Monetary Policy and Current Affairs of August - 2010

First Quarter Review of Monetary Policy 2010-11:

Monetary policy is the process by which the government, central bank of a country controls (i) the supply of money, (ii) availability of money, and (iii)cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy.

As expected, RBI has raised the policy rates in the first quarter review of monetary policy on 27-07-2010. This is the fourth rate hike since March this year raising the Repo by a total of 100 bps and Reverse Repo by 125 bps.

Highlights of the policy:

·        Repo rates hiked by 25 bps to 5.75% with immediate effect.

·        Reverse Repo rates hiked by 50 bps to 4.50% with immediate effect.

·        CRR, SLR and Bank rate kept unchanged at 6%, 25% and 6%, respectively.

·        Estimated for GDP growth for 2010-11 revised to 8.5% from 8%.

·        Inflation projection for March 2010 increased to 6% from 5.5%.

The next mid-quarter review of Monetary Policy for 2010-11 will be announced through a press release on September 16, 2010.

The second quarter review of Monetary Policy 2010-11, including developmental and regulatory policies, is scheduled on November 2, 2010.

August Current Affairs:

·        China has eclipsed Japan as the world's second-biggest economy after three decades of blistering growth that put overtaking the U.S. in reach within 10 years.

·        Former Union Power Secretary Harishankar Brahma has been appointed as the Election Commissioner in the Election Commission of India.

·        Britain’s Andy Murray won the 2010 Rogers Cup over Roger Federer 7–5, 7–5 on Sunday in Toronto.

·        The President Mrs. Pratibha Devisingh Patil this evening conferred the prestigious Best Parliamentarian Awards to Priya Ranjan Dasmunsi, Mohan Singh and Dr. Murali Manohar Joshi at an impressive function in the Central Hall of Parliament. The Awards were given for the year 2007, 2008 and 2009 respectively for their outstanding contributions to parliamentary debates.

·        Former Lok Sabha Speaker Somnath Chatterjee's book, "Keeping the Faith: Memoirs of a Parliamentarian", which was released by Prime Minister Dr. Manmohan Singh.

·        The Centre cleared for implementation the Rajiv Gandhi Scheme for Empowerment of Adolescent Girls — known as ‘Sabla' — aimed at enhancing their nutritional and economic status. The scheme will be run along with the Integrated Child Development Services (ICDS) project in anganwadi centres in 200 select districts, targeting girls in the age group 11-18.

·        Senior IPS officer R K Medhekar will be the new Director General of elite commando force -- National Security Guard. Medhekar, a 1975 batch officer of Kerala cadre, currently serving as Special Director General of Border Security Force. He will take over from 1972 batch IPS officer N P S Aulakh.

·        Vineet Jain, Managing Director, The Times of India (TOI) Group, has been elected as the new chairman of Press Trust of India (PTI), the leading news agency of India. Jain succeeds Vjiay Kumar Chopra, Editor, Punjab Kesari Group.

·        Union Minister of State for Environment and Forests Jairam Ramesh launched the Green Action for National Dandi Heritage Initiative(GANDHI) project in the historic coastal village in south Gujarat. It was at Dandi that Mahatma Gandhi launched his salt Satyagraha 80 years ago.

·        The postal department released a stamp(of Rs.5) in Visakhapatnam to commemorate the first death anniversary of the former chief minister late Y.S. Rajasekhar Reddy.

General Socio-Economic and Banking Awareness Quiz 2010

1.      The basis of determining dearness allowance to employees in India is ____?
(A) National Income
(B) Consumer Price Index(Ans)
(C) Standard of Living
(D) Per Capita Income

(E) None

2.      NABARD is _____?
(A) A bank
(B) A board
(C) A block
(D) A department

(E) None

3.      Out of one Rupee expenditure, how much paise have been allotted for subsidy in 2010-11 Union budget proposals?
(A) 12 paise
(B) 10 paise
(C) 9 paise
(D) 7 paise

(E) None

4.      The most densely populated country in South Asia is ___?
(A) Bangladesh
(B) India
(C) Maldives
(D) Sri Lanka

(E) None

5.      Interest Rate Policy is a part of ____?
(A) Fiscal Policy
(B) Industrial Policy
(C) Monetary Policy
(D) Credit Policy

