ECONOMY Key Terminologies PDF

MARKS BOOSTER SERIES ECONOMY (Key Terminologies) PRELIMS 2024  TABLE OF CONTENTS 1. ECONOMIC GROWTH................................................................................................................... 1 2. PLAN...

MARKS BOOSTER SERIES ECONOMY (Key Terminologies) PRELIMS 2024  TABLE OF CONTENTS 1. ECONOMIC GROWTH................................................................................................................... 1 2. PLANNING AND ECONOMIC REFORMS IN INDIA............................................................... 3 3. AGRICULTURE................................................................................................................................ 5 4. INDUSTRY......................................................................................................................................... 10 5. INFLATION....................................................................................................................................... 12 6. FINANCIAL MARKET.................................................................................................................... 14 7. SECURITY MARKET IN INDIA.................................................................................................... 18 8. BANKING SECTOR IN INDIA...................................................................................................... 23 9. TAXATION....................................................................................................................................... 31 10. PUBLIC FINANCE.......................................................................................................................... 34 11. EXTERNAL SECTORS OF INDIA................................................................................................. 37 12. POVERTY, HUMAN DEVELOPMENT AND SUSTAINABLE DEVELOPMENT................. 43 13. UNEMPLOYMENT.......................................................................................................................... 45 14. MISCELLANEOUS........................................................................................................................... 46  1. Economic Growth Previous Year Questions Year Term Explanation 2018 Per Capita Real GNP Per capita real Gross National Product (GNP) is a measure of a country's economic output that accounts for inflation and is adjusted for population size. It is calculated by dividing the total real GNP of a country by its population. 2013 National Income The total income earned by a country's residents in a given period, including wages, salaries, profits, and other sources of income. National income is an important indicator of a country's economic performance. 2011 GDP Growth Rate Gross Domestic Product (GDP) growth rate is a measure of the change in a country's economic output over a specific period of time, usually a year or a quarter. It is calculated by comparing the current period's GDP with the previous period's GDP and expressing the change as a percentage. 2011 Base Effect The distortion in economic data is caused by a significant change in the underlying conditions or data used as a reference point. Base effects can occur in data related to inflation, economic growth, or other economic indicators. Important Terms in News Terms Explanation GDP It is defined as the total value of all final goods and services produced in an economy in a given period of time, usually a year. The Base Year of the GDP Series was revised from 2004-05 to 2011-12. Nominal GDP Nominal GDP is GDP given in current prices, without adjustment for inflation. Real GDP Real GDP is GDP given in constant prices and refers to the volume level of GDP. Potential GDP Potential gross domestic product (GDP) is the level of output that an economy could produce at a constant inflation rate. GDP Calculation Production Approach: It sums the “value-added” at each stage of Methods production. Income approach: It measures the total income earned by the factors of production. Expenditure approach: It measures the total expenditure incurred by all entities on goods and services. 1 NDP Net Domestic Product is defined as the difference in Gross Domestic Product and Depreciation. NDP = GDP - Depreciation GNP Gross national product (GNP) includes GDP, income earned by residents from overseas investments, minus income earned by foreign residents. GVA According to the RBI, the Gross value added (GVA) of a sector is defined as the value of output minus the value of its intermediary inputs. Thus it is the value addition done to a product resulting in the production of the final product. GDP Deflator It measures the average change of prices of all goods and services in the economy which is an indication of overall inflation across all goods and services in the economy compared to the base year. NNP Net National Product is defined as the difference in Gross National Product and Depreciation NNP=Gross National Product−Depreciation Per Capita Income Per capita income = (National Income / Population) Gross National OECD defines it as (GDP + Net factor income from abroad + Net taxes and Income subsidies receivable from abroad). GNP = GDP + Factor income from abroad - Factor income sent abroad = GDP + Net Factor Income from abroad GFCF As per RBI, Gross Fixed Capital Formation refers to the aggregate of gross additions to fixed assets (i.e. fixed capital formation) plus changes in stocks during the counting period. Fixed asset refers to the construction, machinery, and equipment etc. Capital Output It refers to the amount of capital needed to produce one unit of output. Ratio ICOR Incremental Capital Output Ratio refers to the marginal investment capital amount necessary for an entity to generate the next unit of production. V-shaped It is characterised by a quick and sustained recovery in measures of economic Recovery performance after a sharp economic decline. K-shaped It occurs when, following a recession, different parts of the economy recover at Recovery different rates, times, or magnitudes Middle Income A middle-income trap is a situation in which a country attains a certain average Trap income and gets stuck at that level, failing to graduate to a high income group. Anarcho- Anarcho-capitalism, political philosophy and political-economic theory that Capitalism advocates the voluntary exchange of goods and services in a society broadly regulated by the market rather than by the state. The term anarcho-capitalism was coined by Murray Rothbard, a leading figure in the American libertarian movement from the 1950s. Anarcho-capitalists assert that private companies in a free market can efficiently provide policing and legal services. 2  2. Planning and Economic Reforms in India Previous Year Questions Year Term Explanation 2020 Rural Rural employment refers to the work or jobs available in the countryside Employment or rural areas. It includes a variety of occupations and industries such as farming, forestry, fishing, mining, construction, manufacturing, and service sector jobs such as healthcare, education, and retail. Rural employment can be both formal and informal, and may include self-employment, wage employment, or a combination of both. Five -Year Plan Five-Year Plans are a series of centralized economic planning initiatives 2019 that were introduced in the former Soviet Union and later adopted by India. They are essentially a set of guidelines that establish specific economic and social targets, goals, and policies for a period of five years, and serve as a blueprint for the government's economic development programs. 2017 FDI Inflows FDI inflows refer to the investment made by foreign companies or individuals in the domestic economy of a country. FDI stands for Foreign Direct Investment, and it is the process by which a company or investor acquires a controlling interest in an existing company or establishes a new business in a foreign country. Foreign Exchange Foreign exchange reserves refer to the assets that a country's central bank 2017 Reserves holds in foreign currencies, such as US dollars, Euros, and Japanese Yen. These reserves are used to ensure that a country can meet its international obligations, including trade and debt payments, and to maintain stability in the foreign exchange market. 2014 Inclusive Growth Inclusive growth is a concept that refers to the process of economic growth that is broad-based and benefits all segments of society, including the most vulnerable and marginalized groups. 2014 Sustainable Sustainable growth refers to a type of economic development that can be Growth maintained over the long term without degrading the natural environment, exploiting resources unsustainably, or compromising the well-being of future generations. Sustainable growth aims to meet the needs of the present generation without compromising the ability of future generations to meet their own needs. 2012 District Planning District Planning Committees are committees set up under the 73rd Committees Amendment to the Constitution of India, which aims to strengthen the (DPCs) Panchayati Raj system in the country. DPCs are responsible for preparing and coordinating the district plans for economic development and social justice. 