Reverse repo rate is the rate of interest at which the RBI borrows funds from other banks in the short term . This is done by RBI selling government bonds / securities to banks with the commitment to buy them back at a future date. The banks use the reverse repo facility to deposit their short-term excess funds with the RBI and earn interest on it. RBI can reduce liquidity in the banking system by increasing the rate at which it borrows from banks. Hiking the repo and reverse repo rate ends up reducing the liquidity and pushes up interest rates.
How Reverse Repo Rate Works?
When the RBI increases the Reverse Repo, it means that now the RBI will provide extra interest on the money which it borrows from the banks. An increase in reverse repo rate means that banks earn higher returns by lending to RBI. This indicates a hike in the deposit rates.
Repo rate, or repurchase rate, is the rate at which RBI lends to banks for short periods. This is done by RBI buying government bonds from banks with an agreement to sell them back at a fixed rate. If the RBI wants to make it more expensive for banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. RBI uses this tool to control the money supply.
How Repo Rate Works?
When RBI reduces the Repo Rate, the banks can borrow more at a lower cost. This contributes to lowering of the rates.
Cash Reserve Ratio
The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India, with reference to the demand and time liabilities (NDTL) to ensure the liquidity and solvency of the Banks. The CRR is maintained fortnightly average basis.
What is NEFT, RTGS and Inter Bank Transfer?
Inter Bank Transfer is a special service that allows you to transfer funds electronically to accounts in other banks.In India the Inter Bank Transfer is possible mainly through 2 methods:
NEFT – The acronym “NEFT” stands for National Electronic Funds Transfer. Funds are transferred to the credit account with the other participating Bank using RBI’s NEFT service. RBI acts as the service provider and transfers the credit to the other bank’s account.
RTGS –The acronym “RTGS” stands for Real Time Gross Settlement. The RTGS system facilitates transfer of funds from accounts in one bank to another on a “real time” and on “gross settlement” basis. The RTGS system is the fastest possible inter bank money transfer facility available through secure banking channels in India.
Stock Market Terms
Blue-Ship :Stock of well known companies with stable business.
Bonds :
Bond holder is the creditor of the company and normally bonds are issues with a minimum of 3 years time frame with specific interest rate.
Bonus Shares :
Bonus shares are shares given to share holder at no extra cost.
Book Value :
It is the value at which you carry the asset into the balance sheet. The book value is calculated by dividing the equity reserve of the company by the number of shares issues for the same.
Brokerage :
Brokerage is the commission charged by the broker for a transaction which can be upto 2.5% as per SEBI.
Bull Market :
Continuous phase of rising share prices.
Buyback :
Repurchase of its own company or bonds from the holders.
Carry forward :
The process of postponement of purchase from one settlement to other by paying a charge.
Circuit :
The limit imposed by exchanges to control the fluctuation of share prices.
Closing price :
Last traded price of a stock.
Close Ended Funds :
Close ended funds are funds where investors can subscribe only during the New Fund Offer (NFO) period only.
Demat trading :
Demat trading is trading of shares in electronic or dematerialized form.
Dividend :
Dividend is the amount of money that any company gives to the share holders for each share held.
Equity / Stock / Share :
Representation of ownership of a company.
ETF :
Exchange Traded Fund: A mutual fund that is traded on a stock exchange and holds a basket of securities like mutual funds. They can be traded like a stock in trading hours of the day. Price movement is like stock varying on a trading basis and not like Mutual Fund which is once everyday.
Face Value :
The nominal value of share. This is the actual price of the share. Many west countries allow the face value to be consistent and of Re. 1 but in India we have Face value in range of Re. 1 to Rs 10.
Forward Trading :
The Scrip is traded today would be settled at future date which can even be settled or carried forward.
IPO :
Initial public offer which refers to the first offering of equity shares to the general public. Top 5 Indian IPO’s
Nifty :
Nifty is the Index of National Stock Exchange.
Open Ended Funds :
Investors can purchase and sell units even after the New Fund Offer (NFO) period.
Open Interest :
Open interest are open contracts which refers to the total number of contracts, that have not been settled or squared off. For each buyer there must be a seller. So when either of the buyer or seller opens the contract and till he does not square off the contract, it is open and sum total of all such open contracts is called open interest.
P/E Ratio :
Price of the stock divided by the net earning of the company.
Resistance :
Resistance, is the point at which sellers (bears) take control of prices and prevent them from rising higher.
SEBI :
Securities and exchange board of India.
Sensex :
Sensitive Index is a value-weighted index composed of 30 stocks with the base April 1979 = 100. It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around one-fifth of the market capitalization of the BSE.
Settlement and Settlement Date :
The date at which transaction between users is settled by deliver of shares.
Share Premium :
Premium paid over the face value for acquiring the share in the company.
Support :
Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling lower.
Undervalued Shares :
Shares which are traded lower than the book value.
Volume :
The number of shares or contracts traded in a security or an entire market during a given period of time.
GK for Bank Exams
1. Who presented the Union budget 2010-11 in Indian parliament – Pranab Mukherjee2.Bear and Bulls related to – Stock Market.
3 Base rate will be implemented from – July 2010.
4. Food Inflation in 2009-10 – 17%.
5. Special Drawing Rights issued by – IMF.
6. GDP – Gross Domestic Product.(Financial& Banking Acronyms)
7. Economic Survey is done for the year – 2009-10.
8. The details of the companies financial position in the annual report of a company is known as – balance sheet.
9. Which of the following is not related to banking and finance – Cell fusion.
10. Which country facing Crisis in Europe – Greece.
11. NBFC – Non banking finance company.
12. Government has granted 1,200 crore to – Bundelkhand region.
13. Banking services to rural people termed as – Financial Inclusion.
14. To which country India has given 1billion US dollars – Bangladesh.
15. The details of the companies financial position in the annual report of a company is known as – balance sheet.
16. Who presented the Union budget 2010-11 in parliament – Pranab Mukherjee
17. Which of the following told government must cut its fiscal deficit to 3% – 13th Finance Commission.
18. Chairman of 13th finance commission – Vijay Kelkar.
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