Bank Officer Interview Question and Answers Set I

1. What is Balance of Trade? The value of a countrys exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on financial assets. 2. What is Balanced Trade? When A balance of trade equal to zero. (exports-imports=0) 3. What is Balance of merchandise trade? The value of a countrys merchandise exports minus the value of its merchandise imports. 4. What is a favorable balance of trade? It is the difference between exports and imports. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus. 5. What is Balance of Payments? A list, or accounting, of all of a countrys international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits. A single number summarizing all of a countrys international transactions: the balance of payments surplus. 6. What is Balance of payments adjustment mechanism? Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments equilibrium 7. What is Monopolistic Competition? A market structure in which there are many sellers each producing a differentiated product. Each can set its own price and quantity, but is too small for that to matter for prices and quantities of other producers in the industry. 8. What is MFN? MFN stands for Most Favoured Nation. The principle, fundamental to the GATT, of treating imports from a country on the same basis as that given to the most favored other nation. That is, and with some exceptions, every country gets the lowest tariff that any country gets, and reductions in tariffs to one country are provided also to others. 9. What is Gold Standard? A monetary system in which both the value of a unit of the currency and the quantity of it in circulation are specified in terms of gold. If two currencies are both on the gold standard, then the exchange rate between them is approximately determined by their two prices in terms of gold. 10. What is Balance on capital account? A countrys receipts minus payments for capital account transactions.

11. What is Balance on current account ? A countrys receipts minus payments for current account transactions. Equals the balance of trade plus net inflows of transfer payments. 12. What is a Balanced budget ? A government budget surplus that is zero, thus with net tax revenue equaling expenditure. A balanced budget change in policy or behavior is one in which a component of the government budget, usually taxes, is adjusted as necessary to maintain a balanced budget. 13. What is balanced growth of an Economy? Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate. 14. What is a Bank rate The interest rate charged by a central bank to commercial banks for very short term loans. 15. What is a Repo? Repo is Repurchase Agreement. An agreement to sell a security for a specified price and to buy it back later at another specified price. A repo is essentially a secured loan. 16. What is Repo Rate? Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. On March 4, 2009 it was 5% in India (please check the latest figure by RBI) 17. What is CRR Rate in India? Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. 18. What is a Reverse Repo Rate? Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man. On March 4, 2009 Reverse Repo Rate is 3.5% (please check latest rate by RBI) 19. What is SLR Rate? SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. 20. How is SLR determined? SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. 21. What is the Need of SLR?

With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds. 22. What is the main use of SLR? SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently. 23. What is Inflation in India? Increase in the overall price level of an economy, usually as measured by the CPI /WPI or by the implicit price deflator. Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods. 24. What is Deflation? A fall in the general level of prices. Unlikely unless the rate of inflation is already low, it may then be due either to a surge in productivity or, less favorably, to a recession. Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period. 25. What is a Barter economy? An economic model of international trade in which goods are exchanged for goods without the existence of money. Most theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations. 26.What is Basel I? Also known at Basel Capital Accord, this was an agreement in 1988 by the Basel Committee of central bankers to measure the credit risk of commercial banks and set minimum standards for bank capital in order to reduce the likelihood of international repercussions due to bank failures. 27.What is Basel II? The Basel II Framework describes a more comprehensive measure and minimum standard for capital adequacy that national supervisory authorities are now working to implement through domestic rulemaking and adoption procedures. It seeks to improve on the existing rules by aligning regulatory capital requirements more closely to the underlying risks that banks face. In addition, the Basel II Framework is intended to promote a more forward-looking approach to capital supervision, one that encourages banks to identify the risks they may face, today and in the future, and to develop or improve their ability to manage those risks. As a result, it is intended to be more flexible and better able to evolve with advances in markets and risk management practices. The efforts of the Basel Committee on Banking Supervision to revise the standards governing the capital adequacy of internationally active banks achieved a critical milestone in the publication of an agreed text in June 2004. 28.What is a Beggar thy neighbor policy? For a country to use a policy for its own benefit that harms other countries. Examples are optimal tariffs and, in a recession, tariffs and/or devaluation to create employment.

29. What is a Bill of Lading? This term is normally used in shipping industry. The receipt given by a transportation company to an exporter when the former accepts goods for transport. It includes the contract specifying what transport service will be provided and the limits of liability. 30. What is the use of color boxes in WTO category of subsidies? Used with a color, a category of subsidies based on status in WTO: red=forbidden, amber or orange=go slow, green=permitted, blue=subsidies tied to production limits. Terminology seems only to be used in agriculture, where in fact there is no red box. 31. What is a fiscal deficit? A deficit in the government budget of a country and represents the excess of expenditure over income. So this is the amount of borrowed funds required by the government to meet its expenditures completely. Indias fiscal deficit widened to Rs. 541.58 billion in April, 2009 as compared to Rs. 329.39 billion rupees in April 2008. 32. What is Black Money ? Black Money is the unaccounted money concealed from the tax authorities. The black money runs a parallel economy adversely affecting the distribution of wealth & income in the economy. The total amount of black money globally is estimated between $2.1 and 2.5 trillion. This is roughly about seven percent of the worlds GDP. 33.What is a Black Market? A black market is an illegal market, in which something is bought and sold outside of official governmentsanctioned channels. Black markets tend to arise when a government tries to fix a price without itself providing all of the necessary supply or demand. Black markets in foreign exchange almost always exist when there are exchange controls. 34.What is a blue chip company? Why it is blue color only used in such companies? A blue chip is concerned with stocks & shares of company, which are well established and whose purchase is considered extremely safe. Due to stable earnings and no extensive liabilities these companies are called blue chip companies. The term blue chip comes from casinos, where blue chips stand for counters of the highest value. Most blue chip stocks pay regular dividends, even when business is faring worse than usual. 35.What is a direct Tax? A direct tax is that which is paid directly by someone to taxing authority. Income tax and property tax are examples of direct tax. They are not shifted to somebody else. 36.What is an Indirect Tax? This type of tax is not paid by someone directly to the authorities and it is actually passed on to the other in the form of increased cost. They are levied on goods and services produced or purchased. Excise tax, Sales tax, VAT are indirect taxes. 37.What are LDCs or Least Developed Countries? Least Developed Countries (LDCs) are countries which as per United Nations show the lowest indicators of socioeconomic development. They have lowest Human Development Index ratings of all countries in the world.