3 2012 Government Government spending refers to the use of public funds by the Spending government to finance various programs, projects, and services for improving public infrastructure, providing public goods and services, promoting economic growth, reducing poverty, and ensuring social welfare. Important Terms in News Terms Explanation Factors of These are basic productive resources (labour, capital, and natural resources) that are Production essential inputs to every economic activity. Liberalization It is the process of reducing or removing governmental controls over economic activities like business, commerce etc. It provides a greater autonomy to the business enterprises in decision-making and eliminates government interference Globalization It is a scenario in which nations allow free flow of goods, services, labor, capital, investment, technology, ideas and innovations. It describes the growing interdependence of the world’s economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information. Privatisation It refers to allowing private sectors to enter into sectors which were reserved for public sector companies only. It involves converting PSUs to private sector companies by reducing government holding below 50%. Circular The circular economy is a model of production and consumption, which involves Economy sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible. In a circular economy, resources are kept in use as long as possible and maximum value is extracted out of it. Unicorn Club These are start-up companies whose valuation is $1 billion or more. It is commonly used in the venture capital industry. Sick industries It is an entity that has accumulated more losses than its capital. As per RBI, a small scale unit should be considered as sick if it has at the end of any accounting year, accumulated losses equal to or exceeding 50% of its peak net worth in the immediately preceding 5 accounting years IPR Intellectual property rights are the rights given to persons over the creations of their minds which includes inventions, literary and artistic works, and symbols, names and images used in commerce. Compulsory It is a mechanism permitted under WTO’s TRIPS in which the government can use, Licensing manufacture, import, or sell a patented invention without the patent owner’s consent for larger public interest. Evergreening It is an unethical practice of obtaining a patent by slightly modifying the original of Patent formula to create a new product. The Indian patent act prohibits evergreening. 4  3. Agriculture Previous Year Questions Year Term Explanation 2023 'Small Farmer Large Many marginal farmers in an area organize themselves into groups Field' and synchronize and harmonize selected agricultural operations. 2020 Minimum Support It is a price at which the government purchases agricultural produce Price from the farmers to support their income and ensure that they get a fair price for their crops. MSP is announced by the government at the beginning of each sowing season and is usually higher than the market price to provide an incentive to farmers to produce more. Commission for Agricultural Costs & Prices (CACP) recommends MSPs for 22 mandated crops & fair and remunerative price (FRP) for Sugarcane. 2020 Government's It refers to the buying and selling of goods and services by the Trading government in the market. The government engages in trading activities for various reasons, such as to meet the demand for essential goods, to maintain price stability, to regulate the market, or to promote certain economic policies or objectives. 2020 Government's It refers to the accumulation and storage of essential commodities, Stockpiling such as food grains, oil, and fuel, by the government in large quantities to meet any future shortages or emergencies. Stockpiling is an important strategy for the government to ensure food security, price stability, and energy security in the country. Consumer Subsidies These are financial assistance provided by the government to reduce 2020 the cost of certain essential goods or services for consumers. The objective of consumer subsidies is to make essential goods or services affordable and accessible to everyone, especially for low- income groups and vulnerable populations. 2020 Agricultural Credit These are cooperative societies that provide credit facilities to farmers Societies and other rural people at reasonable rates of interest. These societies are established under the Cooperative Societies Act and are regulated by the Registrar of Cooperative Societies in each state. 2020 Social Capital Social capital development refers to the process of building and Development strengthening the social networks, relationships, and institutions that facilitate collective action and cooperation in a community. Social capital development has a positive impact on poverty reduction, improved health and education outcomes, and increased economic growth. 2020 Loan Waiver Loan waiver is a policy tool used by the government to waive off or forgive the outstanding loans of certain categories of borrowers, such 5  as farmers, small and medium enterprises, or low-income groups who might not be able to repay their loans due to various reasons, such as crop failure, economic downturn, or natural disasters. 2020 Kisan Credit Card The Kisan Credit Card (KCC) Scheme is a government scheme Scheme launched by the Reserve Bank of India (RBI) to provide affordable credit facilities to farmers in India. The objective of the scheme is to support agricultural activities and provide timely and adequate credit to farmers for their production and investment needs. 2020 Short-term Credit Short-term credit refers to a type of credit facility that is typically used to finance working capital needs or short-term cash flow requirements of businesses or individuals. Short- term credit is usually provided for a period of up to one year and is meant to be repaid within a short time frame. 2020 Working Capital Working Capital is the capital used for maintenance of farm assets and activities allied to agriculture. 2020 Consumption Consumption requirements refer to the basic needs that individuals or Requirements households require to sustain their daily lives. These requirements typically include food, water, shelter, clothing, and healthcare. 2020 Post-harvest Expense Post-harvest expenses are the costs incurred after crops or agricultural products have been harvested from the field. These expenses are an important part of the agricultural value chain and can include various activities that are necessary to process, store, transport, and market the harvested products. 2019 Economic Cost of The economic cost of food grains refers to the total cost involved in Food Grains the production, processing, and distribution of food grains. It includes both the monetary and non-monetary costs associated with the production and distribution of food grains, including the cost of inputs, labor, transportation, storage, and marketing. 2019 Agricultural Agricultural commodities refer to raw materials or products derived Commodities from agricultural activities that can be traded on markets. These commodities are often used as inputs in other industries, such as food processing, livestock feed, and biofuels. 2019 Ceiling Laws Ceiling laws in India refer to the legislation that sets a limit on the maximum amount of land that an individual or a family can own. These laws were introduced in India in the 1950s as a means of promoting land reforms and ensuring a more equitable distribution of land resources. 2019 Family/ Individual Family land holdings refer to the land owned by a family or a group Holdings of related individuals. These holdings can be inherited over generations and can be used for a variety of purposes, such as agriculture, residential, commercial, and industrial use. Individual land holdings refer to the land owned by an individual or a group of individuals. 6  These holdings can include agricultural land, residential land, commercial land, and industrial land. Individual land holdings can be used for a variety of purposes, such as farming, construction, and development. 2019 Cash Crops Cash crops are typically cultivated on a large scale and are intended for commercial use, either for domestic consumption or for export. Cash crops can vary depending on the region, climate, and market demand. Some common cash crops include coffee, cocoa, tea, cotton, tobacco, sugarcane, and oilseeds such as soybeans, sunflowers, and canola. 2019 Agricultural Agricultural commodity trading is the buying and selling of Commodity Trading agricultural commodities such as grains, oilseeds, livestock, and other products on organized exchanges or markets. These commodities are traded globally and are used as inputs in a variety of industries, such as food processing, biofuels, and animal feed. 2019 Procurement Procurement incidentals are expenses incurred Incidentals during procurement till the food grains reach the first point of godown. 