(E) None of these

6.      Indian Green Revolution is the most successful in ____?
(A) Wheat and Potato
(B) Jowar and Oil Seeds
(C) Wheat and Rice
(D) Tea and Coffee

(E) All of these

7.       ‘Public Sector’ means ____?
(A) Government ownership on commerce and trade
(B) Capitalist ownership on commerce and trade
(C) Private ownership on trade
(D) Government ownership on banks

(E) None of these

8.      The largest source of National Income in India is _____?
(A) Service Sector
(B) Agriculture
(C) Industrial Sector
(D) Trade Sector

(E) None

9.      Inside Trading is related to _____?
(A) Share Market
(B) Horse racing
(C) Taxation
(D) Public Expenditure

(E) None

10. The main objective of TRYSEM was ______?
(A) To train rural youth for self employment
(B) To train urban youth for self employment
(C) Both of the above
(D) To Provide subsidy to Rural People on purchasing goods

 (E) None

11. Which bank in India performs duties of Central Bank?
(A) Central Bank of India
(B) State Bank of India
(C) Reserve Bank of India
(D) Above (A) and (B)

(E) None of these

12. . Which of the following is a better measure of economic development?
(A) Employment
(B) Size of exports
(C) Rural consumption
(D) National Income

(E) None

13. The cause of deflation is ____?
(A) Lack of goods and services as compared to money supply
(B) Lack of imports as compared to exports
(C) Lack of money supply as compared to supply of goods and services
(D) All the above

(E) None of these

14. The Present Service Tax rate is ___?
(A) 8%
(B) 15%
(C) 10%
(D) 12%

(E) None

15. The working of SEBI includes ___?
(A) To regulate the dealings of share market
(B) To check the foul dealings in share market
(C) To control the inside trading of shares
(D) All of these

(E) None of these

16. CAPART is related with ___?
(A) Assisting and evaluating rural welfare programmes
(B) Computer hardware
(C) Consultant service of export promotion
(D) Controlling pollution in big industries

(E) None of these

17. Kutir Jyoti scheme is associated with ___?
(A) Promoting cottage industry in villages
(B) Promoting employment among rural unemployed youth
(C) Providing electricity to rural families living below the poverty line
(D) All of these

(E) None of these

18. VAT is imposed ____?
(A) Directly on consumer
(B) On final stage of production
(C) On first stage of production
(D) On all stages between production and final sale

(E) All the above

19. What is ‘NIKKEI’?
(A) Share Price Index of Tokyo Share Market
(B) Name of Japanese Central Bank
(C) Japanese name of Country’s Planning Commission
(D) Foreign Exchange Market of Japan

(E) Both A & D

20. Minimum Support Price is decided by _______?
(A) ICAR
(B) Finance Minister

(C) Ministry of Agriculture
(D) CACP

(E) None of these

Banking and Finance terms in India - 2010

·        What is Open Market operations(OMO)?

The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system by RBI. Open market operations are the principal tools of monetary policy.

·        What is Micro Credit?

It is a term used to extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.

·        What is Liquidity Adjustment Facility(LAF)?

A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.

·        What is RTGS System?

The acronym 'RTGS' stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a 'real time' and on 'gross' basis. This is the fastest possible money transfer system through the banking channel. Settlement in 'real time' means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. 'Gross settlement' means the transaction is settled on one to one basis without bunching with any other transaction.

·        What is Bancassurance?

It is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.

·        What is Wholesale Price Index(WPI)?

The Wholesale Price Index (WPI) is the index used to measure the changes in the average price level of goods traded in wholesale market. A total of 435 commodity prices make up the index. It is available on a weekly basis. It is generally taken as an indicator of the inflation rate in the Indian economy. The Indian Wholesale Price Index (WPI) was first published in 1902, and was used by policy makers until it was replaced by the Producer Price Index (PPI) in 1978.

·        What is Consumer price Index(CPI)?

It is a measure estimating the average price of consumer goods and services purchased by households.

·        What is Venture Capital?

Venture capital is money provided by an outside investor to finance a new, growing, or troubled business. The venture capitalist provides the funding knowing that there’s a significant risk associated with the company’s future profits and cash flow. Capital is invested in exchange for an equity stake in the business rather than given as a loan, and the investor hopes the investment will yield a better-than-average return.

