minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDFNBFCs.
vi. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFCMFI is a non-deposit taking NBFC having not less than 85%of its assets in the nature of
qualifying assets which satisfy the following criteria:
a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not
exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs.
1,20,000.
b. tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000
with prepayment without penalty;
vii. Non-Banking Financial Company Factors (NBFC-Factors): NBFC-Factor is a nondeposit taking NBFC engaged in the principal business of factoring. The financial assets in
the factoring business should constitute at least 75 percent of its total assets and its income
derived from factoring business should not be less than 75 percent of its gross income.
Register with RBI:
A company incorporated under the Companies Act, 1956 and desirous of commencing
business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act,
1934 should comply with the following:
i. it should be a company registered under Section 3 of the companies Act, 1954
ii. It should have a minimum net owned fund of Rs 200 lakh.
Deposits in NBFC:
a) Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be
paid or compounded at rests not shorter than monthly rests.
b) The NBFCs are allowed to accept/renew public deposits for a minimum period of 12
months and maximum period of 60 months. They cannot accept deposits repayable on
demand.
c) The deposits with NBFCs are not insured.
d) The repayment of deposits by NBFCs is not guaranteed by RBI.
Brief about RNBC
a) Residuary Non-Banking Company is a class of NBFC which is a company and has as its
principal business the receiving of deposits, under any scheme or arrangement or in any
other manner and not being Investment, Asset Financing, Loan Company.
b) These companies are required to maintain investments as per directions of RBI, in
addition to liquid assets.
c) The amount payable by way of interest, premium, bonus or other advantage, by whatever
name called by a RNBC in respect of deposits received shall not be less than the amount
calculated at the rate of 5% (to be compounded annually) on the amount deposited in lump
sum or at monthly or longer intervals; and at the rate of 3.5% (to be compounded annually)
on the amount deposited under daily deposit scheme.
d) Further, a RNBC can accept deposits for a minimum period of 12 months and maximum
period of 84 months from the date of receipt of such deposit. They cannot accept deposits
repayable on demand.
Some other regulators:
Category of Companies
Chit Funds
Insurance companies
Housing Finance Companies
Regulator
Respective State Governments
IRDA
NHB
SEBI
SEBI
SEBI
Ministry
of
corporate
Government of India
affairs,
To facilitate the distribution of banknotes and rupee coins, the Reserve Bank
has authorized select branches of scheduled banks to establish Currency Chests. These are
actually storehouses where banknotes and rupee coins are stocked on behalf of the Reserve
Bank.
What is a small coin depot?
Some bank branches are also authorized to establish Small Coin Depots to stock small coins.
The Small Coin Depots also distribute small coins to other bank branches in their area of
operation.
What are soiled, mutilated and imperfect banknotes?
(i) "soiled note:" means a note which, has become dirty due to usage and also includes a
two piece note pasted together wherein both the pieces presented belong to the same note,
and form the entire note.
(ii) Mutilated banknote is a banknote, of which a portion is missing or which is composed of
more than two pieces.
(iii) Imperfect banknote means any banknote, which is wholly or partially, obliterated,
shrunk, washed, altered or indecipherable but does not include a mutilated banknote.
Can soiled and mutilated banknotes be exchanged for value?
Yes. Such banknotes can be exchanged for value.
Clean Note Policy:
Reserve Bank of India has been continuously making efforts to make good quality banknotes
available to the members of public. To help RBI and banking system, the members of public
are requested to ensure the following:
a) Not to staple the banknotes
b) Not to write / put rubber stamp or any other mark on the banknotes
c) Store the banknotes safely to prevent any damage
Note:
1) Seeking to spread awareness among public about fake notes, the Reserve Bank has
launched a website explaining ways to detect counterfeit notes. With a tagline 'Pehchano
Paise Ki Boli, Kyunki Paisa Bolta Hai', the website- www.paisaboltahai.rbi.org.in -- gives visual
presentation with pointers on currency notes of 10, 20, 50, 100, 500 and 1,000 rupee
denominations.
2) MINIMUM RESERVE SYSTEM
The Reserve Bank has the sole right to issue currency notes, except one rupee notes which
are issued by the Ministry of Finance. The RBI follows a minimum reserve system in the note
issue. Initially, it used to keep 40 per cent of gold reserves in its total assets. But, since
1957, it has to maintain only Rs. 200 crores of gold and foreign exchange reserves, of which
gold reserves should be of the value of Rs. 115 crores.