2019 Customs Duty Customs duty is a tax imposed by a government on goods that are imported into a country. The purpose of customs duty is to protect domestic industries by making foreign goods more expensive and less competitive in the domestic market. 2018 Cabinet Committee The Cabinet Committee on Economic Affairs (CCEA) is a committee on Economic Affairs of the Union Cabinet that is responsible for making decisions on economic and financial matters that are of national significance. The primary mandate of the CCEA is to review and approve proposals related to economic policies, investment proposals, foreign investments, and reforms in key sectors such as agriculture, industry, and infrastructure. 2017 National Agriculture The National Agriculture Market (NAM) is an online trading platform Market for agricultural commodities in India. The NAM was launched in 2016 with the aim of creating a unified national market for agricultural commodities by integrating various APMC (Agricultural Produce Market Committee) Mandis across the country. 2016 Drip Irrigation Drip irrigation is an efficient method of irrigation as it minimizes water loss due to evaporation and runoff. It also helps in the conservation of water by reducing water usage compared to other irrigation methods. Additionally, it enables the efficient use of fertilizers and nutrients by delivering them directly to the plant roots. 2015 Fair and FRP is a price mechanism in India that is fixed by the government to Remunerative Price ensure a fair price to sugarcane farmers for their produce. (FRP) 7  The FRP is announced by the central government at the beginning of every sugarcane season and is applicable to all sugarcane- producing states in the country. The FRP is determined based on the recommendations of the Commission for Agricultural Costs and Prices (CACP). 2015 CACP The Commission for Agricultural Costs and Prices (CACP) is an advisory body in India that provides recommendations to the government on agricultural pricing policies. The primary mandate of the CACP is to recommend the Minimum Support Prices (MSP) for various agricultural commodities such as crops, pulses, oilseeds, and FRP for sugarcane. 2015 APMC It is a statutory body established by state governments in India under the Agricultural Produce Market Committee Act. It aims at regulating and facilitating the sale and purchase of agricultural produce in the market yard or mandi. 2015 AIBP is a central government scheme in India launched in 1996 with the aim of providing financial assistance to states for the completion of ongoing irrigation projects and the creation of new irrigation infrastructure. The program is implemented by the Ministry of Jal Shakti. 2015 Command Area The Command Area Development Programme (CADP) is a centrally Development sponsored scheme. Programme The program is implemented by the Ministry of Jal Shakti. The CADP focuses on the comprehensive development of the command area of major and medium irrigation projects, with the aim of increasing agricultural productivity and production. 2015 Capital- Augmenting It is a type of technological progress in which the productivity of Technological capital is increased through the introduction of new technology or Progress innovations. This type of technological progress is characterized by the development of new and improved capital goods such as machinery, equipment, and tools that can be used to produce more output with the same amount of capital. 2015 Seed Village Concept It is a program that was initiated by the Indian Council of Agricultural Research (ICAR) with the aim of promoting the production and distribution of quality seeds to farmers. The program aims to develop a network of farmers who can produce and distribute quality seeds for different crops in their local areas. Important Terms in News Terms Explanation Producer Organisation It is a legal entity formed by primary producers, viz. farmers, milk producers, (PO) fishermen, weavers, rural artisans, craftsmen. A PO can be a producer company, a cooperative society or any other legal form which provides for sharing of profits/benefits among the members. 8  In some forms like producer companies, institutions of primary producers can also become member of PO “Farmers Producer It is one type of PO where the members are farmers. Organisation” (FPO) Contract Farming A company extends loans, technical knowledge and material inputs to a number of small farmers in an area so that they produce the agricultural commodity required by the company for its manufacturing process and commercial production. Cobweb Phenomenon This refers to a phenomenon where the prices of certain goods witness fluctuations that are cyclical in nature. It happens due to faulty producer expectations. 9  4. Industry Previous Year Questions Year Term Explanation 2020 West Texas West Texas Intermediate (WTI) is a grade of crude oil that is used as Intermediate a benchmark for pricing oil in the United States. WTI is traded on the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) in London. WTI is widely used as a benchmark for crude oil prices in the United States and serves as a reference price for other crude oils in the global market. 2020 Trade-Related TRIMs are rules and regulations that are applied by countries to Investment Measures regulate and control foreign investment within their borders. (TRIMs) These measures can include requirements for local content, technology transfer, export performance, and domestic ownership requirements. 2019 Nationalized Nationalized industries refer to industries that are owned and Industries (Coal operated by the government rather than private individuals or Sector) companies. In India, several industries have been nationalized over the years. The nationalization of industries in India began with the Industrial Policy Resolution of 1948, which identified key sectors that were deemed to be of strategic importance and nationalized. 2016 ‘UDAY Scheme’ ‘UDAY' stands for Ujjwal DISCOM Assurance Yojana, and it is a scheme launched by the Government of India in 2015 to help financially stressed state electricity distribution companies (DISCOMs). The UDAY scheme aims to improve the operational efficiency of DISCOMs and reduce their financial losses. 2016 District Mineral The District Mineral Foundation (DMF) is a trust set up in India as a Foundation part of the Mines and Minerals (Development and Regulation) Amendment Act, 2015. The purpose of the DMF is to provide financial and other assistance for the welfare of people and areas affected by mining-related operations in the country. National Investment The (NIMZs) is an initiative of the Government of India to promote 2012 and Manufacturing industrialization in the country. Zones The NIMZs are envisaged as large integrated industrial townships with world-class infrastructure and facilities for manufacturing industries. Single Window Single Window Clearance (SWC) is a mechanism that is designed to 2012 Clearance simplify and streamline the process of obtaining regulatory approvals for businesses. 10 2012 Technology The TADF is a scheme launched by the Government of India to Acquisition and facilitate the acquisition of technology by Micro, Small, and Medium Development Fund Enterprises (MSMEs) in the country. (TADF) The fund is managed by the Small Industries Development Bank of India (SIDBI). 2012 Core Industries The core industries in India refer to the eight core industries sectors that are essential for the growth and development of the economy. ○ These sectors are coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement, and electricity. 2012 Index of Industrial The Index of Industrial Production (IIP) is a measure of the growth Production in the production output of the industrial sector in India. It is calculated on a monthly basis and is released by the Central Statistics Office (CSO) of India. The IIP includes three major sectors - mining, manufacturing, and electricity. ○ It also covers a wide range of industries within these sectors, including textiles, chemicals, machinery, food and beverages etc. 2012 Purchase Manage It is a composite index. It measures the economic health of a country's Index manufacturing sector. It is based on a survey of purchasing managers. Purchasing managers are responsible for buying goods and services for businesses. Important Terms in News Terms Explanation Reverse Flip Reverse flipping is the process of shifting the domicile of an Indian company back to India after it had moved its headquarters overseas, usually for tax or regulatory reasons. It is also known as 're-domiciling'. Special SEZ is a specifically delineated duty-free enclave, deemed to be foreign territory for Economic trade operations, duties and tariffs. Zones (SEZ) 11  5. Inflation Previous Year Questions Year Term Explanation 2021 Inflation Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It is typically measured by an index of consumer prices, such as the Consumer Price Index (CPI) or the Wholesale Price Index (WPI). Economic An economic recession is a period of general economic decline, typically 2021 Recession characterized by a decrease in gross domestic product (GDP), employment, and trade. It is usually marked by a slowdown in economic activity, a rise in unemployment, and a decline in consumer spending. 