·        What is a Treasury Bills?

Treasury Bills (T-Bills) are short term, Rupee denominated obligations issued by the Reserve Bank of India (RBI) on behalf of the Government of India. They are thus useful in managing short-term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.

·        What is Banking Ombudsmen Scheme?

The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks.

The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.

The Banking Ombudsman Scheme was first introduced in India in 1995, and was revised in 2002. The current scheme became operative from the 1 January 2006, and replaced and superseded the banking Ombudsman Scheme 2002.

·        What is Subsidy?

A subsidy is a form of financial assistance paid to a business or economic sector.  Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or to encourage it to hire more labor.

·        What is a Debenture? How many types of debentures are there? What are they?

A debenture is basically an unsecured loan to a corporation. A type of debt instrument that is not secured by physical asset. Debentures are backed only by the general creditworthiness and reputation of the issuer. 

i)Convertible Debentures: Any type of debenture that can be converted into some other security or it can be converted into stock..

ii)Non-Convertibility Debentures(NCB): Non Convertible Debentures are those that cannot be converted into equity shares of the issuing company, as opposed to Convertible debentures. Non-convertible debentures normally earn a higher interest rate than convertible debentures do.

·        What is a hedge fund?

‘Hedge’ means to reduce financial risk.

A hedge fund is an investment fund open to a limited range of investors and requires a very large initial minimum investment. It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment.

·        What is FCCB?

A Foreign Currency Convertible Bond (FCCB) is a type of convertible bond issued in a currency different than the issuer’s domestic currency.  In other words, the money being raised by the issuing company is in the form of a foreign currency. A company may issue an FCCB if it intends to make a large investment in a country using that foreign currency.

·        What is Capital Account Convertibility(CAC)?

It is the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. This means that capital account convertibility allows anyone to freely move from local currency into foreign currency and back.

The Reserve Bank of India has appointed a committee to set out the framework for fuller Capital Account Convertibility.

Capital account convertibility is considered to be one of the major features of a developed economy. It helps attract foreign investment. capital account convertibility makes it easier for domestic companies to tap foreign markets.

·        What is Current Account Convertibility?

It defines at one can import and export goods or receive or make payments for services rendered. However, investments and borrowings are restricted.

·        What is Arbitrage?

The opportunity to buy an asset at a low price then immediately selling it on a different market for a higher price.

·        What is Capitalism?

Capitalism as an economy is based on a democratic political ideology and produces a free market economy, where businesses are privately owned and operated for profit; in capitalism, all of the capital investments and decisions about production, distribution, and the prices of goods, services, and labor, are determined in the free market and affected by the forces of supply and demand.

·        What is Socialism?

Socialism as an economy is based on a collectivist type of political ideology and involves the running of businesses to benefit the common good of a vast majority of people rather than of a small upper class segment of society.

For more banking and finance terms visit this link.

Third Quarter Review of Monetary Policy 2009-10

What is Monetary Policy?

• Monetary policy is a tool used by the central bank to manage money supply in the economy in order to achieve a desirable growth. The central bank controls the money supply by increasing and decreasing the cost of money, the rate of interest.

What is Fiscal Policy? How is it different from Monetary Policy?

• The fiscal policy is used to monitor the economy. Two major tools of the fiscal policy are revenue spending and collection by government.

• So, while the monetary policy aims to stabilize the economy by controlling the money supply and interest rates, the fiscal policy uses government spending and taxation to achieve the same goal.

• A fiscal policy can be of three kinds — neutral, expansionary and contractionary.

When the revenue collection and spending of the government is equal it is called a neutral policy. An expansionary fiscal policy means higher government spending than tax collection, whereas, contractionary fiscal policy indicates lower spending than tax collections. While the former may lead to a budget deficit, the latter can result in budget surplus.

• During slowdown, the government uses expansionary fiscal policy and pumps in huge amount of money as stimulus packages and decreases the tax rates so that people have more money to spend. This is mainly to revive demand in the economy. On the contrary, when the economy becomes overheated and inflation goes up, the government increases the tax rates and decreases the spending to squeeze the money from the system.

• Central bank has two sets of tools - quantitative and qualitative - to signal easing or tight money conditions, depending on its policy objective.

