR The Mumbai Interbank Offer Rate is the interest rate at which banks can borrow
funds from other banks in the Indian interbank market.
Default Loss DLG is a contractual agreement between Regulated Entities and a qualified entity
Guarantee that guarantees compensation for default-related losses.
Domestically Some banks, due to their size, cross-jurisdictional activities, complexity, lack of
Systemeticall substitutability and interconnectedness, become systemically important.
Important Banks • Too Big To Fail (TBTF)’: his perception of TBTF creates an expectation of
government support for these banks at the time of distress.
• Example: State Bank of India, ICICI Bank and HDFC Bank
Green Deposits A green deposit refers to an interest-bearing deposit for a fixed period, with the
proceeds earmarked for allocation towards green finance.
Contingent A contingent liability is a potential liability that may occur in the future, such as
Liabilities pending lawsuits or honoring product warranties.
• If the liability is likely to occur and the amount can be reasonably estimated,
the liability should be recorded in the accounting records of a firm.
Prompt Corrective A system that the RBI imposes on banks showing signs of financial stress.
Action • The regulator considers banks as unsafe if they fail to meet the standards on
Framework certain financial metrics or parameters.
Bullet Repayment A bullet repayment is a lump sum payment made for the entirety of an
outstanding loan amount, usually at maturity.
• It can also be a single payment of principal on a bond.
• In terms of banking and real estate, loans with bullet repayments are also
referred to as balloon loans.
Payment A payment aggregator is a third-party service provider that enables customers to