2021 Demand Pull Demand-pull inflation is caused by an increase in demand and when the Inflation demand in the economy outgrows the supply in the economy. It can be summed up as a condition of “too much money chasing too few goods”. 2021 Expansionary Money in the market rises when the government spends more freely. It leads Policies to an increase in demand for the goods and fuels demand-pull inflation. 2021 Fiscal Stimulus Government policies aimed at increasing aggregate demand and stimulating economic growth during a recession or period of low economic activity. Fiscal stimulus may take the form of tax cuts, increased government spending, or other measures designed to stimulate consumer spending and investment. 2021 Inflation- It means wages are linked to inflation to ensure that wages change when Indexing inflation changes in the economy. Wages Such indexing is provided to reduce the effect of inflation on wages. It can not lead to demand pulling inflation in the economy. 2021 Purchasing Purchasing power is the value of a currency expressed in terms of the Power number of goods or services that one unit of money can buy. Consumers feel more confidence and spend more when they have a better income. 2020 Consumer A comprehensive measure used for estimation of price changes in a basket Price Index of goods and services representative of consumption expenditure in an (CPI) economy is called consumer price index. 2020 Wholesale Wholesale stage i.e. goods that are sold in bulk and traded between Price Index organizations instead of consumers. WPI is used as a measure of inflation (WPI) in some economies. 2013 Debtors A debtor is a person or an entity that owes money to another, which could be any individual or institution (including the government). 12  In most cases, the debtor has to pay interest on debt along with the principal debt. A debtor is commonly known as a borrower, but when a company's debt is in the form of securities, it is called an issuer. 2013 Bond-holders A bondholder is an investor or the owner of debt securities that are typically issued by corporations and governments. Bondholders are essentially lending money to the bond issuers. In return, bond investors receive their principal i.e. initial investment back when the bonds mature. Important Terms in News Terms Explanation Cost Push Inflation Price rise due to increased cost of inputs leads to cost push inflation. Eg. increase in crude oil prices leads to increased cost for transport companies. Disinflation Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time. Deflation When the overall price level decreases so that inflation rate becomes negative, it is called deflation. It is the opposite of the often-encountered inflation. Stagflation It refers to persistent high inflation, high unemployment and low growth resulting in a stagnant economy. Skewflation It refers to the relative price rise of one or a group of commodities. Eg. Onion or Tomato inflation in India. Shrinkflation Shrinkflation is the reduction in the size of a product in response to rising production costs or market competition. Rather than increase the price of a product, the company simply offers a smaller package for the same sticker price. Headline Inflation It is the measure of total inflation within an economy. It includes price rise in food, fuel and all other commodities. Core Inflation Core inflation excludes food and fuel items from headline inflation. Core inflation excludes these items because their prices are much more volatile. Reflation It is a policy which is enacted after a period of economic slowdown or contraction so as to expand output, stimulate spending and curb the effects of deflation. Hyper-Inflation A situation of extremely rapid inflation (reaching 100% per year or more), often resulting from a condition of economic or political breakdown. Inflationary Gap The excess of total government spending above the national income (i.e., fiscal deficit) is known as the inflationary gap. Deflationary Gap The shortfall in total spending of the government (i.e., fiscal surplus) over the national income creates deflationary gaps in the economy. Inflation Premium The bonus brought by inflation to the borrowers is known as the inflation premium Giffen Goods Giffen goods are non-luxury items that generate higher demand when prices rise, creating an upward-sloping demand curve contrary to standard laws of demand. 13  6. Financial Market Previous Year Questions Year Term Explanation 2022 Debt Financing Raising funds by borrowing money from lenders, such as banks or bondholders. Debt financing requires the borrower to repay the loan with interest over a specified period. 2022 Equity Raising funds by selling ownership shares in a company to investors. Financing Equity financing does not require the borrower to repay the funds, but it does dilute ownership and profits. 2020 Commercial Commercial Paper is a money market instrument for financing working Paper capital requirements of companies. It is an unsecured instrument issued in the form of promissory notes which can be issued for a period ranging from 15 days to one year. 2020 Commercial Bill Commercial paper is a short-term, unsecured debt instrument issued by corporations typically for the financing of short-term liabilities. 2020 Promissory A promissory note is a legal document outlining a borrower's promise to Notes repay a specific amount to a lender. 2020 Participatory P-notes are Offshore Derivative Instruments (ODIs) issued by registered Notes Foreign Portfolio Investors (FPIs) to overseas investors who wish to be a part of the Indian stock markets without registering themselves directly. P-notes have Indian stocks as their underlying assets. 2020 Certificate of Certificate of Deposit or CD are short term money market instruments Deposit issued by Commercial Banks and special financial institutions which are freely transferable between parties. They are issued at a discount provided on face value. CDs can be issued in India for a minimum deposit of ₹1 lakh and in subsequent multiples of it. Call Call money/ Notice money is a money market instrument used by the banks 2020 Money/Notice to meet their temporary requirement of cash. Money Call money has a maturity period of one day whereas Notice money's maturity period is two to fourteen days andis used by banks for adjusting to their short-term liquidity imbalances. 14 2020 Zero-Coupon It is a type of bond that is issued at a discount to its face value, at which it Bonds will be redeemed. There are no intermittent interest payments and they are generally issued for long tenure. 2016 Zero-Coupon These instruments are not stocks or bonds but instruments for donating Zero Principal money to the NPOs listed in the Socia Stock Exchange. As the name indicates, ZCZP neither offers interest nor returns the principal. 2016 Bitcoin/Cryptoc Bitcoin is a digital currency that is not tied to any formal institution like urrency bank or government and it also allows users to transact anonymously. Generally, the coins are created by users who ''mine'' them by lending computing power to verify other users' transactions. 2016 Sovereign Gold These are government securities denominated in grams of gold issued by Bond the RBI on behalf of the Government. 2016 Gold It aims to minimise the nation's dependency on gold imports by enabling Monetization the use of gold held by households and facilitating their mobilisation for Scheme productive uses. Venture Capital It is a form of private equity and a type of financing that investors provide 2014 to startup companies and small businesses that are believed to have long- term growth potential. The majority of venture capital is often provided by wealthy individuals, investment banks, and other financial organizations. However, it is not always in the form of money; it can also come in the form of managerial or technological know-how. 2012 G-Sec Government securities are debt instruments issued by the government to finance its budget deficits or other financial obligations. G-Secs carry practically no risk of default and, hence, are called risk- free gilt-edged instruments 2012 State SDLs are dated securities issued through normal auctions by the State Development Governments similar to Dated G-Secs. Loans (SDLs) 2012 Treasury Bills These are short term debt instruments issued by the Centre in three tenors, (T-bills) namely, 91day, 182 day and 364 day. They are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity 15 2012 Cash CMBs are similar to T-bills but are issued for maturities less than 91 days. Management Bills (CMBs) 2011 Disinvestment It refers to the process of selling or liquidating assets, businesses, or investments It is often done to raise funds or to restructure the organization. In the case of a government, disinvestment may involve selling off its stakes in public sector companies or privatizing state-owned enterprises. Important Terms in News Terms Explanation Blue Bonds Blue bonds are a type of sustainable bond specifically designed to finance projects that protect