3) After a gap of over 20 years, Re 1 note has been released in the country and it bears the
signature of Finance Secretary Rajiv Mehrishi. Incidentally, the note was released at
Shrinathji temple in Nathdwara, Rajasthan, on March 6 by Mehrishi.
Dear Readers,
Today we are providing you the notes on one of the most important financial terms
FOREIGN EXCHANGE RESERVES. This is important as it can be asked in the General
Awareness section in the upcoming exams.
As it was in the news that, our country's foreign exchange reserves rose by $321.7
million to $353.648 billion in the week to July 24 on account of increase in foreign
currency assets. The country's gold reserves remained unchanged at $19.074
billion. The special drawing rights with the International Monetary Fund were up by
$5.8 million to $4.024 billion in the week under review, while the country's reserve
position with the Fund also rose by $1.8 million to $1.304 billion.
Bn.
US$ Mn.
Total Reserves
22,551.8
353,648.1
20,995.3
329,245.4
1,216.1
19,074.3
257.1
4,024.2
83.3
1,304.3
1.2 Gold
1.3 SDRs
1.4 Reserve Position in the IMF
Reserves are maintained by countries for meeting their international payment obligations
both short and long terms, including sovereign and commercial debts, financing of imports, for
intervention in the foreign currency markets during periods of volatility, besides helping to boost
the confidence of the market in the ability of a country to meet its external obligations and to
absorb any unforseen external shocks, contingencies or unexpected capital movements.
India's foreign exchange reserves comprise foreign currency assets, gold and special drawing
rights allocated to it by the International Monetary Fund (IMF) in addition to the reserves it has
parked with the fund. Foreign exchange reserves are held and managed by the RBI.
The Foreign currency assets are investment mainly in instruments abroad which have the
highest credit rating and which do not pose any credit risk. These include sovereign bonds,
treasury bills and short-term deposits in top-rated global banks besides cash accounts.
The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by
the IMF in 1969 to supplement other reserve assets of member countries. The SDR is based on
a basket of international currencies comprising the U.S. dollar, Japanese yen, euro and pound
sterling. It is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable
currencies of IMF members. It can be held and used by member countries, the IMF, and certain
designated official entities called "prescribed holders"but it can not be held, for example, by
private entities or individuals.
FINANCIAL INCLUSION
It is the delivery of financial services at affordable costs to vast sections of disadvantaged and low income
groups
Financial inclusion involves
1) Give formal banking services to poor people in urban & rural areas.
2) Promote habit of money-savings, insurance, pension-investment among poor-people.
3) Help them get loans at reasonable rates from normal banks. So they dont become victims in the hands
of local moneylender.
No Frill Account
'No Frills 'account is a basic banking account. Such account requires either nil minimum balance or very
low minimum balance. Charges applicable to such accounts are low. Services available to such account
is limited. In what can be described as a watershed Annual Policy Statement, the RBI in 2005-06 called
upon Indian banks to design a no frills account a no precondition, low minimum balance maintenance
account with simplified KYC (Know Your Customer) norms. But All the existing No-frills accounts opened
were converted into BSBDA in compliance with the guidelines issued by RBI in 2012 .
BSBDA
RBI in 2012 came out with fresh guidelines and asked banks to offer a Basic Savings Bank Deposit
Account which will offer following minimum common facilities to all their customers. These guidelines
includes:(a) This account shall not have the requirement of any minimum balance.
(b) The services available in the account will include deposit and withdrawal of cash at bank branch as
well as ATMs; receipt/credit of money through electronic payment channels or by means of
deposit/collection of cheques drawn by Central/State Government agencies and departments;
(c ) While there will be no limit on the number of deposits that can be made in a month, account holders
will be allowed a maximum of four withdrawals in a month, including ATM withdrawals; and
(d) Facility of ATM card or ATM-cum-Debit Card.
Business Correspondent
Business correspondents are bank representatives. They personally goes to the area allotted to them and
carry out banking.
They help villagers in banking transactions. (deposit money, take money out of savings account,
loans etc.)
The villager gives his thumb impression or electronic signature, and get the money.