A country which has three-year average Gross national Income per capita of less than US $750 is tagged as LDC. a LDC must have an income of $ 900 to escape this tag. Besides if thse countries show human resource weakness based on indicators of nutrition, health, education and adult literacy and also or economic vulnerability based on instability of economy . Currently UN has tagged 49 countries in LDC. India is not an LDC. 38.What are Middle Income Countries ? Middle-income countries (MICs) are the 86 countries that fall into the middle-income range set by the Banks World Development Indicators. They account for just under half of the worlds population; are home to one-third of people across the globe living on less than $2 per day; and are found in all six of the Banks geographical regions. They cover a wide income range, with the highest income MIC having a per capita income 10 times that of the lowest. 39.What is Policy of Laissez Faire? Laissez Faire is a French term and means no interference. It is a doctrine that states that government generally should not intervene in the marketplace. 40.What is the difference between Monopoly and Monopsony ? In monopsony only one buyer faces many sellers. So this is called Buyers Monopoly. It is a rare situation in todays economy. In monopoly one seller faces many buyers. As the only purchaser of a good or service, the monopsonist may dictate terms to its suppliers in the same manner that a monopolist controls the market for its buyers. 41.What is the main function of Competition Commission of India? CCI is an independent body which become operational w.e.f. May 20, 2009 and is responsible for investigating the mergers, market shares & conditions besides regulating firms. CCI will ultimately replace the Monopolies and Restrictive Trade Practices Commission (MRTPC) ofIndia. 42.What is Lead Bank Scheme? Lead bank scheme was introduced around 40 years ago and recently it was in the news as a high level committee chaired by RBI Deputy Governor Usha Thorat was constituted to review and revitalize this scheme. The scheme aims at facilitating credit delivery to the farfetched areas ofIndia. There are members of the committee from NABARD and SIDBI. Thus the scheme focuses upon financial inclusion. The Opinion of this committee is that full financial inclusion is possible only if it makes a facility of opening of no frill accounts backed by other specialized services. 43.What are Nostro & Vostro Accounts ? A nostro account is maintained by an Indian Bank in the foreign countries for a facility of easy clearing of their transactions. For instance, if the bank pays a demand drawn on it by its correspondent bank, there is no delay because the foreign corresponded bank would already have credited the nostro account of the paying bank while issuing the demand draft. A vostro account is maintained by a foreign bank in India with their corresponding bank. 44.From which country India imports maximum? From China. Import from China was $ 24.16 billion in 2008-09, which got doubled in 3 years. This is 10.3 % of all the imports of India. 45.What is Gold Standard?

A system of setting currency values whereby the participating countries commit to fix the prices of their domestic currencies in terms of a specified amount of gold. 46.What is a Free Float Exchange Rate system? An exchange rate system characterized by the absence of government intervention. Also known as a clean float. 47.What are Special Drawing rights SDR? SDR are new form of international reserve assets, created by the International Monetary Funds in 1967. The value of SDR is based on a portfolio of widely used currencies and they are maintained as accounting entries and not as hard currency or physical assets like Gold. 48.What are the requirements to open a New Branch in Rural Area? Since 2006, RBI has approved the opening of new branches only on the condition that at least half of such branches are opened in under-banked areas as notified by the regulator. The opening of branches by banks is governed by the provisions of Section 23 of the Banking Regulation Act, 1949. In terms of these provisions, banks cannot open a new place of business inIndia or abroad or change otherwise than within the same city, town or village, the location of the existing place of business without the prior approval of the ReserveBank of India (RBI). Thus, it is mandatory for RRBs to seek prior approval/ license from Rural Planning and Credit Department (RPCD) of RBI before opening of new branches/offices. RRB should fulfill the following conditions to become eligible for opening of new branch/es. 1. It should not have defaulted in maintenance of SLR and CRR during the last two years. 2. The RRB should be making operational profits, its net worth should show improvement 3. Its net NPA ratio should not exceed 8 per cent. 49.What is concept sustainable Development? Meeting the needs of the present without compromising the ability of future generations to meet their needs is called sustainable development. This concept is popular in present context of development. 50.What is the meaning of Financial Inclusion? Today is is well recognized that large population of India is out of reach of the formal banking services. Financial inclusion is the concept which has been floated to bring the most of the rural population / area under the net of the financial and banking services. 51. What is SATMO? SATMO is Satellite Money Order Service introduced by Postal Department Govt. of India on December 16, 1994. However this scheme could not make its headway due to functional complicacies. 52. What is Vande Mataram Scheme ? Vande mataram schem is a nationwide programme aimed at improving ante and post-natal carewhich was launched on February 9, 2004. The scheme envisages free ante and post-natal check-ups, tips to avoid nutritional problems and anemia and counseling on small family norm and is a major initiative in Public Private partnerships during emergency. 53. What is Golden Handshake Scheme? Golden handshake scheme is a Govt. of India scheme introduced as a Voluntary retirement Scheme (VRS) in Industrial Policy Resolution 1991 for reducing the pressure of extra employees on public sector enterprises.