and restore the ocean and its resources. Debt for Through a debt-for-nature swap, a debtor country reduces its total outstanding external Nature Swap debt. The debtor country is able to buy back part of its debt in more favorable terms and pay for conservation initiatives rather than debt service. Blue washing A marketing tactic used by companies to deceive consumers into believing that they are working towards achieving sustainable use and conservation of food systems and water bodies. Green Greenwashing is the act of making false or misleading statements about the Washing environmental benefits of a product or practice. Green Greenwishing, or unintentional greenwashing, describes a practice where a company Wishing hopes to meet certain sustainability commitments but simply does not have the wherewithal to do so. Green Greenhushing refers to a company’s refusal to publicize ESG information. Hushing The company may fear pushback from stakeholders who would find its sustainability efforts lacking or from investors who believe ESG undermines returns. On the surface, greenhushing is not overtly dishonest; however, it limits the quantity and quality of publicly available information. Municipal A municipal bond is a debt obligation issued by a nonprofit organization, a private- Bond sector corporation, or another public entity using the loan for public projects, such as constructing schools, hospitals, and highways. 16 New Fund A new fund offer (NFO) is the first subscription offering for any new fund offered Offer (NFO) by an investment company. Sovereign Green bonds are issued by companies, countries and multilateral organizations to Green Bonds exclusively fund projects that have positive environmental or climate benefits and provide investors with fixed income payments Vanilla Debt Plain vanilla debt comes with fixed-rate borrowing and no other features, so the Products borrower has no convertibility rights. A plain-vanilla approach to financing is called a vanilla strategy. Negative A negative bond yield means that an investor receives less income from the bond than Yield Bonds they paid for it. A negative bond yield can result when the price paid for the bond is much greater than par. Inverted In finance, an inverted yield curve is a yield curve in which short-term debt instruments Yield Curve (typically bonds) have a greater yield than longer term bonds. Fixed Rate Fixed-rate bonds are suitable for investors seeking stable returns with a low-risk Bond tolerance, unlike equities, which may be volatile. Fixed-rate bonds typically have a lock-in period of one to five years. Investors who want to lock their funds into low-risk passive instruments can invest in fixed-rate bonds. Floating rate A floating rate bond is a debt instrument that does not have a fixed coupon rate, but its Bond interest rate fluctuates based on the benchmark the bond is drawn. Social Impact A SIB is an innovative financing mechanism in which governments enter into Bond (SIB) agreements with social service providers, such as NGOs, and investors to pay for the delivery of pre-defined social outcomes. The Pimpri Chinchwad Municipal Corporation (PCMC) in Maharashtra's Pune district signed a Memorandum of Understanding (MoU) with the United Nations Development Programme (UNDP) India to co-create India’s first Social Impact Bond (SIB). Surety Bonds These are a type of insurance policy protecting parties involved in a transaction or contract from potential financial losses due to a breach of contract or other types of non-performance. The issuing insurer provides guarantee, for a premium, in the case of a default in execution of a project. 17  7. Security Market in India Previous Year Questions Year Term Explanation 2023 Intangible An intangible asset is an asset that is not physical in nature, such as a patent, asset brand, trademark, or copyright. Businesses can create or acquire intangible assets. An intangible asset can be considered indefinite (a brand name, for example) or definite, like a legal agreement or contract. 2023 Beta a numeric value that measures the fluctuations. of a stock to changes in the overall stock market. 2023 Asset It is an investment strategy that a portfolio manager uses to balance risk and allocation reward. It helps decide which financial security and asset to work in the market. 2023 Arbitrage It refers to the process of simultaneous buying and selling of an asset from different platforms, exchanges or locations to cash in on the price difference. In this case, only the price difference is captured as the net pay-off from the trade. 2023 Basis Risk It is a type of systematic risk that arises where perfect hedging is not possible. 2022 Convertible Bonds can be converted into a predetermined number of shares of common Bonds stock at a specified time or the option of the bondholder. Convertible bonds offer the potential for capital appreciation if the underlying stock price increases while providing fixed income through coupon payments. 2022 Non Non-convertible debentures (NCDs) are those that cannot be converted into convertible the equity of the issuing company. Debentures 2022 Inflation Bonds issued by the government are indexed to inflation. Indexed The principal amount and interest payments are adjusted based on the Bonds (IIBs) inflation rate, protecting investors against inflation. 2021 Bond Yield The return on investment that an investor receives from holding a bond. The annual interest payment is divided by the bond's current market price. 2021 Demat A dematerialised account that holds securities in electronic form. Account It eliminates the need for physical certificates and provides a convenient way to buy, sell, and transfer securities. 2021 Negotiated An electronic platform used by the Reserve Bank of India (RBI) for trading Dealing government securities. System- Order It allows market participants to place bids and offers for government Matching securities and matches them automatically. (NDS-OM) 18 Important Terms in News Terms Explanation Gilt Edged Risk-free government securities that are considered the highest quality securities Security available. Masala Bond Rupee-denominated bonds issued by Indian entities in foreign markets to raise money in Indian currency, with interest and principal repayments in dollar terms. The investor, not the issuer, bears the currency risk. SPAC Special Purpose Acquisition Company is a company that does not produce goods or services and is sometimes called a shell or blank check company. IPO Initial Public Offering the process of issuing shares of a private firm to the public in a new stock issuance. It is the selling of securities to the public in the primary market. Follow-on- It is a type of public offering in which a company already listed on the stock Public Offer exchange issues new shares of its stock to the public. Greenshoe A greenshoe option is a provision in an initial public offering (IPO) underwriting agreement that grants the underwriter the right to sell more shares than originally planned if the demand for a security issue proves higher than expected. It is also called an over-allotment option. Offer for Sale It is a mechanism enabling existing shareholders of a listed company, typically promoters, to sell or dilute their holdings through an exchange-based bidding platform. ASIA Applications Supported by Blocked Amount, a system where the funds of IPO applicants are blocked in their respective accounts. The money is released to the Company only after the allotment. Insider Trading A malpractice in which trades of a company's securities are carried out by people with access to non-public information that can be crucial for making investment decisions. Algo Trading In computer-assisted buying and selling of stocks, pre-programmed computer strategies execute trades depending on set instructions or market patterns and conditions. Mutual funds Investment vehicles consist of a portfolio of stocks, bonds, or other securities, which collect investors' money and invest it on their behalf. They give small or individual investors access to diversified, professionally managed portfolios. Exchange ETF is a basket of securities that trades on an exchange like a stock. Traded Fund It holds assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism. 19 Social Stock SSE is a segment of the existing Stock Exchange that can help Social Enterprises, Exchange such as NPOs or For Profit Enterprises (FPEs), to raise funds from the public through the stock exchange mechanism. Eligible activities for demonstrating primacy of Social Impact includes Eradicating hunger, poverty, malnutrition, and inequality, promoting education, financial inclusion, slum area development etc Hedge Fund A limited partnership of private investors whose money is managed by professional fund managers who use a wide range of strategies to earn above- average investment returns. Infrastructure Like a mutual fund, it enables direct investment of small amounts of money from Investment possible individual/institutional investors in infrastructure to earn a small portion Trusts (InvITs) of the income as a return. Side Pocketing An accounting method that