While quantitative tools would include imposing cash reserve requirements (CRR) for banks, fixing the repo or reverse-repo rates, the bank rate and prescribing the level of statutory liquidity ratio (SLR) to signal the level of growth in the financial markets, pursuant with its growth objective for the economy.

Popular qualitative measures would include imposing margins on certain loans and moral suasion. However, RBI often tweaks only the repo or reverse-repo rates and CRR.

Changes in Third Quarter Review of Monetary Policy 2009-10:

• RBI has increased the cash reserve ratio (CRR) of scheduled banks by 75 basis points from 5.0 per cent to 5.75 per cent of their net demand and time liabilities.

• As a result of the increase in the CRR, about Rs. 36,000 crore of excess liquidity will be absorbed from the system.

• However key interest rates remain unchanged; Repo Rate (4.75%), Reverse Repo rate (3.25%), Bank Rate (6%).

Source: RBI, ET.

SBI Clerical General Awareness 9 - 2009

                                                                          Source:Sakshi

PO Interview Questions 2

·        What is corporate governance?   (For more click here)

The way in which a company is governed and how it deals with the various interests of its customers, shareholders, employees and society at large. Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled.Is defined as the general set of customs, regulations, habits, and laws that determine to what end a firm should be run.

·        Functions of RBI?

The Reserve Bank of India is the central bank of India, was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years.To regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.Banker to banks: maintains banking accounts of all scheduled banks.

·        What is monetary policy?

A Monetary policy is the process by which the government, central bank, of a country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy.

·        What is Fiscal Policy?

Fiscal policy is the use of government spending and revenue collection to influence the economy. These policies affect tax rates, interest rates and government spending, in an effort to control the economy. Fiscal policy is an additional method to determine public revenue and public expenditure.

·        What is Core Banking Solutions?

Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. It will cut down time, working simultaneously on different issues and increasing efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions.

·        What is bank and its features and types?

A bank is a financial organization where people deposit their money to keep it safe.Banks play an important role in the financial system and the economy. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner.

Regional Rural Banks were established with an objective to ensure sufficient

institutional credit for agriculture and other rural sectors. The RRBs mobilize

financial resources from rural / semi-urban areas and grant loans and advances

mostly to small and marginal farmers, agricultural labourers and rural artisans.

The area of operation of RRBs is limited to the area as notified by GoI covering

one or more districts in the State.

ii. Banking services for individual customers is known as retail banking.

iii. A bank that deals mostly in but international finance, long-term loans for

companies and underwriting. Merchant banks do not provide regular banking

services to the general public

iv. Online banking (or Internet banking) allows customers to conduct financial

transactions on a secure website operated by their retail or virtual bank.

v. Mobile Banking is a service that allows you to do banking transactions on your

mobile phone without making a call , using the SMS facility. Is a term used for

performing balance checks, account transactions, payments etc. via a mobile

device such as a mobile phone.

vi. Traditional banking is the normal bank accounts we have. Like, put your money in the bank and they act as a security and you will get only the normal interests (decided by RBI in our case, FED bank in US).

vii. Investment banking is entirely different. Here, people who are having so much

money (money in excess which will yield only less interest if in Banks) will invest

their money and get higher returns. For example, If i have more money instead of

taking the pain of investing in share market, buying properties etc. I will give to

investment banks and they will do the money management and give me higher

returns when compared to traditional banks.

·        What is E-Governance?

E-Governance is the public sector’s use of information and communication technologies with the aim of improving information and service delivery, encouraging citizen participation in the decision-making process and making government more accountable,transparent and effective.

·        What is Right to information Act?

The Right to Information act is a law enacted by the Parliament of India giving citizens of India access to records of the Central Government and State  overnments.The Act applies to all States and Union Territories of India, except the State of Jammu and Kashmir - which is covered under a State-level law. This law was passed by Parliament on 15 June 2005 and came fully into force on 13 October 2005.

·        Credit Rating Agencies in India?

The credit rating agencies in India mainly include ICRA and CRISIL. ICRA wasformerly referred to the Investment Information and Credit Rating Agency of India Limited. Their main function is to grade the different sector and companies in terms of performance and offer solutions for up gradation. The credit rating agencies in India mainly include ICRA and CRISIL(Credit Rating Information Services of India Limited)

·        What is Cheque?

Cheque is a negotiable instrument instructing a Bank to pay a specific amount from a specified account held in the maker/depositor's name with that Bank.A bill of exchange drawn on a specified banker and payable on demand.“Written order directing a bank to pay money”.

·        What is demand Draft?

A demand draft is an instrument used for effecting transfer of money. It is a Negotiable Instrument. Cheque and Demand-Draft both are used for Transfer of money. You can 100% trust a DD. It is a banker's check. A check may be dishonored for lack of funds a DD can not. Cheque is written by an individual and Demand draft is issued by a bank. People believe banks more than individuals.

·        What is a NBFC?

A non-banking financial company (NBFC) is a company registered under the

Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by government, but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property.

NBFCs are doing functions akin to that of banks; however there are a few differences:

(i)A NBFC cannot accept demand deposits (demand deposits are funds deposited at a depository institution that are payable on demand -- immediately or within a very short period -- like your current or savings accounts.)

(ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers; and

(iii) Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.

·        Diff between banking & Finance?

Finance is generally related to all types of financial, this could be accounting, insurances and policies. Whereas banking is everything that happens in a bank only.The term Banking and Finance are two very different terms but are often associated together. These two terms are often used to denote services that a bank and other financial institutions provide to its customers.

·        What is NASSCOM ?

The National Association of Software and Services Companies (NASSCOM), the Indian chamber of commerce is a consortium that serves as an interface to the Indian software industry and Indian BPO industry. Maintaining close interaction with the Government of India in formulating National IT policies with specific focus on IT software and services maintaining a state of the art information database of IT software and services related activities for use of both the software developers as well as interested companies overseas. Mr. Som Mittal – President. Chairman-Pramod Bhasin

·        What is ASSOCHAM?

The Associated Chambers of Commerce and Industry of India (ASSOCHAM), India's premier apex chamber covers a membership of over 2 lakh companies and professionals across the country. It was established in 1920 by promoter chambers, representing all regions of India. As an apex industry body, ASSOCHAM represents the interests of industry and trade, interfaces with Government on policy issues and interacts with counterpart international organizations to promote bilateral economic issues. President-Swati Piramal

·        What is NABARD?

NABARD was established by an act of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC). It is one of the premiere agency to provide credit in rural areas. NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts.

·        What is SIDBI?

The Small Industries Development Bank of India is a state-run bank aimed to aid the growth and development of micro, small and medium scale industries in India. Set up in 1990 through an act of parliament, it was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India.

·        What is SENSEX and NIFTY?

SENSEX is the short term for the words "Sensitive Index" and is associated with the Bombay (Mumbai) Stock Exchange (BSE). The SENSEX was first formed on 1-1-1986 and used the market capitalization of the 30 most traded stocks of BSE. Where as NSE has 50 most traded stocks of NSE.SENSEX IS THE INDEX OF BSE. AND NIFTY IS THE INDEX OF NSE.BOTH WILL SHOW DAILY TRADING MARKS. Sensex and Nifty both are an "index”. An index is basically an indicator it indicates whether most of the stocks have gone up or most of the stocks have gone down.

·        What is SEBI?

SEBI is the regulator for the Securities Market in India. Originally set up by the

Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Bhave.

·        What is Mutual funds?

Mutual funds are investment companies that pool money from investors at large and offer to sell and buy back its shares on a continuous basis and use the capital thus raised to invest in securities of different companies. The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically distributed to the investors annually.

·        What is Asset Management Companies?

A company that invests its clients' pooled fund into securities that match its declared financial objectives. Asset management companies provide investors with more diversification and investing options than they would have by themselves. Mutual funds, hedge funds and pension plans are all run by asset management companies. These companies earn income by charging service fees to their clients.

·        What are non-perfoming assets?

Non-performing assets, also called non-performing loans, are loans,made by a bank or finance company, on which repayments or interest payments are not being made on time. A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments to the designated lender for an extended period of time. The nonperforming asset is therefore not yielding any income to the lender in the form of principal and interest payments.

·        What is Recession?

A true economic recession can only be confirmed if GDP (Gross Domestic Product)growth is negative for a period of two or more consecutive quarters.

·        What is foreign exchange reservers?

Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities.However, the term in popular usage commonly includes foreign exchange and gold,SDRs and IMF reserve positions.