54. What is India Brand Equity Fund? This is a scheme to promote Indian Brands in Overseas Markets with the primary objective of brand promotion and not export promotion. To make the Made in India label a symbol of quality, competitive price, reliability and service to the customer & to project India as a reliable supplier of quality goods and services. It was established on July 11, 1996. 55. What is Jago Grahak Jago? The Consumer Awareness Scheme for the XI Plan amounting to a total of Rs. 409 crores has been approved by the Cabinet Committee on Economic Affairs on 24.01.08. This scheme has been formulated to give an increased thrust to a multi media publicity campaign to make consumers aware of their rights. The slogan Jago Grahak Jago is part of the publicity campaign undertaken in the last few years. Jago Grahak Jago has become the focal theme through which issues concerning the functioning of almost all Government Departments having a consumer interface can been addressed. To achieve this objective joint campaigns have been undertaken/are being undertaken with a number of Government Departments. 56. What is a revolving credit? Revolving credit is a type of credit that does not have a fixed number of payments. Corporate revolving credit facilities are typically used to provide liquidity for a companys day-to-day operations.The credit cards are examples of revolving credit. They are renewed automatically until the notice of cancellation is receieved. The time of repayment is specified. 57. What is Gender Budgeting? Gender budgeting is the process of conceiving, planning, approving, executing, monitoring, analyzing and auditing budgets in a gender-sensitive way. Gender Budgeting is actually an attempt to women upliftment without any sex discrimination while formulating the policies and making allocation for them. Gender Budgeting is a process that entails incorporating a gender perspective at various stagesplanning/ policy/ programme formulation, assessment of needs of target groups, allocation of resources, implementation, impact assessment, reprioritization of resources. Gender Responsive Budget and Gender Mainstreaming are outcomes of Gender Budgeting. 58. What is Soft Currency? Soft currency is opposite of hard currency and it indicates a type of currency whose value may depreciate rapidly or that is difficult to convert into other currencies. Soft currency can be in the form of paper, electronic or debt-based IOUs which have in the past been used in place of hard currency. This currency has limited convertibility into gold and other currencies. 59. What are factors of production? The resources and the inputs which are required to produce a good or service is called factor of production. The basic categories are land labor and capital. 60. What is the principle of Diminishing returns? This principle says that if one factor of production is fixed and constant additions of other factors are combined with this, the marginal productivity of variable factors will eventually decline. According to this relationship, in a production system with fixed and variable inputs (say factory size and labor), beyond some point, each additional unit of the variable input yields smaller and smaller increases in output. Conversely, producing one more unit of output costs more and more in variable inputs.

Set II
Q Who is the Governor of Reserve Bank Of India? Ans. Shri.D. Subba Rao is the governer of Reserve Bank of India. Q What services syndicate bank provides to customers? Ans. 1. Internet Banking. 2. Cash Management Services. 3. DeMAT Services. 4. NRI Services. 5. Flexi Fixed Deposit Services. 6. Tax Saving Term Deposit Services. 7. Real Time Gross Settlement System (RTGS). 8. National Electronic Funds Transfer(neft). Q. What are most popular 2008 Events? Q. What are most popular 2009 Current Events? Q. List Council of Ministers Q What is a bank? A bank is a financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money. It is an institution for receiving, keeping, and lending money Q What is the activity of Banks? Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM. Banks borrow money by accepting funds deposited on current account, accepting term deposits and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current account, by making installment loans, and by investing in marketable debt securities and other forms of money lending. Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to. Q What is Banking Business? Banking Business means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act.

Q What is Accounting for Bank Accounts? Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit accounts to increase their balances and you debit accounts to increase their balances. This also means you debit your savings account every time you deposit money into it (and the account is normally in deficit) and you credit your credit card account every time you spend money from it (and the account is normally in credit). However, if you read your bank statement, it will say the opposite- that you have credited your account when you deposit money and you debit when you withdraw it. If you have cash in your account you have a positive or credit balance and if you are overdrawn it will say you have a negative or a deficit balance. The reason for this is because the bank, and not you, has produced the bank statement. Your savings might be your assets, but it is the bank's liability, so your savings account is a liability account which is a credit account and should have a positive credit balance. Your loans are your liabilities but the bank's assets so they are debit accounts which should have a negative balance.Below where bank transactions, balances, credits and debits are discussed, they are done so from the viewpoint of the account holder which is traditionally what most people are used to seeing. Q What is SLR? Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). Present SLR is 24%. (reduced w.e.f. 8/11/208, from earlier 25%) RBI is empowered to increase this ratio up to 40%. An increase in SLR also restrict the banks leverage position to pump more money into the economy. Q What is SLR ? (For Non Bankers) SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits) It regulates the credit growth in India. Q What are Repo rate and Reverse Repo rate? Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate Q What are Repo rate and Reverse Repo rate? Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for

banks to borrow money, it reduces the repo rate. Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks. Q What is the difference between Bank Rate and Repo Rate? Bank Rate vs Repo Rate Bank Rate is the rate at which RBI allows finance to commercial banks in India. There are difference types of refinance that can be availed by banks and these are linked to Bank Rate. Thus, banks can borrow at this rate only to the extent of their eligibility for refinance. On the other hand, Repo is a money market instrument, which enables collateralized short term borrowing and lending through sale/purchase operations in debt instruments. Under a repo transaction, a holder of securities sells them to an investor with an agreement to repurchase at a predetermined date and rate. In the case of a repo, the forward clean price of the bonds is set in advance at a level which is different from the spot clean price by adjusting the difference between repo interest and coupon earned on the security. In the money market, this transaction is nothing but collateralized lending as the terms of the transaction are structured to compensate for the funds lent and the cost of the transaction is the repo rate. Thus, a bank can borrow under repo provided he has the extra securities which it can lend temporarily to RBI for borrowing short term funds. Q What is relation between Inflation and Bank interest Rates? Now days, you might have heard lot of these terms and usage on inflation and the bank interest rates. Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also. Q How many types of banks there are? Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profits. Central banks are normally government owned banks, often charged with quasiregulatory responsibilities, e.g. supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis. Type of Retail Banks Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses. Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners

Community development banks: regulated banks that provide financial services and credit to under-served markets or populations. Postal savings banks: savings banks associated with national postal systems. Private Banks: manage the assets of high net worth individuals. Offshore Banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks. Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative, while in others socially committed individuals created foundations to put in place the necessary infrastructure. Now a days, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and mediumsized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralized distribution network, providing local and regional outreach and by their socially responsible approach to business and society. Building societies and Lands banks: conduct retail banking. Ethical banks: Banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments. Islamic banks: Banks that transact according to Islamic principles. Types of investment banks Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital markets activities such as mergers and acquisitions. Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies. Q What is Bank Crisis? Banks are susceptible to many forms of risk which have triggered occasional systemic crises. Risks include liquidity risk (the risk that many depositors will request withdrawals beyond available funds), credit risk (the risk that those who owe money to the bank will not repay), and interest rate risk (the risk that the bank will become unprofitable if rising interest rates force it to pay relatively more on its deposits than it receives on its loans), among others. Banking crises have developed many times throughout history when one or more risks materialize for a banking sector as a whole. Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s [10] the Japanese banking crisis during the 1990s, the bank run that occurred during the Great Depression, and the recent liquidation by the central Bank of Nigeria, where about 25 banks were liquidated.[citation needed] Numerous banks have suffered as a result of the Sub prime mortgage crisis, which has occurred on a global scale, affecting investment banks such as Lehman Brothers in the USA and retail banks such as Northern Rock in the UK. In January 2009, several major UK banks such as Lloyds TSB and Barclays Bank, suffered severe falls in their London stock exchange share prices as a result of a drop in investor confidence of the true asset values of those banks.

Q What are the commercial roles of the Banks? However the commercial role of banks is wider than banking, and includes: However the commercial role of banks is wider than banking, and includes: issue of banknotes (promissory notes issued by a banker and payable to bearer on demand) processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means issuing bank drafts and bank cheques accepting money on term deposit lending money by way of overdraft, installment loan or otherwise providing documentary and standby letters of credit (trade finance), guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures safekeeping of documents and other items in safe deposit boxes currency exchange sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a 'financial supermarket' Q What are the Economic functions of Banks? The economic functions of banks include: 1. Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par and effectively transferable by mere delivery in the case of banknotes, or by drawing a cheque, delivering it to the payee to bank or cash. 2. netting and settlement of payments -- banks act both as collection agent and paying agents for customers, and participate in inter-bank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economize on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables payment flows between geographical areas to offset, reducing the cost of settling payments between geographical areas. 3. Credit intermediation -- banks borrow and lend back-to-back on their own account as middle men 4. Credit quality improvement -- banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and the banks own capital which provides a buffer to absorb losses without defaulting on its own obligations. However, since banknotes and deposits are generally unsecured, if the bank gets into difficulty and pledges assets as security to try to get the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position. 5. Maturity transformation -- banks borrow more on demand debt and short term debt, but provide more long term loans. In other words; banks borrow short and lend long. Bank can do this because they can aggregate issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintain reserves of cash, invest in marketable securities that can be readily converted to cash if needed, and raise replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets) because they have a high and more well known credit quality than most other borrowers. Tele Banking System

Q: 1: Tell me about Tele Banking System? Ans: The Bank Offers 24 * 7 Tele Banking Services which can be availed by Customers of all CBS branches of Bank through Tele Banking City Servers installed at 20 major cities across India. By using this wonderful & convenient Technology which uses Interactive Voice Response system (IVR), you can have Anytime, Anywhere (24 * 7) access to your different Accounts. You can inquire about your Account balances and also have general information about banks various product and services. Q: 2: What is IVR System? Ans: Tele Banking is based on an Interactive Voice Response System (IVR). This technology helps the Customer to understand and execute the various options available in the Tele Banking system by pressing keys of the Telephone instrument. Q: 3: What Services are Offered in Tele Banking System? Ans: (A) General Information For Public Enquiry about (1) Domestic Term Deposit Rates (2) Domestic Term Deposit rates for Senior Citizens (3) NRE & FCNR Rates (4) Daily Forex rates (5) Banks various retail products (6) Detail of ATM Locations (7) Banks working hours & Holiday enquiry. (B) Account related Information - Uses Customer Number & PIN For Authorisation (1) Account Balance Enquiry (2) Enquiry about last five transactions (3) Account Statement for a given period through FAX, Another Fax and Email options. (4) Cheque Status Enquiry. Q: 4: How I can avail Tele Banking Services? Ans: The Bank is offering Tele Banking Services, a 24 * 7 hours service, totally free of costs for its esteemed Customers. To avail the Tele Banking services, you need to submit duly filled-in Tele Banking form to your Branch. Kindly collect your secret PIN letter from the Branch after 4-5 working days. After receiving the secret PIN number from branch, you can enjoy our Tele Banking services from anywhere* anytime by just moving your fingers on your Telephone instrument. Q: 7: How I can use Tele Banking Services? Ans: Language Selection:- The Customer can interact with the TeleBanking system by selecting one of the four languages viz. 1. Hindi 2. English 3. Tamil 4. Bengali. When you dial the nearest Citys TeleBanking Phone number, then after the recorded welcome message, you need to select the language to interact with TeleBanking system. Next you need to select either the option of 'Account Related Information' to access your accounts Or you can choose the General Information option. To Access the Account Related Information, you must enter your Customer ID and the secret PIN (which is being issued to you by the bank). Key-in the various numbers on your keypad, for the services of your choice as directed by the IVR System. During the Interaction session, you can Press/ dial 9 to repeat the previous menu, 0 for main menu and # to quit the TeleBanking system. Q: 8: What is Customer-Id and PIN? Ans: Customer-id is a unique Numeric Code allotted by the Computerized System to identify the Customer and its details such as Customer name, addresses and various types of accounts the Customer is operating with the Bank viz. SB A/c., Overdraft A/c., Current Account etc. All the personal details of the Customers are accessed using this Customer-ID. The Personal Identification Number (called PIN), is a four digit number