allows mutual funds to segregate the bad assets in a separate portfolio within their debt schemes. Systematic An investment method wherein a particular sum of money is invested regularly, Investment Plan and usually into the same security, which could be a mutual fund or funds. (SIP) Alternative Any privately pooled investment fund (whether from Indian or foreign sources) in Investment the form of a trust, a company, a body or a Limited Liability Partnership (LLP). Fund (AIF) Category I AIF: Mainly invests in start-ups, SMEs or any other sector that the government considers economically and socially viable. Category II AIF: Alternative Investment Funds such as private equity funds or debt funds for which no specific incentives or concessions are given by the government or any other regulator. Category III AIF: Alternative Investment Funds such as hedge funds or funds which trade with a view to make short term returns or such other funds which are open ended and for which no specific incentives or concessions are given by the government or any other regulator. Derivatives Financial instruments or contracts between two parties which derive their value from an underlying asset. The most common types include futures, options, forwards, and swaps. Commodity Commodity derivatives are financial instruments linked to the price movements Derivatives of underlying commodities, such as oil, gold, wheat, or natural gas. Call Option An options contract that gives the call option buyer the right, but not the obligation, to buy a stock or other financial instrument at a specific price – the strike price of the option – within a specified time frame. Put Option An options contract that gives the buyer the right, but not the obligation, to sell the underlying security at a specified price and at a predetermined date. Rights Issue A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights. 20 T+1 Settelement T+1 settlement cycle means any trade-related settlements must be completed Cycle within one day from the day of the transaction. Standing SDF allows the RBI to absorb liquidity (deposit) from banks without giving Deposit Facility government securities in return to the banks. (SDF) Ways and The RBI gave a temporary loan facility to the central and state governments to meet Means Advances mismatches in the receipts and payments of the governments. (WMA) Paid-up Capital The amount of money a company raises when it sells its shares to the shareholders and investors directly through the primary market. High Frequency High-frequency trading (HFT) is a trading method that uses powerful computer Trading programs to transact a large number of orders in fractions of a second. Authorized The maximum capital which a company can raise in its lifetime. It is also called Capital Registered Capital or Nominal Capital. Windfall Gains Windfall gain (or windfall profit) is an unexpected gain in income which could be due to winning a lottery, unforeseen inheritance or shortage of supply. Windfall gains are transitory in nature. Short Selling Short selling is a trading strategy where investors speculate on a stock's decline. Short sellers bet on, and profit from a drop in a security's price. Venture Capital Investment by wealthy investors in start-up companies. Yield to if an investment is held till its maturity date, the rate of return that it will generate Maturity will be Yield to Maturity. It is also known as redemption yield. Dabba Trading Dabba trading is informal trading that takes place outside the purview of stock exchanges. Traders bet on stock price movements without incurring a real transaction to take physical ownership of a particular stock as is done in an exchange. Since there are no proper records of income or gain, it helps dabba traders escape taxation. It is recognised as an offence under Securities Contracts (Regulation) Act (SCRA), 1956. Disgorgement Disgorgement is the legally mandated repayment of ill-gotten gains imposed on wrongdoers by the courts. Funds that were received through illegal or unethical business transactions are disgorged, or paid back, often with interest and/or penalties to those affected by the action. Front Running It is considered a form of market manipulation in many markets. Cases typically involve individual brokers or brokerage firms trading stock in and out of undisclosed, unmonitored accounts of relatives or confederates. 21 Depository A Depository Receipt (DR) is a negotiable financial instrument issued by a Receipt (DR) company in a foreign jurisdiction GDR Global depositary receipt, a negotiable financial instrument that represents shares in a foreign company and trades on local stock exchanges in investors' countries. American A certificate issued in the United States in lieu of a foreign security. Depository The original securities are lodged in Bank/Custodian abroad, and the American Receipts Depository Receipts (ADRs) are traded in the US for all intents and purposes as if they were a domestic stock. Indian An Indian Depository Receipt is an instrument denominated in Indian Rupees. Depository It is in the form of a depository receipt created by a Domestic Depository Receipts (IDRS) (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity of issuing company. It is to enable foreign companies to raise funds from the Indian Securities Markets. 22  8. Banking Sector in India Previous Year Questions Year Term Explanation 2022 Credit Rating These companies evaluate the creditworthiness of individuals, businesses, Agencies and governments by assigning credit ratings to their debt instruments. These ratings reflect the agencies' assessment of the borrower's ability to repay the debt and the likelihood of default. In India, the Securities and Exchange Board of India (SEBI) regulates all credit rating firms under the SEBI (Credit Rating Agencies) Regulations, 1999. There are seven credit rating agencies in India: CRISIL; CARE; ICRA; Acuité Ratings; Brickwork Rating; India Rating and Research Pvt. Ltd., and Infomerics Valuation and Rating Pvt. Ltd. 2022 Banks Board It is an autonomous body established by the Government of India to improve Bureau (BBB) the governance of public sector banks (PSBs). The Bureau's primary role is to recommend candidates for the positions of chairpersons and non-executive directors on the boards of PSBs. 2022 Price Stability It refers to maintaining a low and stable inflation rate in the economy over time. It is a key objective of the Reserve Bank of India (RBI), the central bank of India. The RBI aims to achieve this objective through its monetary policy, which involves regulating the supply of money in the economy and setting interest rates. 2021 Urban These financial institutions provide banking services to urban and semi- Cooperative urban areas in India. Banks They are governed by the provisions of the Cooperative Societies Act of the respective states in which they operate and are registered under the Banking Regulation Act 1949. UCBs are owned and managed by their members and their customers. 2021 Lender of Last The lender of last resort is a central bank, such as the Reserve Bank of India Resort (RBI). This involves providing short-term loans and other forms of funding to banks facing a liquidity crunch, typically at higher interest rates than those prevailing in the market. 2020 Interest It is a debt and profitability ratio used to determine how easily a company Coverage can pay interest on its outstanding debt. Ratio It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense during a given period. Lenders, investors, and creditors often use this formula to determine a company's riskiness relative to its current debt or for future borrowing. 23  Expansionist It is a strategy used by the Reserve Bank of India (RBI) to stimulate 2020 Monetary economic growth by increasing the money supply. Policy This can be achieved through various measures, such as lowering interest rates, reducing bank reserve requirements, and buying government securities in the open market. 2020 Statutory The SLR is a regulatory requirement set by the RBI that mandates banks to Liquidity maintain a certain percentage of their net demand and time liabilities Ratio (NDTL) in the form of liquid assets such as government securities, gold, and cash. The RBI sets the ratio from time to time and is currently at 18% of NDTL. 2020 Marginal The MSF is a facility introduced by the RBI to provide a secondary window Standing for banks to borrow money from the central bank in case of an emergency. Facility Rate The MSF rate is the interest rate at which banks can borrow funds from the RBI under this facility, which is typically higher than the repo rate. 2020 Repo Rate The Repo Rate is the interest rate at which the RBI lends short-term funds to commercial banks to meet their liquidity needs. It is a key tool the RBI uses to manage monetary policy. 2020 District DCCBs are cooperative institutions that provide banking services to rural Central and semi-urban areas in India. Cooperative They are registered under the Cooperative Societies Act of the respective Banks states in which they operate and are governed by the Reserve Bank of India (RBI) under the Banking Regulation Act 1949. 