Business Correspondents get commission from bank for every new account opened, every
transaction made via them, every loan-application processed etc.
Dear Readers,
Today we are providing you the important brief of Money Market, as this is always asked in the General
awareness section in all banking exams.
We hope that this will help you scoring well in your exams.
"Money Market" refers to the market for short-term requirement and deployment of funds.
Money market instruments are those instruments, which have a maturity period of less than
one year.
The most active part of the money market is the market for overnight call and term money
between banks and institutions and repo transactions. Money Market is regulated by RBI.
b)
c)
The market to get funds for 1 day only is called as Call Money Market. The market to get
funds for 2 days to 14 days is called as Notice Money Market. The market to get funds for
15 days to 1 year is called as Term Money Market.
Commercial Papersa) A CP is a short term security (7 days to 365 days) issued by a corporate entity (other than
a bank), at a discount to the face value.
b) Commercial Paper (CP) is an unsecured money market instrument issued in the form of a
promissory note.
c) CPs normally give a higher return than fixed deposits & CDs.
Certificates of Deposit
a) CDs are negotiable money market instrument issued in demat form or as a Usance
Promissory Notes.
b) CDs issued by banks should not have the maturity less than seven days and not more
than one year.
c) Financial Institutions are allowed to issue CDs for a period between 1 year and up to 3
years.
d) CDs are like bank term deposits but unlike traditional time deposits these are freely
negotiable and are often referred to as Negotiable Certificates of Deposit.
e) CDs normally give a higher return than Bank term deposit.
f) All scheduled banks (except RRBs and Co-operative banks) are eligible to issue CDs.
g) CDs are issued in denominations of Rs. 1 Lac and in the multiples of Rs. 1 Lac thereafter.
h) Discount/Coupon rate of CD is determined by the issuing bank/FI.
i) Loans cannot be granted against CDs and Banks/FIs cannot buy back their own CDs before
maturity
Treasury bills
a) Treasury Bills are short term (up to one year) borrowing instruments of the Government of
India which enable investors to park their short term surplus funds while reducing their
market risk.
b) They are auctioned by Reserve Bank of India at regular intervals and issued at a discount
to face value.
c) Any person in India including Individuals, Firms, Companies, Corporate bodies, Trusts and
Institutions can purchase Treasury Bills.
d) Treasury Bills are eligible securities for SLR purposes.
e) Treasury Bills are available for a minimum amount of Rs. 25,000 and in multiples of Rs.
25,000 thereafter.
f) At present, RBI issues T-Bills for three different maturities: 91 days, 182 days and 364
days.
Cheque
It is an instrument in writing containing an unconditional order, addressed to a banker, sign
by the person who has deposited money with the banker, requiring him to pay on demand a
certain sum of money only to or to the order of certain person or to the bearer of
instrument."
Types of Cheque
When the words "or bearer" appearing on the face of the cheque are not cancelled, the
cheque is called a bearer cheque. The bearer cheque is payable to the person specified
therein or to any other else who presents it to the bank for payment. However, such cheques
are risky, this is because if such cheques are lost, the finder of the cheque can collect
payment from the bank.
2. Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when in its
place the word "or order" is written on the face of the cheque, the cheque is called an order
cheque. Such a cheque is payable to the person specified therein as the payee, or to any
one else to whom it is endorsed (transferred).
3. Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque with or
without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed
cheque cannot be encashed at the cash counter of a bank but it can only be credited to the
payee's account.
4. Ante-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is
called as "anti-dated cheque". Such a cheque is valid upto three months from the date of the
cheque.
5. Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as post-dated
cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.
6. Stale Cheque
If a cheque is presented for payment after 3 months from the date of the cheque it is called
stale cheque. A stale cheque is not honoured by the bank.
7. A self cheque
A self cheque is written by the account holder as pay self to receive the money in the physical form from
the branch where he holds his account.
Today we are posting the types of accounts in Banks. There are very frequent questions from this part
asked in many exams earlier. Just have an overview and read it with a light mind.
Big businessmen, companies and institutions such as schools, colleges, and hospitals have to make
payment through their bank accounts. Since there are restrictions on number of withdrawals from savings
bank account, that type of account is not suitable for them. They need to have an account from which
withdrawal can be made any number of times. Banks open current account for them. On this deposit bank
does not pay any interest on the balances. Rather the account holder pays certain amount each year as
operational charge. For the convenience of the account holders banks also allow withdrawal of amounts
in excess of the balance of deposit. This facility is known as overdraft facility.