generated by the Tele Banking system, which a customer needs along with the CustomerID number in order to access Tele Banking system. The PIN is issued by the Bank and sent to a customer through sealed PIN mailers. Q: 9: What is the Security in Tele Banking System? Ans: The Customers who have opted for Tele Banking system are issued secret PINs by the Bank which are sent through sealed PIN Mailers. When Customer uses the Tele Banking system first time, he is forced to change the PIN number to keep its secrecy. He further has the option of changing the PIN number as and when required by him. This enhances the security feature of this facility. Q: 11: What should I do, if I have forgotten my PIN number? Ans: Re-Issuance of Personal Identification PIN: - In case Customer forgets his secret PIN, he needs to give written request to the concerned branch for re-issuance of PIN. The branch thereafter forwards the request to Tele Banking Cell at Head Office for reissuance of PIN for the Customer. Automated Teller Machine Q: What is an ATM? A: An Automated Teller Machine (ATM) is a device that allows card-holding customer to perform broad range of routine banking transactions without interacting with a human teller. Q: What are the types of ATMs? Ans: 1. Touch Screen: Customers can touch the screen to choose options. 2. Key Operated: The keys border the screen and customers choose options these keys. 3. Motorized: In this machine the card is carried by the motor to card reader and the transaction takes place when the card is inside the machines. 4. Dip Card: The customer has to insert and remove the card and do the transaction when the card is out of machine. Out of this syndicate bank have only (b), (c) & (d) types of ATMs. Q: To whom are the ATM cards not issued? Ans: ATM Cards are not issued to minors below the age of 14 years, account operated jointly and illiterate customers. Q: What is Mini Statement? Ans: It is statement of account showing last 10 transactions, in the account. Q: What happens if wrong entry of PIN is given? Ans: In case PIN is entered wrongly thrice in succession, the ATM card operations will be blocked for 24 hours, although the ATM Card will not be captured instead it gets ejected from the card reader slot. After 24 hours the operations through the same card is allowed. Q: What is to be done if one forgets his PIN or PIN is lost? Ans: Duplicate PIN can be issued on receipt of written request from card holder. The

cardholder need to submit written request to his/her branch. Q: Does Bank bears any liability for unauthorized use of the Card? Ans: No. The responsibility is solely vested with the cardholder. Q: How many accounts can be linked to one syndicate bank Debit Card? Ans: At present three accounts can be linked to one syndicate bank Debit card. Q: Can Customer/cardholder withdraw from ATMs other than syndicate bank own ATMs using syndicate bank Debit card? Ans: Apart from syndicate banks own Networked ATM customer/cardholder can use ATMs of other banks who are member of MITR/NFS/VISA. MITR Group have 5 other Banks i.e. PNB, Indian Bank, Karur Vysya Bank, IndusInd Bank, UCO Bank. Q: How many ATMs are deployed by syndicate bank and whether these ATMs allow transactions to accepts cardholders of other banks also? Ans: There are 800 ATMs deployed by syndicate bank. All these ATMs allow cash withdrawal and balance inquiry to cardholders of other banks who are member of MITR/ NFS/VISA. NET BANKING Q1 .What is Internet Banking? Ans: - Internet Banking enables a customer to perform basic banking transactions through PC or laptop located anywhere in the globe. Q2. What is special about Internet Banking? Ans:- It is available 24 hours a day, 365 days a year and you can operate your account anytime / anywhere at your convenience. Q3. What are the facilities/services available through Internet Banking? Ans: - Services offered through Oriental Banks Net Banking 1. Account Related Operations for all the accounts in the CBS branches o Online Balance Inquiry on Accounts. o View last (n) transactions. o Statement of Account for given range of Dates, Amount and Cheques. 2. Fund Transfer Operations o Fund Transfer to own accounts within the Bank. Fund Transfer to other Customers account(s) within the Bank. o NEFT - Fund Transfer to other Banks account(s). 3. Payments o Bill Payments - BSES, MTNL, LIC of India, Vodafone etc. o Scheduled repetitive bill payments. o External payments viz. IRCTC (For Railway Reservation), E-Seva. o Fund Transfer Facility for Sharekhan.com, DB (International) Ltd. etc. 4. Mails o Customer can send mails for clarification of various queries and receive certain information from the bank. 5. Activity: o You can inquire your various financial and non-financial activities

performed during a period of time. 6. Customize o You can customize your various information like Change your passwords, Add Nick names to your accounts, Change Date Format, Amount format etc. Q 4. What is RTGS? Ans. Real Time Gross Settlement System (RTGS) is a modern, robust, integrated payment and settlement system. RTGS is a system whereby the Banks and Financial Institutions maintaining accounts with RBI can transfer funds to one another on an immediate, final and irrevocable basis during business hours. The Facility can be used for Fund Transfer to other Bank on behalf of the customers. This is R41 transaction and funds are transferred by debiting customers account to the destination account of other participating bank directly without any manual intervention. For this purpose correct destination account number and IFSC code of the destination bank / branch is required from the customer availing this facility. Q:1 What is NEFT System? Ans: National Electronic Funds Transfer (NEFT) system is a nation wide funds transfer system to facilitate transfer of funds from any bank branch to any other bank branch. Q:2 Are all bank branches in the system part of the funds transfer network? A: No. As on July 20, 2008, 46363 branches of 87 banks are participating. Steps are being taken to widen the coverage both in terms of banks and branches. Q:3 Whether the system is centre specific or have any geographical restriction? A: No, there is no restriction of centers or of any geographical area inside the country. The system uses the concept of centralized accounting system and the bank's account that is sending or receiving the funds transfer instructions, gets operated at one centre, viz, Mumbai only. The individual branches participating in NEFT could be located any where across the country, as detailed in the list provided on our website. Q:4 What is the funds availability schedule for the beneficiary? A: The beneficiary gets the credit on the same Day or the next Day depending on the time of settlement. Q:5 How does the NEFT system operate? A: Step-1: The remitter fills in the NEFT Application form giving the particulars of the beneficiary (bank-branch, beneficiary's name, account type and account number) and authorizes the branch to remit the specified amount to the beneficiary by raising a debit to the remitter's account. (This can also be done by using net banking services offered by some of the banks.) Step-2: The remitting branch prepares a Structured Financial Messaging Solution (SFMS) message and sends it to its Service Centre for NEFT. Step-3: The Service Centre forwards the same to the local RBI (National Clearing Cell, Mumbai) to be included for the next available settlement. Presently, NEFT is settled in six batches at 0900, 1100, 1200, 1300, 1500 and 1700 hours on weekdays and 0900, 1100 and 1200 hours on Saturdays Step-4: The RBI at the clearing centre sorts the transactions bank-wise and prepares accounting entries of net debit or credit for passing on to the banks participating in the system. Thereafter, bank-wise remittance messages are transmitted to banks.