2019 Service Area The Service Area Approach (SAA) is a scheme introduced by the Reserve Approach Bank of India (RBI) to ensure that banking services reach rural and remote areas of the country. Under the SAA, each commercial bank is assigned a specific service area consisting of a cluster of villages or small towns. 2019 Assets of a The assets of a commercial bank typically include various types of loans and Commercial investments that the bank has made with the funds it has raised from its Bank customers or from other sources such as borrowings. Some of the common types of assets held by a commercial bank are: Loans, Investments, Cash and cash equivalents, Property and equipment. 2019 Participatory These are financial instruments foreign investors use to invest in Indian Note securities without having to register with the Securities and Exchange Board of India (SEBI). ‘ PNs are issued by registered foreign institutional investors (FIIs) to clients who wish to invest in Indian securities but do not want to go through the registration process. 2018 Capital It is the ratio of a bank's capital in relation to its risk-weighted assets and Adequacy current liabilities. Ratio (CAR) 2018 Legal Tender Legal tender is any official medium of payment recognized by law which the creditor is obligated to accept towards repayment of a debt. 24 2018 Treasury Bills Treasury Bills (T-bills) are short-term money market instruments issued by the Reserve Bank of India (RBI) on behalf of the Government of India. T-bills are issued for a maturity period of 91 days, 182 days, and 364 days. 2018 Bank Bank Rate is the rate at which the central bank lends money to commercial Rate/Discount banks for long-term periods. Rate In India, the Reserve Bank of India (RBI) uses the term Bank Rate as a synonym for the discount rate. 2017 Monetary The Monetary Policy Committee (MPC) is a six-member committee Policy constituted by the Government of India, under the Reserve Bank of India Committee Act, 1934, to determine the policy interest rate required to achieve the inflation target set by the Government. The MPC was established in 2016, and it replaced the earlier practice of the RBI Governor being the sole decision-maker in the interest rate setting process. 2016 Payment Payment Banks are a new category of banks introduced by the Reserve Bank Banks of India (RBI) in 2015. Payment Banks are licensed to provide a limited range of banking services such as accepting deposits, issuing debit cards, and facilitating payments and remittances, but they are not allowed to offer credit facilities or loans. Core Banking Core Banking Solution (CBS) is a network (back-end system) of bank 2016 Solution branches, which allows customers to manage their accounts, and use various banking facilities from any part of the world. 2015 Marginal Cost Marginal Cost of Funds based Lending Rate (MCLR) is the minimum interest of Funds rate at which commercial banks can lend to their customers. based The MCLR system was introduced by the Reserve Bank of India (RBI) in Lending Rate April 2016 to replace the earlier base rate system. (MCLR) Under the MCLR system, banks are required to calculate their lending rates based on the marginal cost of funds, which includes the cost of borrowings, the cost of maintaining statutory reserves, and other costs associated with the lending business. 2015 Basel III The Basel III Accord is a set of international regulatory standards on bank Accord capital adequacy, stress testing, and market liquidity risk that was developed by the Basel Committee on Banking Supervision in response to the global financial crisis of 2008. It was introduced to enhance the resilience of the global banking system, improve risk management, and prevent the buildup of excessive risk. 2015 Open Market It is the quantitative monetary policy tool the RBI uses to buy or sell Operations government securities in the open market to adjust the money supply in the economy. If there is excess liquidity, RBI resorts to the sale of securities and sucks out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI buys securities from the market, thereby releasing liquidity into the market. 2013 Money It refers to the total amount of money in circulation within an economy. Supply 25  It includes all of the physical currency in circulation, as well as deposits held in checking accounts, savings accounts, and other types of bank accounts. 2012 Non-Banking Non-Banking Financial Companies (NBFCs) are financial institutions that Financial provide financial services and products similar to those provided by banks, Companies but do not hold a banking license. NBFCs are regulated by the Reserve Bank of India (RBI) in India. NBFCs can provide a range of financial services, such as loans, leasing, hire purchase, and investments in securities. Important terms in News Terms Explanation Fiat Money It must fill two conditions - It should be tangible in nature or virtual coin or digital coin or crypto coin. It must be issued by order of king or queen or government or central bank. Seigniorage It is the difference between the value of currency/money and the cost of producing it. It can also be termed as a source of revenue for governments as the value of money printed is generally higher than the cost of producing it. Demonetization It is the act of stripping a currency unit of its status as legal tender. Thus it is the wholesale withdrawal of a currency unit’s notes from circulation. Redenomination It is the process of decreasing the face value of a currency. Hyperinflation, decimalization, or a country joining a currency union are some of the reasons that a currency may undergo redenomination. Merchant MDR is a fee that a merchant must pay to his acquirer bank for every transaction. Discount Rate It is shared between three parties: Customer’s card issuing bank, Merchant acquiring bank and Payment gateway provider. Monetary Policy It is a macroeconomic policy designed by the central bank of a country to manage money supply and interest rate. Expansionary Monetary policy which results in an increase in money supply in the market is Monetary policy expansionary monetary policy or hawkish monetary policy. Contractionary Monetary policy which results in a decrease in money supply in the market is Monetary policy termed as contractionary monetary policy or dovish monetary policy. Measures of The total stock of money in circulation among the public at a particular point of Money Supply time is called money supply. RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3 and M4. M0 : The total liability of the monetary authority of the country, RBI, is called the monetary base or high powered money or M0. It consists of currency 26  (notes and coins in circulation with the public and vault cash of commercial banks) and deposits held by the Government of India and commercial banks with RBI M1 = Currency (notes plus coins) held by the public + net demand deposits held by commercial banks M2 = M1 + Savings deposits with Post Office savings M3 = M1 + Net time deposits of commercial banks. It is also known as aggregate monetary resources M4 = M3 +Total deposits with Post Office savings organizations (excluding National Savings Certificates) Narrow money : M1 and M2 are known as narrow money. Broad money : M3 and M4 are known as broad money. CDR Currency Deposit Ratio is defined as the ratio of “money held by the public in cash” to the “public’s deposit in banks”. RDR Reserve Deposit Ratio is defined as the ratio of “banks reserves in vault cash and deposit with RBI” to the “public’s deposit in banks”. Velocity of The velocity of money is the rate at which money is exchanged in an economy, Money i.e, the number of times it moves from one entity to another. Circulation The velocity of money also refers to how much a unit of currency is used in a given period of time. Fractional Reserve It describes a system whereby banks can loan out a certain amount of the deposits Banking that they have on their balance sheets. Banks are required to keep a certain amount of the cash depositors placed in their accounts in reserve. Reverse Repo It is the rate of interest at which RBI borrows from banks by mortgaging G- Rate secs or other acceptable securities. Cash Reserve It is maintained by banks with the RBI in the form of cash. No interest is given to Ratio it. Incremental Cash Incremental Cash Reserve Ratio (ICRR): I-CRR is similar to the CRR, wherein Reserve Ratio banks need to set aside a certain portion of their money with the RBI. (ICRR) They do not earn any interest on this. It has following differences’ RBI has the option to impose ICRR in addition to the CRR. The interest rate charged would be different from CRR. Open Market Open Market Operations is the selling and purchase of government securities and Operation treasury bills by the RBI to adjust liquidity in the market. All Scheduled Commercial Banks and Financial institutions can participate in OMO. Bond Yield Bond yield is the return an investor realizes on a bond. The yield of a bond is inversely related to its price. When the price of a bond falls, yields rise. Priority Sector Priority Sector means those sectors which the Government of India and Reserve Lending Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. 