Notes:
a) Minimum age to open a bank account is now 10 years.
b) Maximum Interest rate is given on FD A/c.
c) The maximum period of an FD is 10 years & for RD is 5 years.
On the account of upcoming SBI PO Exam for the post of Probationary Officer, here we are
providing you all a post on All About NPAs, which is Re-post for all the new readers of
BankersAdda. Hope you all like the post!!
The lender will force the borrower to liquidate any assets that were pledged as part of the
debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad
debt and then sell it at a discount to a collections agency.
Here is an example to help you understand what NPAs are and how Banks counter
it-
Mr. X decided to start a business for that he needed money (the fuel) , X had 25% of the
money in his pocket, he decided to go through the route of Initial Public Offering(IPO) to
generate 25% more by offering his company shares to public , the remaining 50% he
borrowed from Lena bank by mortgaging his papas land.
Days passed and the company started to do badly then to worse and the loan installments
lapsed month on month, Lena bank issued warning but X continued the bad practice for
more than 90 days (condition for NPA) and the bank labeled X as defaulter and the loan as a
Non Performing Asset.
NOTE- Total amount of NPAs are around 4.4% of the total assets of banks in India
and expected to increase to 4.7% till the end of FY15
10. First Foreign Bank in India Comptoire dEscompte de Paris of France in 1860
12. First Indian bank to open branch outside India in London in 1946 Bank of India
13. First Indian Bank started with Indian capital Punjab National Bank
14. First Regional Rural Bank name Prathama Grameen Bank was started by Syndicate
Bank
16. First bank in India listed in New York Stock Exchange (NYSE) ICICI Bank
17. First Bank in India to launch Talking ATMs for differently able person Union Bank of
India
18. First Bank in India to launch its own Payment Aggregators State Bank of India.
(SBIePay)
Account Information
Mini/Short Statement
PIN change
Q.11. Are the customers eligible for compensation for delays beyond 7 working
days?
Ans 11. Yes. Effective from July 1, 2011, banks have to pay compensation of Rs. 100/- per
day for delays in re-crediting the amount beyond 7 working days from the date of receipt of
complaint for failed ATM transactions. The compensation has to be credited to the account of
the customer without any claim being made by the customer. If the complaint is not lodged
within 30 days of transaction, the customer is not entitled for any compensation for delay in
resolving his / her complaint.
Q.12. What is the course of action for the customer if the complaint is not
addressed by his/her bank within the stipulated time / not addressed to his
satisfaction?
Ans 12. The customer can take recourse to the Banking Ombudsman, if the grievance is not
redressed by the his/her card issuing bank.
Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and
dividends. They are issued by large and well-established firms that have impeccable financial credentials.
Bond: Publicly traded long-term debt securities, issued by corporations and governments, whereby the
issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount
of principal at maturity.
Book Value: The amount of stockholders equity in a firm equals the amount of the firms assets minus
the firms liabilities and preferred stock
Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities.
Brokerage Fee: The commission charged by a broker.
Bull Markets: Favorable markets associated with rising prices and investor optimism.
Call Option: The right to buy the underlying securities at a specified exercise price on or before a
specified expiration date.
Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity.
Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original
purchase price.
Capital Markets: The market in which long-term securities such as stocks and bonds are bought and
sold.
Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a specified
period, and premature withdrawals incur interest penalties.
Closed-end (Mutual) Fund: A fund with a fixed number of shares issued, and all trading is done between
investors in the open market. The share prices are determined by market prices instead of their net asset
value.
Collateral: A specific asset pledged against possible default on a bond. Mortgage bonds are backed by
claims on property. Collateral trusts bonds are backed by claims on other securities. Equipment obligation
bonds are backed by claims on equipment.
Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high
credit standings.
Common Stock: Equity investment representing ownership in a corporation; each share represents a
fractional ownership interest in the firm.
Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated
from one period to the next.
Contract Note: A note which must accompany every security transaction which contains information such
as the dealers name (whether he is acting as principal or agent) and the date of contract.