Aggregator make and businesses to accept payments online.
• Payment aggregators enable their clients to accept various payment methods
such as debit cards, credit cards, cardless EMIs, UPI, bank transfers, e-wallets,
and e-mandates.
Third Party A Third-Party Application Provider is an entity that provides the UPI compliant
Application app(s) to the end-user customers to facilitate UPI-based payment transactions.
Provider
Zombie Lending Zombie lending refers to the practice of providing credit to entities that do not
have the capability to repay.
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9. Taxation
2019, Money Multiplier The ratio of the increase in the money supply to the increase in the
2015 monetary base.
• It is determined by the reserve requirement and the willingness
of banks to lend money.
2012 Capital Gain The profit earned from the sale of an asset that has increased in value
over time.
• It is calculated as the difference between the purchase price and
the sale price of the asset.
• Capital gains are subject to taxation in most countries.
Terms Explanation
Accordion Tax The “accordion tax” is a progressive taxation system aimed at redistributing
income from the wealthy to the poor while maintaining incentives for innovation
and entrepreneurship.
• It operates by taxing higher-income individuals more heavily, similar to how
an accordion expands and contracts.
Base Erosion and It refers to tax avoidance strategies that exploit gaps and mismatches in tax rules
Profit Shifting to artificially shift profits to low or no-tax locations.
(BEPS) • Developing countries’ higher reliance on corporate income tax means they
suffer from BEPS disproportionately.
Direct Tax Taxing mechanism in which incidence of tax and impact of tax falls on the same
person
Indirect Tax Taxing mechanism in which incidence of tax and impact of tax falls on different
people
Tax imposed in such a manner that the tax rate increases with the increase in
Progressive Tax taxable amount, i.e, when average tax burden increases with income. Eg. direct
taxes in India.
• A higher tax is collected from taxpayers who earn more and lower taxes from
taxpayers earning less.
Regressive Tax Tax imposed in such a manner that the tax rate decreases with the increase in
taxable amount, i.e, when the average tax burden decreases with income.
• This system of taxation generally benefits higher sections of society having
higher incomes.
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Proportional Tax Taxing mechanism in which tax rate is independent of income. Also called flat
tax.
Equalization Levy Tax leviable on consideration received by a non-resident for specified services.
• Imposed under the Finance Act 2016 and not as a part of the Indian Income
Tax Act, 1961.
Minimum Taxing mechanism which brings all businesses into the income tax loop.
Alternate Tax • Even after claiming exemptions, the MAT assures that no company with solid
resources and large income can escape paying income tax.
Dividend Source tax deducted when a corporation distributes its profits to its shareholders.
Distribution Tax
Capital Gains Tax Tax levied on profits made on investments in real estate, gold, stocks, mutual
funds, and various other financial and non- financial assets.
TDS Tax collected from the source of income. A person (deductor) who is liable to make
payment of specified nature to any other person (deductee) shall deduct tax at
source and remit the same into the account of the Central Government.
TCS Tax collection at source (TCS) is an extra amount collected as tax by a seller of
specified goods from the buyer at the time of sale over and above the sale amount
and is remitted to the government account.
Security The STT is a tax imposed on the purchase and sale of equity shares, equity-
Transaction Tax oriented mutual funds, and derivatives (futures and options) traded on recognized
stock exchanges in India.
Tobin Tax Small tax levied when a currency is converted into another currency. Discourages
short-term speculative investment and stabilizes foreign exchange rates.
Ad-Valorem Tax Tax calculated on the ‘value’ of some entity.
Pigouvian Tax Tax collected from companies which create negative externalities.
Carbon Tax Environmental tax imposed on products that use carbon- based materials and
cause greenhouse pollution.
Hawala Illegal money transfer or remittance system used for tax evasion.
Round Tripping Money that leaves the country through various channels and makes its way back
into the country often as foreign investment.
• Mainly involves black money and allegedly used for stock price manipulation.
General Anti- Anti-tax avoidance law in India to curb tax evasion and avoid tax leaks.
Avoidance Rule • It is a tool for checking aggressive tax planning, especially that transaction or
(GAAR) business arrangement which is entered into with the objective of avoiding tax.
Angel Tax Tax imposed on an unlisted company's excess capital raised through the issue of
shares over and above the fair market value of such shares.
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Tax Buoyancy Tax buoyancy explains the relationship between the changes in government’s
tax revenue growth and the changes in GDP.
Laffer Curve Curve showing the relationship between tax-revenue and tax rate
TaxElasticity Changes in tax revenue in response to changes in tax rate is defined as tax
elasticity.
GAFA Tax GAFA tax is a proposed digital tax to be levied on big tech companies like
Google, Facebook, Amazon and Microsoft.
Transfer Pricing Transfer pricing is an accounting practice that allows for the establishment of
prices for the goods and services exchanged between divisions, subsidiaries or
affiliates that are
part of the larger enterprise.
• Usually, Companies use transfer pricing to reduce the overall tax burden of the
parent Company.
• This is done by charging a higher price to subsidiaries in high-tax countries
(reducing profit) while charging a lower price (increasing profits) for
subsidiaries in low-tax countries.
Arm’s Length It means that the price a company pays to purchase goods or services from a
Principle (ALP) related company entity should be the same as if the two entities were unrelated
(known as arm’s length price).
• Its objective is to avoid the erosion of the tax base or the transfer of profits to
low-tax jurisdictions.
Tampon Tax The tampon tax refers to the luxury tax and other taxes levied on menstrual
hygiene products in the U.S. and in many other countries across the globe.
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10. Public Finance
2022 Capital Expenditure It refers to the expenditure that either creates an asset or reduces the
liability of the government.
Example: Repayment of loans, purchase of machinery, etc.
Budgetary Deficit A budgetary deficit occurs when a government's total expenditures

2021 exceed its total revenue in a fiscal year.
• It is the amount by which the government spending exceeds its
revenue during a specific period, usually a fiscal year.
Public Debt Public Debt denotes liabilities payable by the Central Government,
2021 which are contracted against the Consolidated Fund of India, as
provided under Article 292 of the Constitution of India.
• General Government Debt was 81% of GDP in 2022-23.
• Central Government’s Public Debt stood at 57.1 % of GDP as of
the end of March 2023.
2016 Capital Budget A plan for the acquisition and financing of long-term assets by a
company or government.
• A capital budget typically includes major projects and
investments that are expected to provide long-term benefits.
2015 Finance A body appointed by the government of India to recommend the