27  The banks are mandated to encourage the growth of such sectors with adequate and timely credit. Such as Agriculture, Education, Housing, Social Infrastructure, Renewable Energy, Others Credit Default It is a particular type of swap designed to transfer the credit exposure of fixed Swap income products to another party. It is a type of credit derivative that provides the buyer with protection against default and other risks. Card-on-file- Tokenisation is a process where the cardholder's original card number, one which Tokenization is written on the card and is extensively used for transactions and card identification, is replaced with a surrogate term called 'token. Callable Deposits Fixed deposits which allow premature withdrawals are called callable deposits. Non-Callable Contrary to callable FDs, non-callable fixed deposits have a predetermined lock- Deposits in period. The amount a person invests in this product can't be withdrawn before the maturity date except in specific situations such as bankruptcy, court order, business liquidation, or the depositor's demise. Inverted Yield An inverted yield curve occurs when short-term debt instruments carry higher Curve yields than long-term instruments of the same credit risk profile. Negative Bond A negative bond yield is when an investor receives less money at the end of Yield maturity period than the purchase price of the bond. Yield gap or Yield It is the ratio of the dividend yield of an equity and the yield of a long-term ratio government bond. Loan to Value It is a metric used to assess the level of risk involved in extending a loan to a Ratio (LTV) borrower by comparing the value of the loan against the value of the underlying collateral. It is calculated by dividing the loan amount by the estimated market value of the collateral. Priority Sector Priority Sector Lending means lending to those sectors which the Government of Lending (PSL) India and Reserve Bank of India consider as important for the development of the basic needs of the country and are to be given priority over other sectors. The banks are mandated to encourage the growth of such sectors with adequate and timely credit. Shadow Banking Ir is a term used to describe bank-like activities which occur outside the traditional banking sector. Examples of shadow lenders include Special Purpose Entities, Non Banking Financial Companies (NBFCs), Hedge Funds etc. Non Performing If a loan's principal or interest is unpaid for more than 90 days from its due date Assets (NPA) then such loan account is classified as Non Performing Assets. SMA - 0 : If a loan’s principal or interest is unpaid for 1 to 30 days from its due date then such loan account is classified as SMA- 0 SMA - 1 : If a loan’s principal or interest is unpaid for 31 to 60 days from its due date then such loan account is classified as SMA-1 28  SMA - 2 : If loan’s principal or interest is unpaid for 61 to 90 days from its due date then such loan account is classified as SMA- 2 Sub Standard Assets : Loans and advances which are non- performing assets for a period of 12 months, fall under the category of Sub-Standard Assets. Doubtful Assets : The Assets considered as sub standard for a period of more than 12 months are known as Doubtful Assets. Loss Assets : All those assets which cannot be recovered by the lending institutions are known as Loss Assets Evergreening of Evergreening of loans refers to allocation of fresh loans to pay previous loans. Loans It results in reduction in reported defaults in the short run, followed by an eventual explosion in default rates. Legal Entity The Legal Entity Identifier (LEI) is a 20-character alpha- numeric code used to Identifier (LEI) uniquely identify parties to financial transactions worldwide. Capital-to-Risk It also known as capital adequacy ratio (CAR) is a measurement of a bank's weighted Assets available capital expressed as a percentage of a bank's risk-weighted credit Ratio (CRAR) exposures. Tier 1 Capital It is also known as core capital. It consists of equity capital, ordinary share capital, intangible assets and audited revenue reserves and is used to absorb losses and does not require a bank to cease operations. Tier 2 Capital It comprises unaudited retained earnings, unaudited reserves and general loss reserves. This capital absorbs losses in the event of a company winding up or liquidating. It is used to absorb losses if a bank loses all its Tier-1 capital. Liquidity LCR refers to the proportion of highly liquid assets held by financial institutions, Coverage Ratio to ensure their ongoing ability to meet short-term obligations. The LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days. LCR = High-Quality Liquid Asset Amount (HQLA) / Total Net Cash Flow Amount HQLA: High Quality Liquid Assets are cash or assets which can be converted into cash quickly with no significant loss of value. NSFR Net Stable Funding Ratio is defined as the amount of available stable funding relative to the amount of required stable funding. The NSFR promotes resilience over a longer-term time horizon by requiring banks to fund their activities with more stable sources of funding on an ongoing basis. Capital The capital conservation buffer (CCoB) is a capital buffer whose objective is to Conservation conserve a bank’s capital. It must be made up of Common Equity Tier 1 capital. Buffer Term Money It refers to the borrowing or lending of funds for more than 14 days. 29 LIBOR The London Interbank Offer Rate is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short- term loans. Recently, The Reserve Bank of India (RBI) has issued an advisory to banks and other RBI-regulated entities asking them to take steps to ensure a complete transition away from the LIBOR. MIFOR The Mumbai Interbank Forward Offer Rate is a rate that Indian banks use to set prices on forward-rate agreements and derivatives. MIBOR The Mumbai Interbank Offer Rate is the interest rate at which banks can borrow funds from other banks in the Indian interbank market. Default Loss DLG is a contractual agreement between Regulated Entities and a qualified entity Guarantee that guarantees compensation for default-related losses. Domestically Some banks, due to their size, cross-jurisdictional activities, complexity, lack of Systemeticall substitutability and interconnectedness, become systemically important. Important Banks Too Big To Fail (TBTF)’: his perception of TBTF creates an expectation of government support for these banks at the time of distress. Example: State Bank of India, ICICI Bank and HDFC Bank Green Deposits A green deposit refers to an interest-bearing deposit for a fixed period, with the proceeds earmarked for allocation towards green finance. Contingent A contingent liability is a potential liability that may occur in the future, such as Liabilities pending lawsuits or honoring product warranties. If the liability is likely to occur and the amount can be reasonably estimated, the liability should be recorded in the accounting records of a firm. Prompt Corrective A system that the RBI imposes on banks showing signs of financial stress. Action The regulator considers banks as unsafe if they fail to meet the standards on Framework certain financial metrics or parameters. Bullet Repayment A bullet repayment is a lump sum payment made for the entirety of an outstanding loan amount, usually at maturity. It can also be a single payment of principal on a bond. In terms of banking and real estate, loans with bullet repayments are also referred to as balloon loans. Payment A payment aggregator is a third-party service provider that enables customers to Aggregator make and businesses to accept payments online. Payment aggregators enable their clients to accept various payment methods such as debit cards, credit cards, cardless EMIs, UPI, bank transfers, e-wallets, and e-mandates. Third Party A Third-Party Application Provider is an entity that provides the UPI compliant Application app(s) to the end-user customers to facilitate UPI-based payment transactions. Provider Zombie Lending Zombie lending refers to the practice of providing credit to entities that do not have the capability to repay. 30  9. Taxation Previous Year Questions Year Term Explanation 2019, Money Multiplier The ratio of the increase in the money supply to the increase in the 2015 monetary base. It is determined by the reserve requirement and the willingness of banks to lend money. 2012 Capital Gain The profit earned from the sale of an asset that has increased in value over time. It is calculated as the difference between the purchase price and the sale price of the asset. Capital gains are subject to taxation in most countries. Important Terms in News Terms Explanation Accordion Tax The “accordion tax” is a progressive taxation system aimed at redistributing income from the wealthy to the poor while maintaining incentives for innovation and entrepreneurship. It operates by taxing higher-income individuals more heavily, similar to how an accordion expands and contracts. Base Erosion and It refers