Controlling Shareholder: Any person who is, or group of persons who together are, entitled to exercise
or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction)
that triggers a mandatory general offer, or more of the voting power at general meetings of the issuer, or
who is or are in a position to control the composition of a majority of the board of directors of the issuer.
Convertible Bond: A bond with an option, allowing the bondholder to exchange the bond for a specified
number of shares of common stock in the firm. A conversion price is the specified value of the shares for
which the bond may be exchanged. The conversion premium is the excess of the bonds value over the
conversion price.
Corporate Bond: Long-term debt issued by private corporations.
Coupon: The feature on a bond that defines the amount of annual interest income.
Coupon Frequency: The number of coupon payments per year.
Coupon Rate: The annual rate of interest on the bonds face value that a bonds issuer promises to pay
the bondholder. It is the bonds interest payment per dollar of par value.
Covered Warrants: Derivative call warrants on shares which have been separately deposited by the
issuer so that they are available for delivery upon exercise.
Credit Rating: An assessment of the likelihood of an individual or business being able to meet its
financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the
financial strength of the issuer for investors.
Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves. Any
changes in the size of the monetary base has to be fully matched by corresponding changes in the
foreign reserves.
Current Yield: A return measure that indicates the amount of current income a bond provides relative to
its market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.
Custody of Securities: Registration of securities in the name of the person to whom a bank is
accountable, or in the name of the banks nominee; plus deposition of securities in a designated account
with the banks bankers or with any other institution providing custodial services.
Default Risk: The possibility that a bond issuer will default ie, fail to repay principal and interest in a
timely manner.
Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to buy
(sell) the shares of a listed company at a specified price.
Derivative Instrument: Financial instrument whose value depends on the value of another asset.
Discount Bond: A bond selling below par, as interest in-lieu to the bondholders.
Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to
increase returns or be exposed to less risk.
Duration: A measure of bond price volatility, it captures both price and reinvestment risks to indicate how
a bond will react to different interest rate environments.
Earnings: The total profits of a company after taxation and interest.
Earnings per Share (EPS): The amount of annual earnings available to common stockholders as stated
on a per share basis.
Earnings Yield: The ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).
Equity: Ownership of the company in the form of shares of common stock.
Equity Call Warrants: Warrants issued by a company which give the holder the right to acquire new
shares in that company at a specified price and for a specified period of time.
Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend or
the period of time between the announcement of the dividend and the payment (usually two days before
the record date). For transactions during the ex-dividend period, the seller will receive the dividend, not
the buyer. Ex-dividend status is usually indicated in newspapers with an (x) next to the stocks or unit
trusts name.
Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument. Interest is
calculated on face/nominal value.
Fixed-income Securities: Investment vehicles that offer a fixed periodic return.
Fixed Rate Bonds: Bonds bearing fixed interest payments until maturity date.
Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates.
Fundamental Analysis: Research to predict stock value that focuses on such determinants as earnings
and dividends prospects, expectations for future interest rates and risk evaluation of the firm.
Future Value: The amount to which a current deposit will grow over a period of time when it is placed in
an account paying compound interest.
Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal
intervals will grow over a period of time when it is placed in an account paying compound interest.
Futures Contract: A commitment to deliver a certain amount of some specified item at some specified
date in the future.
Hedge: A combination of two or more securities into a single investment position for the purpose of
reducing or eliminating risk.
Income: The amount of money an individual receives in a particular time period.
Index Fund: A mutual fund that holds shares in proportion to their representation in a market index, such
as the S&P 500.
Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time.
The company can be referred to as an IPO for a period of time after the event.
Inside Information: Non-public knowledge about a company possessed by its officers, major owners, or
other individuals with privileged access to information.
Insider Trading: The illegal use of non-public information about a company to make profitable securities
transactions
Intrinsic Value: The difference of the exercise price over the market price of the underlying asset.
Investment: A vehicle for funds expected to increase its value and/or generate positive returns.
Investment Adviser: A person who carries on a business which provides investment advice with respect
to securities and is registered with the relevant regulator as an investment adviser.
IPO price: The price of share set before being traded on the stock exchange. Once the company has
gone Initial Public Offering, the stock price is determined by supply and demand.
Junk Bond: High-risk securities that have received low ratings (i.e. Standard & Poors BBB rating or
below; or Moodys BBB rating or below) and as such, produce high yields, so long as they do not go into
default.
Leverage Ratio: Financial ratios that measure the amount of debt being used to support operations and
the ability of the firm to service its debt.
Libor: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates
at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or
interbank market). The LIBOR rate is published daily by the British Bankers Association and will be
slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept
deposits.
Limit Order: An order to buy (sell) securities which specifies the highest (lowest) price at which the order
is to be transacted.
Limited Company: The passive investors in a partnership, who supply most of the capital and have
liability limited to the amount of their capital contributions.
Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value.
Listing: Quotation of the Initial Public Offering companys shares on the stock exchange for public
trading.
Listing Date: The date on which Initial Public Offering stocks are first traded on the stock exchange by
the public
Margin Call: A notice to a client that it must provide money to satisfy a minimum margin requirement set
by an Exchange or by a bank / broking firm.
Market Capitalization: The product of the number of the companys outstanding ordinary shares and the
market price of each share.
Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to make
continuous two-sided quotes.
Market Order: An order to buy or an order to sell securities which is to be executed at the prevailing
market price.
Money Market: Market in which short-term securities are bought and sold.
Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities
and sells shares of the portfolio to investors.
Net Asset Value: The underlying value of a share of stock in a particular mutual fund; also used with
preferred stock.
Offer for Sale: An offer to the public by, or on behalf of, the holders of securities already in issue.
Offer for Subscription: The offer of new securities to the public by the issuer or by someone on behalf of
the issuer.
Open-end (Mutual) Fund: There is no limit to the number of shares the fund can issue. The fund issues
new shares of stock and fills the purchase order with those new shares. Investors buy their shares from,
and sell them back to, the mutual fund itself. The share prices are determined by their net asset value.
Open Offer: An offer to current holders of securities to subscribe for securities whether or not in
proportion to their existing holdings.
Option: A security that gives the holder the right to buy or sell a certain amount of an underlying financial
asset at a specified price for a specified period of time.
Oversubscribed: When an Initial Public Offering has more applications than actual shares available.
Investors will often apply for more shares than required in anticipation of only receiving a fraction of the
requested number. Investors and underwriters will often look to see if an IPO is oversubscribed as an
indication of the publics perception of the business potential of the IPO company.
Par Bond: A bond selling at par (i.e. at its face value).
Par Value: The face value of a security.
Perpetual Bonds: Bonds which have no maturity date.
Placing: Obtaining subscriptions for, or the sale of, primary market, where the new securities of issuing
companies are initially sold.
Portfolio: A collection of investment vehicles assembled to meet one or more investment goals.
Preference Shares: A corporate security that pays a fixed dividend each period. It is senior to ordinary
shares but junior to bonds in its claims on corporate income and assets in case of bankruptcy.
Premium (Warrants): The difference of the market price of a warrant over its intrinsic value.
Premium Bond: Bond selling above par.
Present Value: The amount to which a future deposit will discount back to present when it is depreciated
in an account paying compound interest.
Present Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal
intervals will discount back to present when it is depreciated in an account paying compound interest.
Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the companys
common stock. The price/earnings (P/E) ratio relates the companys earnings per share (EPS) to the
market price of its stock.
Privatization: The sale of government-owned equity in nationalized industry or other commercial
enterprises to private investors.
Prospectus: A detailed report published by the Initial Public Offering company, which includes all terms
and conditions, application procedures, IPO prices etc, for the IPO
Put Option: The right to sell the underlying securities at a specified exercise price on of before a
specified expiration date.
Rate of Return: A percentage showing the amount of investment gain or loss against the initial
investment.
Real Interest Rate: The net interest rate over the inflation rate. The growth rate of purchasing power
derived from an investment.
Redemption Value: The value of a bond when redeemed.
Reinvestment Value: The rate at which an investor assumes interest payments made on a bond which
can be reinvested over the life of that security.
Relative Strength Index (RSI): A stocks price that changes over a period of time relative to that of a
market index such as the Standard & Poors 500, usually measured on a scale from 1 to 100, 1 being the
worst and 100 being the best.
Repurchase Agreement: An arrangement in which a security is sold and later bought back at an agreed
price and time.
Resistance Level: A price at which sellers consistently outnumber buyers, preventing further price rises.
Return: Amount of investment gain or loss.
Rights Issue: An offer by way of rights to current holders of securities that allows them to subscribe for
securities in proportion to their existing holdings.
Risk-Averse, Risk-Neutral, Risk-Taking:
Risk-averse describes an investor who requires greater return in exchange for greater risk.
Risk-neutral describes an investor who does not require greater return in exchange for greater
risk.
Risk-taking describes an investor who will accept a lower return in exchange for greater risk.
Senior Bond: A bond that has priority over other bonds in claiming assets and dividends.
Short Hedge: A transaction that protects the value of an asset held by taking a short position in a futures
contract.
Settlement: Conclusion of a securities transaction when a customer pays a broker/dealer for securities
purchased or delivered, securities sold, and receives from the broker the proceeds of a sale.
Short Position: Investors sell securities in the hope that they will decrease in value and can be bought at
a later date for profit.
Short Selling: The sale of borrowed securities, their eventual repurchase by the short seller at a lower
price and their return to the lender.
Speculation: The process of buying investment vehicles in which the future value and level of expected
earnings are highly uncertain.
Stock Splits: Wholesale changes in the number of shares. For example, a two for one split doubles the
number of shares but does not change the share capital.
Subordinated Bond: An issue that ranks after secured debt, debenture, and other bonds, and after some
general creditors in its claim on assets and earnings. Owners of this kind of bond stand last in line among
creditors, but before equity holders, when an issuer fails financially.
Substantial Shareholder: A person acquires an interest in relevant share capital equal to, or exceeding,
10% of the share capital.
Support Level: A price at which buyers consistently outnumber sellers, preventing further price falls.
Technical Analysis: A method of evaluating securities by relying on the assumption that market data,
such as charts of price, volume, and open interest, can help predict future (usually short-term) market
trends. Contrasted with fundamental analysis which involves the study of financial accounts and other
information about the company. (It is an attempt to predict movements in security prices from their trading
volume history.)
Time Horizon: The duration of time an investment is intended for.
Trading Rules: Stipulation of parameters for opening and intra-day quotations, permissible spreads
according to the prices of securities available for trading and board lot sizes for each security.
Trust Deed: A formal document that creates a trust. It states the purpose and terms of the name of the
trustees and beneficiaries.
Underlying Security: The security subject to being purchased or sold upon exercise of the option
contract.
Valuation: Process by which an investor determines the worth of a security using risk and return concept.
Warrant: An option for a longer period of time giving the buyer the right to buy a number of shares of
common stock in company at a specified price for a specified period of time.
Window Dressing: Financial adjustments made solely for the purpose of accounting presentation,
normally at the time of auditing of company accounts.
Yield (Internal rate of Return): The compound annual rate of return earned by an investment
Yield to Maturity: The rate of return yield by a bond held to maturity when both compound interest
payments and the investors capital gain or loss on the security are taken into account.
Zero Coupon Bond: A bond with no coupon that is sold at a deep discount from par value.
BANK RATE: The bank rate also known as the discount rate, is the rate of interest charged by
the RBI for providing funds or loans to the Banking system in india. It also signals the mediumterm stance of monetary policy.
OPEN MARKET OPERTIONS(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.
Purchases inject money into the banking system and stimulate growth while sales of securities do
the opposite.
REPO/REVERSE REPO RATE: These rates under the Liquidity Adjustment Facility (LAF)
determine the corridor for short-term money market interest rates. In turn, this is expected to
trigger movement in other segments of the financial market and the real economy.
MARKET STABLISATION SCHEME (MSS): This instrument for monetary management was
introduced in 2004. Liquidity of a more enduring nature arising from large capital flows is
absorbed through sale of short-dated government securities and treasury bills. The mobilised
cash is held in a separate government account with the Reserve Bank.
CREDIT CEILING: In this operation RBI issues prior information or direction that loans to the
commercial banks will be given up to a certain limit. In this case commercial bank will be tight in
advancing loans to the public. They will allocate loans to limited sectors. Few example of ceiling
are agriculture sector advances, priority sector lending.
MORAL SUASION: Moral Suasions are suggestion and guidelines by the RBI to the commercial
banks to take so and so action and measures in so and so trend of the economy. RBI may
request commercial banks not to give loans for unproductive purpose which does not add to
economic growth but increases inflation in the economy.