Commission distribution of tax revenues between the central
government and the state governments.
• The Finance Commission is responsible for assessing the financial
needs and resources of the states and making recommendations for
the devolution of funds.
2015 The ratio of tax revenues to gross domestic product (GDP) in a country.
Tax to GDP • Tax to GDP is used as an indicator of a country's tax capacity and
fiscal sustainability.
• A higher tax to GDP ratio indicates that a country is able to generate
more tax revenue relative to its economic output.
2013 Deficit Financing The practice of borrowing money to finance government spending
when revenue falls short of expenditures.
• Deficit financing can increase government debt and inflation if not
appropriately managed.
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Terms Explanation
Fiscal Policy Set of government decisions regarding taxation, expenditure, subsidies and
other financial operations.
Budget Deficit The difference between budget expenditure and budget revenue
BD = BE - BR
Fiscal Deficit The borrowings of the government make the budget deficit zero.
Revenue Deficit If the balance of total revenue receipts and expenditures turns out to be negative,
it is known as a revenue deficit.
Revenue Deficit = Revenue Receipts – Revenue Expenditure
Revenue Surplus If the balance of total revenue receipts and expenditures turns out to be positive,
it is known as a revenue deficit.
Effective Revenue The difference between revenue deficit and grants to various bodies for the
Deficit creation of capital assets
ERD = RD - Grants for asset creation.
Primary Deficit The difference between fiscal deficit and interest to be paid on previous loan
PD = FD - Interest on previous loan.
Monetized Deficit It is the monetary support the Reserve Bank of India (RBI) extends to the Centre
as part of the government's borrowing programme.
• In other words, the term refers to the purchase of government bonds by the
central bank to finance the government's spending needs.
• It is also known as debt monetisation, and the exercise leads to an increase in
the total money supply in the system, hence inflation, as RBI creates fresh
money to purchase the bonds.
Extra Budgetary Loan taken by PSUs and government organisations whose repayment is done
Resources from the central government
Developmental It refers to the government's expenditure, which helps in economic development

Expenditure by increasing the country's production and real income.
Example- Capital Investment on Infrastructure, funds allocation for schemes,
etc
Non- It is that expenditure incurred on non-development activities of the government

developmental in the form of provision of general services.
Expenditure Examples: administrative expenditure, interest payments, defence, external
affairs, etc.
Gender Budgeting In the general budget, the government allocates funds and responsibilities based
on gender, which is gender budgeting.
Outcome Budget It analyses the progress of each ministry and department and what the respected
ministry has done with its Budget outlay.
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• It measures the development outcomes of all government programs.
• It was first introduced in the year 2005.
Zero-Base Zero-based budgeting is a method of budgeting in which all expenses are

Budgeting evaluated each time a Budget is made and expenses must be justified for each new
period.
Crowding-Out Crowding out – higher government spending financed by borrowing leads to a

Effect fall in private sector savings.
Crowding –In Crowding in relates to how higher government spending encourages firms to
Effect invest more.
Direct Benefit The aim of DBT (Direct Benefit Transfer) is to transfer the benefits and
Transfer (DBT) subsidies of various social welfare schemes directly in the bank account of the
beneficiaries on time by bringing efficiency, effectiveness, transparency and also
to eliminate the intermediary body.
• DBT aims to prevent any frauds as the beneficiary receives the funds directly
from the government to their bank account.
• The beneficiary account is seeded to the bank and is validated through its
Aadhaar number.
Fiscal Drag Fiscal drag happens when the government’s net fiscal position ( minus taxation)
fails to cover the net savings desires of the private economy, it is also called the
private economy’s spending gap.
Off-Budget It refer to borrowings that are not reflected in the budget, even though budgetary
Borrowings (OBB) resources will have to be used for their repayment.
• Thus, OBB is not part of the calculation of the fiscal indicators despite fiscal
implications.
• OBBs are taken not by government directly but by another public institution
on its direction.
• For example, loan by FCI for paying food subsidy bill (this practice is
discontinued from FY 2020-21).
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11. External Sectors of India
2022 Rapid Financing A lending program provided by the IMF to help countries in urgent
Instrument (RFI) need of financial assistance due to an economic crisis or disaster.
• The loans are disbursed quickly and without the need for a full-
fledged IMF program.
2022 Rapid Credit A lending program provided by the IMF to help low-income countries
Facility (RCF) in urgent need of financial assistance due to an economic crisis or
disaster.
• The loans are disbursed quickly and without needing a full-
fledged IMF program.
2022 NEER/REER NEER (Nominal Effective Exchange Rate) is the weighted geometric
average of the bilateral nominal exchange rates of the home currency
in terms of foreign currencies.
• The REER (Real Effective Exchange Rate) is the weighted average
of NEER adjusted by the ratio of domestic prices to foreign prices.
2022 External A method of borrowing funds from foreign lenders by Indian