Step-5: The receiving banks process the remittance messages received from RBI and affect the credit to the beneficiaries' accounts. Q:6 How is this NEFT System an improvement over the existing RBI-EFT System? A: The RBI-EFT system is confined to the 15 centers where RBI is providing the facility, where as there is no such restriction in NEFT as it is based on the centralized concept. The detailed list of branches of various banks participating in NEFT system is available on our website. The system also uses the state-of-the-art technology for the communication, security etc, and thereby offers better customer service. Q:7 How is it different from RTGS and EFT? A: NEFT is an electronic payment system to transfer funds from any part of country to any other part of the country and works on Net settlement, unlike RTGS that works on gross settlement and EFT which is restricted to the fifteen centers only where RBI offices are located. Q:11 What is IFS Code (IFSC)? How it is different from MICR code? A: Indian Financial System Code (IFSC) is an alpha numeric code designed to uniquely identify the bank-branches in India. This is 11 digit code with first 4 characters representing the banks code, the next character reserved as control character (Presently 0 appears in the fifth position) and remaining 6 characters to identify the branch. The MICR code has 9 digits to identify the bank-branch. Q What are the different channels of Banking you use in your daily life? Banks offer many different channels to access their banking and other services: A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face-to-face service to its customers. ATM is a computerized telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to a wider range of users. For example in Hong Kong, most ATMs enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and entering the account number to be credited. Also, most ATMs enable card holders from other banks to get their account balance and withdraw cash, even if the card is issued by a foreign bank. Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties. Banks also normally use mail to deliver periodic account statements to customers. Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. This normally includes bill payments for bills from major billers (e.g. for electricity). Online banking is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website. Q. What is Inflation? In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. The term "inflation" once referred to increases in the

money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation. Inflation can also be described as a decline in the real value of moneya loss of purchasing power in the medium of exchange which is also the monetary unit of account. When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time. Inflation can cause adverse effects on the economy. For example, uncertainty about future inflation may discourage investment and saving. High inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. Today, most economists favor a low steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reducing the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements. Effects of Inflation An increase in the general level of prices implies a decrease in the purchasing power of the currency. That is, when the general level of prices rises, each monetary unit buys fewer goods and services. The effect of inflation is not distributed evenly, and as a consequence there are hidden costs to some and benefits to others from this decrease in purchasing power. For example, with inflation lenders or depositors who are paid a fixed rate of interest on loans or deposits will lose purchasing power from their interest earnings, while their borrowers benefit. Individuals or institutions with cash assets will experience a decline in the purchasing power of their holdings. Increases in payments to workers and pensioners often lag behind inflation, especially for those with fixed payments. High or unpredictable inflation rates are regarded as harmful to an overall economy. They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Inflation can act as a drag on productivity as companies are forced to shift resources away from products and services in order to focus on profit and losses from currency inflation. Uncertainty about the future purchasing power of money discourages investment and saving. And inflation can impose hidden tax increases, as inflated earnings push taxpayers into higher income tax rates. With high inflation, purchasing power is redistributed from those on fixed incomes such as pensioners towards those with variable incomes whose earnings may better keep pace with the inflation. This redistribution of purchasing power will also occur between international trading partners. Where fixed exchange rates are imposed, rising inflation in one economy will cause its exports to become more expensive and affect the balance of

trade. There can also be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation. * Cost-push inflation: Rising inflation can prompt employees to demand higher wages, to keep up with consumer prices. Rising wages in turn can help fuel inflation. In the case of collective bargaining, wages will be set as a factor of price expectations, which will be higher when inflation has an upward trend. This can cause a wage spiral. In a sense, inflation begets further inflationary expectations. * Hoarding: people buy consumer durables as stores of wealth in the absence of viable alternatives as a means of getting rid of excess cash before it is devalued, creating shortages of the hoarded objects. * Hyperinflation: if inflation gets totally out of control (in the upward direction), it can grossly interfere with the normal workings of the economy, hurting its ability to supply. * Allocative efficiency: a change in the supply or demand for a good will normally cause its price to change, signaling to buyers and sellers that they should re-allocate resources in response to the new market conditions. But when prices are constantly changing due to inflation, genuine price signals get lost in the noise, so agents are slow to respond to them. The result is a loss of allocative efficiency. * Shoe leather cost: High inflation increases the opportunity cost of holding cash balances and can induce people to hold a greater portion of their assets in interest paying accounts. However, since cash is still needed in order to carry out transactions this means that more "trips to the bank" are necessary in order to make withdrawals, proverbially wearing out the "shoe leather" with each trip. * Menu costs: With high inflation, firms must change their prices often in order to keep up with economy wide changes. But often changing prices is itself a costly activity whether explicitly, as with the need to print new menus, or implicitly. * Austrian School explanation of business cycles: According to the Austrian Business Cycle Theory, inflation sets off the business cycle. Austrian economists hold this to be the most damaging effect of inflation. According to Austrian theory, artificially low interest rates and the associated increase in the money supply lead to reckless, speculative borrowing, resulting in clusters of mal-investments, which eventually have to be liquidated as they become unsustainable.[20] Some possibly positive effects of (moderate) inflation include: * Labor Market Adjustments: Keynesians believe that nominal wages are slow to adjust downwards. This can lead to prolonged disequilibrium and high unemployment in the labor market. Since inflation would lower the real wage if nominal wages are kept constant, Keynesian argue that some inflation is good for the economy, as it would allow labor markets to reach equilibrium faster. * Debt Relief: Debtors who have debts with a fixed nominal rate of interest will see a reduction in the "real" interest rate as the inflation rate rises. The real interest on a loan is the nominal rate minus the inflation rate. (R=n-i) For example if you take a loan where the stated interest rate is 6% and the inflation rate is at 3%, the real interest rate that you are paying for the loan is 3%. It would also hold true that if you had a loan at a fixed interest rate of 6% and the inflation rate jumped to 20% you would have a real interest rate of -14%. Banks and other lenders adjust for this inflation risk either by including an inflation premium in the costs of lending the money by creating a higher initial stated interest rate or by setting the interest at a variable rate. * Room to maneuver: The primary tools for controlling the money supply are the ability to set the discount rate, the rate at which banks can borrow from the central bank, and open market operations which are the central bank's interventions into the bonds market