Commercial companies or organisations.
Borrowings (ECB) • The funds can be raised through various instruments such as bank
loans, buyers' credit, and suppliers' credit, among others.
2022 Devaluation of A deliberate downward adjustment of a country's currency value

Currency relative to other currencies.
• This is done to make a country's exports more competitive in
international markets and to reduce imports.
2021 Foreign Currency FCCBs are a type of bond issued by an Indian company in a foreign
Convertible currency that can be converted into equity shares later.
Bond(FCCBs) • This allows Indian companies to raise funds from international
markets.
2021 Foreign FII is investment made by foreign institutions such as mutual funds,
Institutional pension funds, and hedge funds, in the securities market of a country
Investment(FII) other than their own.
2020 Gold Tranche/ The International Monetary Fund (IMF) is funded through its
Reserve Tranche members and their quota contributions.
• A reserve tranche is a component of the required quota of currency
that each member nation must contribute to the IMF and can be
used for its own needs free of charges or requirements for economic
reform.
• Essentially, the reserve tranche serves as an emergency account
that IMF members can use whenever necessary.
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• The reserve tranches that nations have with the IMF are regarded
as their facilities of last resort, which means they will use the
reserve tranche urgently before requesting a formal credit tranche.
2021 Global Depository It is a type of security that represents ownership in a foreign

Receipts(GDRs) company's stock, traded on a foreign stock exchange.
• This allows foreign companies to raise funds from international
markets.
2020 Merchandise The trade of physical goods between countries. Merchandise exports
Export/Import refer to the goods sold by one country to another while merchandise
imports refer to the goods bought by one country from another.
2019 Currency Crisis A situation where a country's currency value rapidly depreciates or
collapses, leading to financial instability and economic crisis.
2019 PPP Purchasing Power Parity is a theory that suggests that the exchange
rates between two countries should be in equilibrium when the prices
of goods and services in both countries are taken into account.
2016 Import Cover The number of months of import that a country can finance with its
foreign exchange reserves. It is a measure of a country's ability to pay
for its imports.
2016 Amber box/ Blue These subsidies are allowed under the World Trade Organization
box/ Green box (WTO) rules.
• The Amber box includes subsidies that are considered trade-
distorting and subject to reduction commitments.
• The Blue box includes subsidies that are less trade- distorting and
subject to certain conditions.
• The Green box includes subsidies that are not trade- distorting and
do not require reduction commitments.
2012 Foreign Exchange The foreign currency is held by a country's central bank to manage
Reserve exchange rates and ensure the stability of its economy.
• It is used to pay for imports and to stabilize the currency in times
of economic crisis.
• India’s Forex Reserves include: 1. Foreign Currency Assets 2. Gold
3. Special Drawing Rights 4. Reserve position with the
International Monetary Fund (IMF).
2013 Balance of Payment A systematic record of all economic transactions made between
residents and non-residents of a country for a specific period, usually
one year.
• Basically, it is the net outcome of an economy's current and
capital accounts.
• The balance of payment is used to measure a country's
international financial position.
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Terms Explanation
Balance of Trade The difference between the value of goods and services imported and exported
in a year.
Current Account A measurement of a country’s trade where the value of the goods and services
Deficit it imports exceeds the value of the products it exports.
• The current account includes net income, such as interest and dividends,
and transfers, such as foreign aid.
Net Terms of Trade The ratio of “value of imports” to “value of exports”.
Gross Terms of The ratio of “quantity of imports” to “quantity of exports”.