with the aim of affecting the nominal interest rate. If an economy finds itself in a recession with already low, or even zero, nominal interest rates, then the bank cannot cut these rates further (since negative nominal interest rates are impossible) in order to stimulate the economy - this situation is known as a liquidity trap. A moderate level of inflation tends to ensure that nominal interest rates stay sufficiently above zero so that if the need arises the bank can cut the nominal interest rate. * Tobin effect: The Nobel prize winning economist James Tobin at one point had argued that a moderate level of inflation can increase investment in an economy leading to faster growth or at least higher steady state level of income. This is due to the fact that inflation lowers the return on monetary assets relative to real assets, such as physical capital. To avoid inflation, investors would switch from holding their assets as money (or a similar, susceptible to inflation, form) to investing in real capital projects. See Tobin monetary model Controlling inflation A variety of methods have been used in attempts to control inflation. Monetary policy Today the primary tool for controlling inflation is monetary policy. Most central banksare tasked with keeping the federal funds lending rate at a low level, normally to a target rate around 2% to 3% per annum, and within a targeted low inflation range, somewhere from about 2% to 6% per annum. There are a number of methods that have been suggested to control inflation. Central banks such as the U.S. Federal Reserve can affect inflation to a significant extent through setting interest rates and through other operations. High interest rates and slow growth of the money supply are the traditional ways through which central banks fight or prevent inflation, though they have different approaches. For instance, some follow a symmetrical inflation target while others only control inflation when it rises above a target, whether express or implied. Monetarists emphasize increasing interest rates (slowing the rise in the money supply, monetary policy) to fight inflation. Keynesians emphasize reducing demand in general, often through fiscal policy, using increased taxation or reduced government spending to reduce demand as well as by using monetary policy. Supply-side economists advocate fighting inflation by fixing the exchange rate between the currency and some reference currency such as gold. This would be a return to the gold standard. All of these policies are achieved in practice through a process of open market operations. Fixed exchange rates Under a fixed exchange rate currency regime, a country's currency is tied in value to another single currency or to a basket of other currencies (or sometimes to another measure of value, such as gold). A fixed exchange rate is usually used to stabilize the value of a currency, vis-a-vis the currency it is pegged to. It can also be used as a means to control inflation. However, as the value of the reference currency rises and falls, so does the currency pegged to it. This essentially means that the inflation rate in the fixed exchange rate country is determined by the inflation rate of the country the currency is pegged to. In addition, a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability. Under the Bretton Woods agreement, most countries around the world had currencies that were fixed to the US dollar. This limited inflation in those countries, but also exposed them to the danger of speculative attacks. After the Bretton Woods agreement broke down in the early 1970s, countries gradually turned to floating exchange rates. However, in the later part of the 20th century, some countries reverted to a fixed

exchange rate as part of an attempt to control inflation. This policy of using a fixed exchange rate to control inflation was used in many countries in South America in the later part of the 20th century (e.g. Argentina (1991-2002), Bolivia, Brazil, and Chile). Gold standard The gold standard is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set, fixed quantities of gold. The standard specifies how the gold backing would be implemented, including the amount of specie per currency unit. The currency itself has no innate value, but is accepted by traders because it can be redeemed for the equivalent specie. A U.S. silver certificate, for example, could be redeemed for an actual piece of silver. Gold was a common form of representative money due to its rarity, durability, divisibility, fungibles, and ease of identification. Representative money and the gold standard were used to protect citizens from hyperinflation and other abuses of monetary policy, as were seen in some countries during the Great Depression. However, they were not without their problems and critics, and so were partially abandoned via the international adoption of the Bretton Woods System. Under this system all other major currencies were tied at fixed rates to the dollar, which itself was tied to gold at the rate of $35 per ounce. That system eventually collapsed in 1971, which caused most countries to switch to fiat money, backed only by the laws of the country. Austrian economists strongly favor a return to a 100 percent gold standard. Under a gold standard, the long term rate of inflation (or deflation) would be determined by the growth rate of the supply of gold relative to total output. Critics argue that this will cause arbitrary fluctuations in the inflation rate, and that monetary policy would essentially be determined by gold mining, which some believe contributed to the Great Depression. Wage and price controls Another method attempted in the past have been wage and price controls ("incomes policies"). Wage and price controls have been successful in wartime environments in combination with rationing. However, their use in other contexts is far more mixed. Notable failures of their use include the 1972 imposition of wage and price controls by Richard Nixon. More successful examples include the Prices and Incomes Accord in Australia and the Wassenaar Agreement in the Netherlands. In general wage and price controls are regarded as a temporary and exceptional measure, only effective when coupled with policies designed to reduce the underlying causes of inflation during the wage and price control regime, for example, winning the war being fought. They often have perverse effects, due to the distorted signals they send to the market. Artificially low prices often cause rationing and shortages and discourage future investment, resulting in yet further shortages. The usual economic analysis is that any product or service that is under-priced is over consumed. For example, if the official price of bread is too low, there will be too little bread at official prices, and too little investment in bread making by the market to satisfy future needs, thereby exacerbating the problem in the long term. Temporary controls may complement a recession as a way to fight inflation: the controls make the recession more efficient as a way to fight inflation (reducing the need to increase unemployment), while the recession prevents the kinds of distortions that controls cause when demand is high. However, in general the advice of economists is not to impose price controls but to liberalize prices by assuming that the economy will adjust and abandon unprofitable economic activity. The lower activity will place fewer demands on whatever commodities were driving inflation, whether labor or resources, and