Trade
Foreign Portfolio A foreign entity registered with SEBI which buys up to 10% equity/shares of
Investment an Indian company.
Foreign Direct The investment (> 10% equity or share) made by a foreign entity into an Indian
Investment company to get involved in the management or production of that Indian
company.
Net International The difference between “value of overseas assets owned by a nation” and
Investment Position “value of domestic assets owned by foreigners”.
Sterilisation A form of monetary action in which a central bank seeks to limit the effect of
inflows and outflows of capital on the money supply.
It involves purchasing or selling financial assets by a central bank in open
markets.
Currency Exchange The price of one currency in terms of another currency is termed a currency
Rate exchange rate.
Managed Floating A system in which the central bank allows the exchange rate to be determined
by market forces but sometimes intervenes to influence the rate.
Effective Exchange A summary indicator of movements of the domestic currency against a basket
Rate of currencies of trading partners.
Appreciation In foreign exchange market, if a free floating domestic currency increases its
value against the value of a foreign currency, it is appreciation.
• In domestic economy, if a fixed asset has seen increase in its value it is also
known as appreciation.
Depreciation In foreign exchange market, it is a situation when domestic currency loses its
value in front of a foreign currency if it is market-driven.
• It means depreciation in a currency can only take place if the economy
follows the floating exchange rate system
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Devaluation In the foreign exchange market when exchange rate of a domestic currency is
cut down by its government against any foreign currency, it is called
devaluation.
• It means official depreciation is devaluation.
• It is done by the central bank.
Revaluation A term used in foreign exchange market which means a government increasing
the exchange rate of its currency against any foreign currency.
• It is official appreciation.
Hard Currency Hard currency refers to money that is issued by a nation that is seen as
politically and economically stable.
• Hard currencies are widely accepted around the world as a form of
payment for goods and services and may be preferred over the domestic
currency.
Soft Currency A term used in the foreign exchange market which denotes the currency that is
easily available in any economy in its forex market.
• For example, rupee is a soft currency in the Indian forex market.
• It is basically the opposite term for the hard currency.
Hot Currency Hot currency is a term of the forex market and is a temporary name for any
hard currency.
• Due to certain reasons, if a hard currency is exiting an economy at a fast
pace for the time, the hard currency is known to be hot.
• Ex: As in the case of the SE Asian crisis, the US dollar had become hot
Special Drawing An international reserve asset created by the IMF to supplement its member
Rights (SDR) countries’ official reserves.
• The value of the SDR is based on a basket of five currencies— the U.S.
dollar, the euro, the Chinese renminbi, the Japanese yen, and the British
pound sterling.
○ The SDR is neither a currency nor a claim on the IMF.
○ Rather, it is a potential claim on the freely usable currencies of IMF
members.
○ SDRs can be exchanged for these currencies.
Quantitative Easing It is mainly an asset purchase or asset swap policy in which a central bank buys
financial assets from commercial banks and other private institutions, which
increases the monetary base and decreases the yield on those financial assets.
Fed Tapering A gradual reduction in the monthly purchase of assets by the Federal Reserve.
• It is slowing down the rate at which Quantitative Easing is done.
Taper Tantrum When investors react by selling bonds, which topples the price of bonds and
raises the yield, to news of the central bank slowing or stopping bond
purchases.
Purchasing Power The rate at which one country's currency has to be converted into that of a
Parity different country to buy the same amount of goods and services in that
country.’
• It compares different currencies of different countries through a basket of
goods approach.
40
Countervailing Tariffs on imported goods that are imposed to offset subsidies given by the
Duties exporting country's government.
• These are meant to neutralize the negative effects that subsidies of the
production of a good in one country have on that same industry in another
country, in which the production of that good is not subsidized.
Anti-Dumping Duty A measure to rectify the situation arising out of the dumping of goods and its
trade-distortive effect.
• The use of anti-dumping measures as an instrument of fair competition is
permitted by the WTO.
TRIPS Trade-Related Intellectual Property Rights is the most comprehensive

multilateral agreement on intellectual property (IP) administered under the
WTO.
• It plays a central role in facilitating trade in knowledge and creativity, in
resolving trade disputes over IP, and in assuring WTO members the latitude
to achieve their domestic policy objectives.
Dollarisation When a country begins to recognize the U.S. dollar as a medium of exchange
or legal tender alongside or in place of its domestic currency.
De-dollarisation It refers to the process whereby countries tend to reduce their reliance on the
US dollar(USC) as a reserve currency, medium of exchange and as a unit of
account.
Nostro Account NOSTRO Account is a bank account, that a domestic bank holds in a foreign
country’s currency at another bank in that country.
• This type of account is used by banks to facilitate foreign exchange
transactions and to hold funds that belong to their customers who have
accounts in foreign currencies.
Vostro Account VOSTRO account is a type of bank account that is held by a foreign bank at a
domestic bank in the domestic bank’s currency.
• In other words, a VOSTRO account is a foreign bank’s account at a domestic
bank.
Global Minimum The Global Minimum Tax (GMT) represents a major step forward in
Corporate Tax international cooperation on the taxation of multinational enterprises (MNEs).
(GMCT) • It will ensure that MNEs with revenues above EUR 750 million are subject
to a 15% effective minimum tax rate wherever they operate.
Novation To novate is to replace an old obligation with a new one.

• In contract law, a novation replaces one of the parties in a two-party
agreement with a third party, with the agreement of all three parties
Free Trade FTA is a treaty between two or more countries that reduces or eliminates
Agreement (FTA) barriers to trade between the countries.
Bilateral Investment It is a reciprocal agreement for according protection to investments by national

Treaty (BIT) and
companies of One state in another state.
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Deemed Exports It refer to those transactions in which goods supplied do not leave the country,
and payment for such supplies is received either in Indian rupees or in free
foreign exchange.
• In simpler terms, under deemed export, the goods can be sold within India
to anybody who holds a licence for the import of these very goods.
• Objective: To provide a level-playing field to domestic manufacturers and
to promote Make in India.
Special Economic A zone or an area in a country where there are separate business and trade laws
Zone as compared to the rest of the country.
• They are created to increase trade and investment and to create
employment opportunities.
Tariff Barriers Simply, a tariff barrier is a tax and it adds to the cost borne by consumers of
imported goods.
Non-Tariff Barriers Non-Tariff Measures (NTMs) are policy measures apart from tariffs that
(NTBs) impact imports into a country.
• When NTMs become arbitrary, beyond scientific justification and create
hurdles for trade, they are called NTBs.
• The UN Conference on Trade and Development (UNCTAD) classifies 16
types of non-tariff barriers including-
○ Technical barriers like Sanitary and phytosanitary measures etc.
○ Non-technical barriers like trade-protective measures, Rules of
Origin (RoO), Trade related Investment measures etc.
○ Export related measures.
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12. Poverty, Human Development and Sustainable
Development
2021 Water Credit A type of microfinance loan that is used to finance water and sanitation
projects for underserved communities.
• It is provided by organizations like Water.org and helps to address
the issue of water scarcity in developing countries.
2019 Poverty Line The poverty line is defined as the per capita.
• The consumption expenditure level is to meet the average per
capita daily calorie requirement of 2400 kcal per day in rural areas
and 2100 kcal per capita per day in urban areas.
2018 Human Capital The process of enhancing individuals' knowledge, skills, and
Formation (HCF) abilities through education, training, and other forms of learning.
• It is a critical factor in economic growth and development, as it
contributes to creating a skilled and productive workforce.
Demographic The economic benefit that can result from changes in a country's age
2011 Dividend structure, such as a decline in the proportion of dependent children
and elderly relative to the working-age population.
• A demographic dividend can lead to increased productivity,
economic growth, and improved standards of living.
Terms Explanation
Incidence of The incidence of poverty is measured by the poverty ratio, which is the ratio of
Poverty/Poverty the number of poor to the total population expressed as a percentage. It is also
Headcount Ratio known as head-count ratio.
Intensity of It defines How poor are the poor? Average proportion of deprivations which is
Poverty experienced by multidimensionally poor individuals.
• To compute intensity, the weighted deprivation scores of all poor people are
summed and then divided by the total number of poor people.
Multidimensional It is a globally recognized comprehensive measure that captures poverty in

Poverty multiple dimensions beyond monetary aspects such as health nutrition
education, etc.
Global The Global Multidimensional Poverty Index (MPI) was developed in 2010 by the
Multidimensional Oxford Poverty & Human Development Initiative (OPHI) and the United
Poverty Index Nations Development Programme and used to determine the incidence and
intensity of poverty.
43
• The MPI monitors deprivations in 10 indicators spanning health, education
and standard of living.
National It measures simultaneous deprivations across three equally weighted

Multidimensional dimensions of Health, Education, and Standard of Living that are represented by
Poverty Index 12 Sustainable Development Goals-aligned indicators.
Self Help Group SHG is a village-based financial intermediary committee usually composed of
10-20 local women.
• It is voluntary in nature.
Insurance Insurance density refers to the ratio of total insurance premiums to whole
Density: population of a given country in a given year. Insurance Penetration:
• In India, it has been steadily increasing (from 2.7% in 2000 to 4.2% in 2021).
Insurance It refers to the ratio of total insurance premiums to gross domestic product in a
penetration given year. o Insurance penetration in the life insurance sector was 3.2% in 2021
-twice more than emerging markets and slightly above the global average.
Period poverty It describes the struggle many low-income women and girls face while trying to
afford menstrual products.
• The term also refers to the increased economic vulnerability women and girls
face due the financial burden posed by menstrual supplies.
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13.Unemployment
2016 Ease of An index created by the World Bank measures the ease of doing business in a
Doing country based on various factors such as starting a business, dealing with
Business construction permits, getting credit, and enforcing contracts.
Index • The index is used to compare business regulation across countries and over
time.
2013 Disguised A type of unemployment in which individuals appear to be employed but are
Unemploy actually not contributing to the economy meaningfully.
ment • Disguised unemployment often occurs in sectors such as agriculture, where
individuals are employed but are not fully utilised or are engaged in
unproductive work.
Terms Explanation
Involuntary It is when a person is willing to work at the prevailing wage rate but unable
Unemployment to find work due to factors beyond their control.
Cyclical As the economy goes through a boom-bust cycle, the unemployment resulting
Unemployment from recession is termed cyclical unemployment.
Frictional Unemployment during the transition time from one job to another is termed
Unemployment frictional unemployment.
Underemployment When a person is employed but in an inferior position to his skill or

qualification, it is termed underemployment.
Technological Unemployment occurs when men are replaced with machines.

Unemployment
Structural Lack of employment when a person's skill or qualification is insufficient for a

Unemployment job in the market.
Labour force The labour force, or currently active population, comprises all persons who
fulfil the requirements for inclusion among the employed (civilian employment
plus the armed forces) or the unemployed.
Labour Force It is the “labour force” ratio to the “total working age population of a country”.
Participation Rate
(LFPR)
Unemployment It is the ratio of “involuntary unemployed in labour force” to “total labour

Ratio force”.
Worker Population It is the percentage of employed workers in the population.

Ratio(WPR)
Phillips Curve It is the graphical representation of the inverse relationship between the
unemployment rate and inflation.
45
14. Miscellaneous
2018 Opportunity Cost The cost of an alternative must be forgone to pursue a particular
action.
• Opportunity cost is a key concept in economics, as it represents the
trade-off between two or more options.
Terms Explanation
Cross Elasticity It is an economic concept that explains how the changes in the price of one good can
of Demand affect the quantity demanded of another good.
• This relationship can vary depending on whether the two goods are substitutes,
complements, or unrelated.
Digital Creator The creator economy is an ecosystem involving creators, audiences, digital
Economy platforms, marketers, and agencies, interconnected through the exchange of content,
money, or goods and services.
Digital Public DPI is a set of shared digital systems which are secure and interoperable, built on
Infrastructure open standards and specifications to deliver and provide equitable access to public
(DPI) and/or private services at a societal scale
Gig Economy A Gig economy is a free market system in which temporary positions are common
and organizations contract with independent workers for short-term engagements. •
Gig Workers Gig Workers are those engaged in livelihood outside the traditional employer-
employee arrangement. They can be broadly classified into
• Platform Gig Workers: Those whose work is based on online software, apps, or
digital platforms such as food aggregator platforms- Zomato, Swiggy, Ola, and
others.
• Non-Platform Gig Workers: They are generally casual waged and own-account
workers in the conventional sector, engaged part-time or full-time.
Performer’s Performers' rights refer to the legal rights granted to actors, singers, musicians,
Rights and Tax dancers, and other performers for their creative works.
• The first significant development in the protection of performers' rights came
with the adoption of the Rome Convention in 1961.
• In India, performer rights were recognised under the Copyright Act of 1957 in
the year 1994.
Gresham’s Law Gresham's law is a principle that states that "bad money drives out good."
• The law observes that legally overvalued currency will drive legally undervalued
currency out of circulation.
• The law observes the effects of currency debasement.
Gini Index It is a measure of the distribution of income across a population.

(Lorenz Curve) • A higher Gini index indicates greater inequality, with high-income individuals
receiving much larger percentages of the population’s total income.
46
• Lorenz curve: is a graphical representation of the distribution of income or of
wealth.
Hysteresis In economics, a situation arises when any historical event affects the future
economic path.
Any economic disturbance will lead to a trickle-down effect, and the problem will
persist for long. This rolling-down impact is known as the hysteresis effect.
It is an economic theory that opposes any government intervention in business

Laissez-Faire affairs.
Law of Supply It states that other factors remain constant, such as the price and quantity supplied
of a good, which are directly related.
• When the price paid by buyers for a good rises, then suppliers increase the
supply of that good in the market.
Law of Demand It states that other factors are constant, such as a good's price and quantity demand,
which are inversely related.
When the price of a product increases, the demand for the same product will fall.
Law Of Supply According to this theorem, when there is a higher demand for a commodity, the
And Demand need for its supply will be high and vice versa.
Law Of The law states that the more we have of a commodity, the less we want to have more
Diminishing of it, as the utility derived from every success unit of the commodity keeps on
Utility declining when more is consumed
Marginal MPC refers to the proportion of extra income that a person spends instead of saving.
Propensity to
Consume
Marginal MPS is an economic measure of how savings change, with respect to changes in
Propensity to income.
Save
Market It refers to the forming of a single power trading entity owned by the government.
Coupling • Under it, buy and sell bids from all power exchanges in the country will be
aggregated and matched to discover a uniform power price or market clearing
price (MCP).
Paradox of • Individuals try to save more during an economic recession, leading to a fall in
Thrift aggregate demand and, hence, in economic growth.
Pigou Effect It refers to the relationship between consumption, wealth, employment, and output
during periods of deflation.
• The Pigou effect states that when prices deflate, employment (and thus output)
will increase due to an increase in wealth (which increases consumption).
Ricardian The theory is that consumers are forward-looking and anticipate that government
Equivalence borrowing today will mean a tax increase in the future to repay the debt.
• It will adjust consumption accordingly to have the same effect on the economy
as a tax increase today.
Sharpe Ratio It compares the return on an investment with its risk.

• It's a mathematical expression of the insight that excess returns over time may
signify more volatility and risk rather than investing skill.
47
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MARKS BOOSTER

2. PLANNING AND ECONOMIC REFORMS IN INDIA............................................................... 3

7. SECURITY MARKET IN INDIA .................................................................................................... 18

8. BANKING SECTOR IN INDIA ...................................................................................................... 23

10. PUBLIC FINANCE .......................................................................................................................... 34

11. EXTERNAL SECTORS OF INDIA ................................................................................................. 37

12. POVERTY, HUMAN DEVELOPMENT AND SUSTAINABLE DEVELOPMENT ................. 43

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