inflation will fall with total economic output. This often produces a severe recession, as productive capacity is reallocated and is thus often very unpopular with the people whose livelihoods are destroyed (see creative destruction). Q What is Gross Domestic Product (GDP)? The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given country's economy. GDP can be defined in three ways, all of which are conceptually identical. First, it is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time (usually a 365-day year). Second, it is equal to the sum of the value added at every stage of production (the intermediate stages) by all the industries within a country, plus taxes less subsidies on products, in the period. Third, it is equal to the sum of the income generated by production in the country in the periodthat is, compensation of employees, taxes on production and imports less subsidies, and gross operating surplus (or profits). The most common approach to measuring and quantifying GDP is the expenditure method: GDP = consumption + gross investment + government spending + (exports imports), or, GDP = C + I + G + (X M). "Gross" means that depreciation of capital stock is not subtracted out of GDP. If net investment (which is gross investment minus depreciation) is substituted for gross investment in the equation above, then the formula for net domestic product is obtained. Consumption and investment in this equation are expenditure on final goods and services. The exports-minus-imports part of the equation (often called net exports) adjusts this by subtracting the part of this expenditure not produced domestically (the imports), and adding back in domestic area (the exports). Economists (since Keynes) have preferred to split the general consumption term into two parts; private consumption, and public sector (or government) spending. Two advantages of dividing total consumption this way in theoretical macroeconomics are: Private consumption is a central concern of welfare economics. The private investment and trade portions of the economy are ultimately directed (in mainstream economic models) to increases in long-term private consumption. If separated from endogenous private consumption, government consumption can be treated as exogenous so that different government spending levels can be considered within a meaningful macroeconomic framework. The India GDP is the culmination of all the differential factors that contributes to the economy of India. India GDP reflects a consolidated report of the performance of the Indian economy. The Indian Gross Domestic Product is determined either by 'cost factor' or 'actual price' method. The growth of India GDP especially, after the 1990s was the effect of opening-up of Indian economy. This paradigm shift of Indian economy occurred in the wake of balance-of-payments crisis in the 1980s. The Government of India opened up Indian markets to facilitate entry of private investments into the Indian markets. This change in Indian economic policy, from a highly insulated market to an open market facilitated inflow of foreign direct investment (FII) and foreign institutional investor (FII). A good number of Government of India undertakings were divested to private business Q What is Recession and How US slowdown hit Indian Economy?

Ans: In economics, the term recession generally describes the reduction of a country's gross domestic product (GDP) for at least two quarters. The usual dictionary definition is "a period of reduced economic activity", a business cycle contraction. The United States-based National Bureau of Economic Research (NBER) defines economic recession as: "a significant decline in the economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesaleretail sales In macroeconomics, a recession is a decline in a country's gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. An alternative, less accepted, definition of recession is a downward trend in the rate of actual GDP growth as promoted by the business-cycle dating committee of the National Bureau of Economic Research. That private organization defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession has many attributes that can occur simultaneously and can include declines in coincident measures of activity such as employment, investment, and corporate profits. A severe or prolonged recession is referred to as an economic depression. Causes of Recession An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment. Stock markets & recession The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at low ebb in India with little cheer coming to investors. Current crisis in the US The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. Major banks have landed in trouble after people could not pay back loans The housing market soared on the back of easy availability of loans. The realty sector boomed but could not sustain the momentum for long, and it collapsed under the gargantuan weight of crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy. How to fight recession Tax cuts are the first step that a government fighting recessionary trends or a full-fledged recession proposes to do. In the current case, the Bush government has proposed a $150billion bailout package in tax cuts.

The government also hikes its spending to create more jobs and boost the manufacturing and services sectors and to prop up the economy. The government also takes steps to help the private sector come out of the crisis. Past recessions history The US economy has suffered 10 recessions since the end of World War II. The Great Depression in the United was an economic slowdown, from 1930 to 1939. It was a decade of high unemployment, low profits, low prices of goods, and high poverty. The trade market was brought to a standstill, which consequently affected the world markets in the 1930s. Industries that suffered the most included agriculture, mining, and logging. In 1937, the American economy unexpectedly fell, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3 per cent in 1937 to 19.0 per cent in 1938. The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and sharp correction to overproduction of the previous decade. This was followed by Black Monday in October 1987, when a stock market collapse saw the Dow Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of Americans. The early 1990s saw a collapse of junk bonds and a financial crisis. The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest expansion on record. From March to November 2001, employment dropped by almost 1.7 million. In the 199091 recessions, the GDP fell 1.5 per cent from its peak in the second quarter of 1990. The 2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000. The dot-com burst hit the US economy and many developing countries as well. The economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as technology stock prices crashed. How US recession impact on India A slowdown in the US economy is bad news for India. Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking. The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper brining down inflation. A recession could bring down oil prices to $70. Between January 2001 and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January 2000. In contrast, the Sensex was down 45 per cent. The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts