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Economics Flashcards

1
Q

Difference between Bank rate; Repo rate?

A
  • •Bank rate- long term loan given by RBI to banks without any collateral
  • •Repo rate- short term loans given by RBI; clients have to give government securities as collateral (this securities should be other than MSF)
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2
Q

What are SEBI’s 2015 guidelines for municipal bonds?

A
  1. Municipalities must contribute at least 20% of total project cost.
  2. Bond maturity tenure- min 3 years
  3. Municipalities must have good track record & the one having negative net worth or have defaulted earlier are barred
  4. Min 75% bonds must be subscribed, if not then the one subscribed must be refunded by municipality
  5. Pf, pension funds, insurance companies can also subscribe the bonds using premium collected from people
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3
Q

Name the states which will have solar parks under National Solar Mission?

A

25 solar parks are to built in 12 states- Gujarat, Meghalaya, UP, MP, Telangana, Andhra P, J&K, Rajasthan, Odisha, TN, Karnataka

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4
Q

Coal Mines Bill, 2015

A
  • provides for allocation of coal mines and vesting of the right, title and interest in and over the land and mine infrastructure together with mining leases to successful bidders and allottees.
  • auction of these blocks were being carried out through an e-auction process to transparency of the process.
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5
Q

Insurance Amendment Bill, 2015

A
  • FDI cap increased from 26% to 49%
  • bill proposes to replace section 64 from Insurance Amendment Act, 1968 by another section which would move the licensing issue to the regulations formed by IRDA
  • sec-64 contains establishment of IIISLA (Indian Institute for Insurance Surveyors of Losses & Assessors) that provides statutory group of professionals with technically qualified loss assessors who ensure reasonable settlement of insurance claims & ensures that company does not faces losses
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6
Q

Which committee led to thinking of money market in India and which committee started it?

A
  • Chakravarthy Commitee in 1985 asked for it for the first time
  • Vahul Committee recommended its form in 1987
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7
Q

When was NFBCs made under the present form?

A

In 1997, it was brought under RBIs regulations

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8
Q

Name the four indigenous bankers in India and places/areas of their presence ?

A
  1. Gujarati Shroffs- Mumbai, Kolkata
  2. Shikarpuri/Multani Shroffs- Mumbai, Kolkata, Assam Tea gardens
  3. Marwari Kayas- Gujrat
  4. Chettiyars- Chennai and Southern ports
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9
Q

Requirement for using Commercial Paper?

A
  • used by corporate houses which are listed and with the capital of more than 5 crore
  • issuing company must have a species credit rating from an agency approved by the RBI
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10
Q

Call money market ?

A
  • interbank for a short notice (14days).
  • also called overnight borrowing market or money at call
  • repo rated, interest inc with inc in time for borrowing
  • SCBs can lend & borrow it
  • LIC,GIC, NABARD, IFBI, Mutual Funds can lend only
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11
Q

Base Rate in banking?

A

Floor rate of interest

Synonyms- Prime Lending Rates or Benchmark Prime Lending Rates

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12
Q

Who was the chairman of Working Group on Prime Lending Rates?

A

Deepak Mohanty

Aim: enhancing transparency in lending rates and better assessment of transmission of monetary policy

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13
Q

What recommendations were given by the Urjit R Patel Committee on Banking System?

A
  1. Recognition of glide path for disinflation
  2. Adoption of new CPI (national) as key measuring of inflation
  3. Progressive reduction in access to overnight liquidity at fixed repo rate. This led to decrease in liquidity provided under overnight repos from 0.5% to 0.25%
  4. Increase in access to liquidity through term repos. It led to increase in liquidity provided under 7-day and 14-day term repos from 0.5% to 0.75%
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14
Q

India’s first Private bank?

A

UTI Bank when in 1994, GOI allowed entry of private players in banking

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15
Q

First Indian Bank to sell its shares for capital building?

A

Indian Overseas Bank, when the Banking Companies (Amendment) Act, 1994 was passed to allow the public banks to capitalise by selling their stakes with 33% ceiling

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16
Q

India’s first Private bank?

A

UTI Bank when in 1994, GOI allowed entry of private players in banking

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17
Q

First Indian Bank to sell its shares for capital building?

A

Indian Overseas Bank, when the Banking Companies (Amendment) Act, 1994 was passed to allow the public banks to capitalise by selling their stakes with 33% ceiling

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18
Q

India’s first Private bank?

A

UTI Bank when in 1994, GOI allowed entry of private players in banking

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19
Q

First Indian Bank to sell its shares for capital building?

A

Indian Overseas Bank, when the Banking Companies (Amendment) Act, 1994 was passed to allow the public banks to capitalise by selling their stakes with 33% ceiling

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20
Q

Synonym of Inflation Tax?
Why it is called so and How is it related to Deficit Financing?
How it is used by government?

A
  • Seignorage
  • Sometimes government starts printing new currency in an economy to finance their deficit without increasing the production level. This leads to increased money supply, which further leads to inflation. This is a situation of sustaining government expenditure at the cost of people’s money. So it is called a tax.
  • The government can levy Inflation tax on companies who increases the salary of their workers above the prescribed limit.
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21
Q

What is Shoe Leather Cost and what is the relation between saving rate and inflation?

A

Saving money in the bank is a bad economic decision as the value of money decreases over time due to inflation. It only wears out the shoes of the people who had to go to the bank regularly and thus it is called Shoe Leather Cost of inflation.
In the short run, saving rate increases due to inflation but in the long run higher inflation rate decreases the saving rate in an economy. It’s opposite is also true.

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22
Q

For which purpose WPI Inflation is used?

Who is entrusted with the task of releasing it??

A
  • for major policy decisions of the government like inflation management and monitoring of prices of essential commodities.
  • it is used by RBI to update its monetary policy changes
  • various departments use it for arriving at the escalation costs of various contracts

-it is released by Office of Economic Adviser, Department of Industrial Policy and Promotion

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23
Q

How did the issue of flow of regular price data was addressed by the Office of Economic Adviser?

A
  • an online data transmission mechanism has been developed whereby, the manufacturing units can supply price data through Internet.
  • arrangements has been made with National Sample Survey Office (Field Operations Devisions) to get price data on regular basis
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24
Q

Reasons for rising protein inflation?

Who consumes protein rich food?

A

-Changes in dietary habits which resulted due to rise in MGMREGA wages, inadequate supply, shocks from global food inflation.

  • Main demand of protein foods come from:
    1. Fast growing urban consumers benefitting from revision of wages by Sixth Pay Commission
    2. Private sector income rise after a spectacular urban growth sector
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25
Q

Which commodity covers the maximum of protein rich food?
Reasons for Milk Inflation?
Advantages of milk market being a Organised market?

A

-Milk (52%); India is world’s largest milk producer and New Zealand is world’s richest producer of milk.

  • Reasons for Inflation:
    1. Surge in global milk market and the decline of EU’s milk surplus
    2. Rising fodder prices for small landholders

Smooth changes in prices of mil States that Indian milk market is organised. When the prices will start deflating, it would be for long term

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26
Q

In which cities, NHB Residex has been started as a pilot project?

A

Bangalore, Mumbai, Bhopal, Delhi, Kolkata

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27
Q

What are government policies that recover an economy?

A

Tax breaks, interest cuts, rise in wages, innovations in economics

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28
Q

What causes the fluctuation in currency value?

A
  • Changes in the imports and exports of the country: An increase in exports of a country will lead to an increase in demand for the currency and thus the value rises.
  • Changes in Interest rate: Higher interest rate will attract more foreign investors to invest in the country and thus the demand for currency will rise, resulting in appreciation in value of the currency.
  • Changes in Inflation rate: Higher inflation rate will make the country uncompetitive in the international market. The exports will fall resulting in decreased demand for the currency and hence lower value.
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29
Q

How does a currency appreciates or depreciates?

A

Demand for any country’s currency on the foreign exchange market is determined by demand for that country’s exports of goods and services and by changes in foreign investment in that country. This is because when foreigners buy another country’s exports of goods or services they must pay for these in the currency of the exporting country.
In the same way Supply of any country’s currency on the foreign exchange market is determined by that country’s imports of goods and services and by its investment in other countries.
Thus when the demand for a currency rises its price goes up and it becomes costlier.

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30
Q

Which were the years that had Current Account Surplus?

A

2000-2003

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31
Q

What is the sustainable Current Account Deficit for India?

A

2.5% of GDP, acc to RBI

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32
Q

SS TARAPORE COMMITTEE (1997) on Capital Account Convertibility?

A

Recommendations:-

•Allowing full capital convertibility in capital account

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33
Q

Name the service that IMF provides to its members in BOP crisis?
When and why did India accessed it?

A

External Fund Facility (first of its kind) given by IMF to help the member countries in BOP crisis.

India took the service in 1981-82 and agreed to the following structural changes:
1. Since 1981 the IMF Institute has provided training to Indian officials in national accounts, tax administration, balance of payments compilation, monetary policy, and other areas.

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34
Q

India’s role in IMF?

A

India’s SDR- 5821.5 million (2.44%)
Governor- Arun Jaitley
Alternate Governor- Raghuram Rajan
Value of Vote- 2.32%

35
Q

What is Article-8th of IMF?

A

It states that all member countries has to allow full convertibility in their current account international transactions, leading to an unprohibited outflow of foreign exchange

36
Q

In which area of the world recently the USD became a Hot Currency

A

Due to crisis in SE Asia, the USD became a hot currency as it was exiting the economy at a fast pace

37
Q

Where is Asia’s first Export Processing Zones built?

EPZ’s problems and their solutions?

A

Asia’s first in Kandla in 1965

Problems:

  1. Multiplicity of controls and clearances
  2. Absence of world class infrastructure
  3. Unstable fiscal regime

Solutions:

  1. Attracting more FDI
  2. Infrastructure development
  3. Attractive fiscal packages both centre/state
  4. Minimum regulations
38
Q

Natural Hedge?

A

A method of reducing financial risk by investing in two different financial instruments whose performance tends to cancel each other out.

39
Q

Currency Swap?

A

suppose a U.S.-based company needs to acquire Swiss francs and a Swiss-based company needs to acquire U.S. dollars. These two companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. Currency swap maturities are negotiable for at least 10 years, making them a very flexible method of foreign exchange.

40
Q

Top 3 importers of India-made gold jewellery?

A

UAE 60%
Hong Kong 14%
US 12%

41
Q

Price Elasticity

A

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). Conversely, a product is inelastic if a large change in price is accompanied by a small amount of change in quantity demanded.

42
Q

Mark to Market?

A
  1. Problems can arise when the market-based measurement does not accurately reflect the underlying asset’s true value. This can occur when a company is forced to calculate the selling price of these assets or liabilities during unfavorable or volatile times, such as a financial crisis. For example, if the liquidity is low or investors are fearful, the current selling price of a bank’s assets could be much lower than the actual value. The result would be a lowered shareholders’ equity.
    Financial Accounting Standards Board (FASB) voted on and approved new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation, starting in the first quarter of 2009.
  2. This is done most often in futures accounts to make sure that margin requirements are being met. If the current market value causes the margin account to fall below its required level, the trader will be faced with a margin call.
  3. Mutual funds are marked to market on a daily basis at the market close so that investors have an idea of the fund’s NAV.
43
Q

Exchange Traded Fund

A

An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETFs are the most popular type of exchange-traded product.

44
Q

Investment Allowance?

Investment Credit?

A

A tax incentive offered to businesses to encourage capital investment in which they can deduct a specified percentage of capital costs, including depreciation, from taxable income.

Investment credits which allows businesses to deduct investment costs directly from their tax liability.

45
Q

Actual/Effective Rate of Taxation?

A

Tax Collected : Tax Base

46
Q

Main reasons (type of exemptions) which has led to increase of the revenue foregone in the area of direct taxes?

A
  • Personal Income Tax- exemptions given for certain investments and payments under section 80-C of Income Tax Act.
  • Corporate Income Tax- exemptions are:
  1. Deductions on account of accelerated depreciation
  2. Deductions for export oriented units located in SEZs
  3. Deductions on profits of businesses in power and telecom sectors
47
Q

What was the earlier name of LIC and who started it?

A

Hindustan Insurance Society

By Satyaendranath Tagore (son of Rabindranath Tagore)

48
Q

Members of 14th Finance Commission?

A 
Dr. YV Reddy (Chairperson)
Prof. Abhijit Sen (ex RBI governor)
Ms. Sushma Nath
Dr. M Govinda Rao
Dr. Sudipto Mundle
49
Q

Insurance Reform Committee (1993) recommendations?

A

•Chairman - RN Malhotra
•Recommendations:
1. Allowing private companies(foreign also)
2. Restructuring LIC and GICs and cutting down government’s share to 50%
3. Delinking GIC and its four subsidiaries
4. Discarding the system of licensing of surveyors
5. Restructuring Tariff Advisory Committee
6. Setting up of a Regulatory Authority for Insurance Industry (through IRDA, in 2000)

50
Q

What is the global benchmark for insurance industry to ascertain that time to time standards are met?

A

The growth rate should be 2 to 3 times of the GDP

51
Q

First stock exchange of the world?
First in Britain?
First in the New World?
First in India?

A

Antwerp, Belgium in 1631
London Stock Exchange, 1773
Philadelphia in 1790
Bombay Stock Exchange, in 1870 starting with the name, The Native Share and Stock Broker Association under a tree!

52
Q

Top five stock exchanges of the world in decreasing order of market capitalisation?

A 
New York Stock Exchange 
NASDAQ
Tokyo Stock Exchange 
London Stock Exchange 
Bombay Stock Exchange
53
Q

When was the Screen Based Trading in stock exchanges was first used?

A

In 1972 in New York by a bond broker Cantor Fitzgerald

54
Q

What is the latest clause added to the Companies Act, 2012?

A

It gave undisputed jurisdiction over any investment scheme involving more than 50 investors irrespective of the company being listed or unlisted.

55
Q

Asian Development Bank?

A

•ADB, formed in 1966, headquarter- Philippines; copy of WB for Asia and Pacific
•48 member countries from Asia and Pacific (from UNESCAP- UN Economic and Social Committee for Asia-Pacific); 19 from outside (developed countries only)
•raises funds from issuing bonds in world capital market and member contributions; share in capital: Japan>US>China>India>Australia
•Board of Governors- highest policy making body; voting level is given according to capital added; 67 persons each from every member country
•provides Soft and Hard loans with a focus on Infrastructure, environment, cooperation, financial sector development, education.
-Soft loans from Asian Development Fund (ADF) at concessional rates
-Hard loans from ordinary capital resources (OCR) at commercial rates

56
Q

19th Constitutional Amendment of SriLanka, which decreases the arbitrary powers of president. Main points?

A
  1. Terms of President and PM made 5 years from 6 as earlier
  2. President can dissolve parliament only after four and a half years have passed
  3. President can appoint ministers on PMs advice.
  4. System of independent Parliamentary Committees and Constitutional Councils to be revived
  5. One person can only have 2 terms as a President
57
Q

The Board of SEBI compromises of?

It’s functions?

A 
4 full time members (one is Chairperson)
1 member from Finance Ministry
1 from Law Ministry
1 from RBI
2 appointed by Union Government

Functions:

  1. Registering brokers, MFs, stock exchanges, merchant banks, etc
  2. To compel companies to list their shares in one or more stock exchanges
  3. To make and amend the laws relating to securities and stock market
  4. Checking and inspection of financial intermediaries and stock exchanges
  5. Promoting investor education
  6. Levying various fees, charges
58
Q

The provisions of scheme and benefits under RGESS are incorporated in which section/act?

A

It is in the new section 80 CGG of the Income Tax Act, 1961 as amended by the Finance Act, 2012.

59
Q

Name 2 Commitees and its members setup for the rollout of GST?

A
  1. Steering Committee- chaired by Additional Secretary of Department of Revenue and Member Secretary of Empowered Committee of State Finance Ministers with an aim to:
    - setting up of IT Infrastructure for GST network
    - monitors the process of consultations with stakeholders (trade and industry) and the training of officers
  2. Committee chairman by Arvind Subramaniyam (Chief Economic Advisor) to recommend the rates of GST, depending upon expected levels of economic growth, different levels of compliance and the broadening of tax base.
60
Q

What is Asian Infrastructure Investment Bank (AIIB)? Name the latest joining country?

A

-The Asian Infrastructure Investment Bank (AIIB) is an international financial institution proposed by China. The purpose of the multilateral development bank is to provide finance to infrastructure projects in the Asia-Pacific region. It is regarded by some as a rival for the IMF, the World Bank and the Asian Development Bank (ADB), which the are dominated by developed countries like the United States and Japan.
The authorised capital of AIIB will be $100 billion. AIIB’s headquarters is to be located in Beijing. India is the second largest shareholder in the Bank after China.
In October, 21 countries signed the memorandum of understanding establishing the bank. It now has more than 40 members, including South Korea, Austria and Spain.
Australia is the latest joining country of the AIIB.

61
Q

Name the members of G-10?

A

Members- Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, UK, USA
New- Luxembourg, Switzerland
Latest- Spain

62
Q

What is OECD?

A
  • Organisation for Economic Coordination & Development
  • to stimulate world trade & economic growth
  • a forum providing a platform to compare policy experiences, seeking answers to common problems, identify good practices and coordinate domestic and international policies of its members.
63
Q

Name some Central and State taxes.

A
  • Central- excise tax, service tax, countervailing duty, special additional duty on customs, all cess & surcharges
  • State- value added tax, sales tax, entertainment tax, luxury tax, tax on lottery, betting & gambling, entry tax, state cess & surcharges
64
Q

State some of the important events in evolution of Indian Tax System.

A
  • initially India relied on indirect taxes for revenue but it has its limitation as majority of Indians are poor
  • in order to rationalise tax system, GOI had made several attempts as following-
  • 1950s to 70s- the base of indirect taxes (mainly excise) was broadened. But taxing at intermediate production stages led to inefficient tax allocation & made the export area less competitive in world markets
  • 1976- Indirect Taxation Enquiry Committee recommended MODVAT. Subsequent years aimed at reducing the number of effective rates after harmonization of the tariff classification with the customs nomenclature and implementing MODVAT during 1980s.
  • 2000- MODVAT was renamed as Central Value Added Tax (CENVAT)
65
Q

Why are tax reforms important presently? If government goes for reform, then which articles need to be amended?

A
  1. Taxation in India is multilayered.
  2. Multilayer means multiple sources of evasion and pilferage
  3. Taxation of such types adds documentation and tracking which adds cost
  4. Eventually the consumer who has to pay the tax, so why he should be bothered about the nitty-gritty of taxation system. He will rather spend time on enjoying the pizza rather than paying undue attention to the bill afterwards.

•Articles 268 to 282 may undergo transformation depending on the recommendation of the Finance Commission.

66
Q

Explain the Textile Undertakings (Nationalisation) Laws (Amendment and Validation) Bill, 2014.

A
  • Bill seeks to amend the Sick Textile Undertaking (Nationalisation) Act, 1974 and the Textile Undertakings (Nationalisation) Act, 1995
  • These Acts provide for the nationalisation of certain textile undertakings, and for their management by the National Textile Corporation (NTC), a PSU under Textile ministry
  • the Bills seeks to clarify the vesting of lease-hold land with the central government, in order to prevent the vacating of land by NTC, at the expiry of the lease.
67
Q

Salient features of economy of India (July 2015)?

A
  • India’s economy is at USD 2.06 trillion, and has almost doubled since 2008 financial crisis.
  • country took just 7 years to add another trillion dollars to its economy.
  • Gross National Income per person rose to USD 1610 from last year’s USD 1560.
  • at 7.4%, India is fastest growing major economy along with China.
  • India’s average annual growth rate was 8.9% over the last decade.
  • India will take more than a decade to get into Upper Middle Income ($4126 - $12735) with present growth rate while China, with 15.6% growth rate will reach High Income countries in 2018.
  • India is currently in Lower Middle Income category ($1046 - $4125).
  • In last 1 year, Bangladesh, Kenya, Myanmar and Tajikistan have upgraded from Low Middle Income nations to Middle Income nations group.
68
Q

What is Non Operative Financial Holding Company (NOFHC) related to opening of new banks?
OR
What are the conditions for a NOFHC?

A

The objective of bringing into the concept of the NOFHC is to separate several financial activities carried out by the same holding company. This implies that the holding company can carry out other commercial, industrial as well as financial activities but one should not encroach upon the functions of another. Further: NOFHC will be allowed to engage itself in several other financial activities in the form of Joint Ventures, Subsidiaries or Associate Ventures after three years of its formation subject to some exceptions and with every activity subjected to the supervision of its primary regulator but RBI has the power to call for information and intervene when circumstances demand. NOFHC will have to follow a separate set of Corporate Governance Rules as well as exposure norms. The NOFHC shall be wholly owned by the Promoter / Promoter Group. The NOFHC shall hold the bank as well as all the other financial services entities of the group. Initial minimum paid-up voting equity capital Initial minimum paid-up voting equity capital for a bank shall be Rs. 5 billion i.e. Rs. 500 Crore. The NOFHC shall initially hold a minimum of 40 per cent of the paid-up voting equity capital of the bank which shall be locked in for a period of five years and which shall be brought down to 15 per cent within 12 years. The bank shall get its shares listed on the stock exchanges within three years of the commencement of business by the bank. Regulation of NOFHC The bank will be governed by the provisions of the relevant Acts, relevant Statutes and the Directives, Prudential regulations and other Guidelines/Instructions issued by RBI and other regulators. The NOFHC shall be registered as a non-banking finance company (NBFC) with the RBI and will be governed by a separate set of directions issued by RBI.

69
Q

Following committees were regarding:

  1. Narasimha Committee 1
  2. Narasimha Committee 2
  3. Kelkar Committee
  4. Deepak Mohanty Committee
  5. Nair Committee
A
  1. Regarding CRR reforms
  2. To review progress of banking sector reforms of 1992
  3. Concerning RRBs
  4. Regarding Base Rate
  5. Regarding priority sector lending
70
Q

What is disclosed and undisclosed reserves of banks?

A

Disclosed- liquid cash, SLR; (part of tier 1 capital)
Undisclosed- unpublished, hidden or not on balance sheets but are real assets which are accepted by all banks as such but cannot be used at banks will; (part of tier 2 capital)

71
Q

Deferred Tax Assets

A

Deferred tax asset is an accounting term that refers to a situation where a business has overpaid taxes or taxes paid in advance on its balance sheet. These taxes are eventually returned to the business in the form of tax relief, and the over-payment is, therefore, an asset for the company.

72
Q

Retained Earnings

A

Retained earnings refer to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders’ equity on the balance sheet.

73
Q

Hybrid Security

A

A single financial security that combines two or more different financial instruments. Hybrid securities, often referred to as “hybrids,” generally combine both debt and equity characteristics. The most common type of hybrid security is a convertible bond that has features of an ordinary bond but is heavily influenced by the price movements of the stock into which it is convertible.

74
Q

Who inspired the changes in money supply variables, M and M1, in Indian stock of money back in 1968?

A

M was inspired by Keynesian idea (narrow money) and included all the currency and demand deposits with banks.
M1 was inspired by Friedman’s view (broad money) and includes M and demand deposits.

75
Q

What constitutes the NM1,2,3 in banking?

A

NM1- currency+demand deposits +other deposits with RBI
NM2- M1+timed deposits
NM3-

76
Q

Who gave the concept of credit rating for the first time and which two agencies introduced it in India?

A

John Moody in USA in 1909

ICICI and UTI in India in 1988

77
Q

What is exim policy?

A

Trade policy or foreign trade policy

78
Q

What is capital conumption?

A

It’s other name for depreciation.

79
Q

Which is the only crop that is taken under the control of Spices Board of India as given in the act?

A

Cardamom

80
Q

Where are the headquarters of the following boards:

  1. Coffee Board
  2. Rubber Board
  3. Tea Board
  4. Tobacco Board
  5. Spices Board
  6. Marine Products Export Dev Authority
  7. Agri Processed Food Export Dev Authority
A
  1. Bangalore
  2. Kottayam
  3. Kolkata
  4. Guntur, AP
  5. Kochi
  6. Kochi
  7. New Delhi
81
Q

Evolution of exchange rate in India.

A

1928- rupee was linked to Pound
1948- after independence and formation of IMF, India shifted to fixed currency system
1975- rupee delinked from British pound and RBI started determining the exchange rate according to exchange rates of basket of main world currencies
1992- entered in floating exchange rate regime

82
Q

Evolution of Indian Rupee and when was the system of Anna’s was dropped to form the present system?

A

The history of the Rupee traces back to Ancient India in circa 6th century BC . Ancient India was the earliest issuers of coins in the world, along with the Chinese wen and Lydian staters.

The word “rūpiye” is derived from a Sanskrit word “rūpaa”, which means “wrought silver, a coin of silver”, in origin an adjective meaning “shapely”, with a more specific meaning of “stamped, impressed”, whence “coin”. It is derived from the noun rūpa “shape, likeness, image”. The word rūpa is being further identified as having sprung from the Dravidian.

Arthashastra, written by Chanakya, prime minister to the first Maurya emperor Chandragupta Maurya (c. 340–290 BCE), mentions silver coins as rupyarupa, other types including gold coins (Suvarnarupa), copper coins (Tamararupa) and lead coins (Sisarupa) are mentioned.
Sher Shah Suri, during his five-year rule from 1540 to 1545, set up a new civic and military administration and issued a coin of silver, weighing 178 grains, which was termed the Rupiya. The silver coin remained in use during the Mughal period, Maratha era as well as in British India. Among the earliest issues of paper rupees include the Bank of Hindostan (1770–1832), the General Bank of Bengal and Bihar (1773–75, established by Warren Hastings), and the Bengal Bank (1784–91).
The Indian rupee was a silver-based currency during much of the 19th century, which had severe consequences on the standard value of the currency, as stronger economies were on the gold standard. During British rule, and the first decade of independence, the rupee was subdivided into 16 annas. Each anna was subdivided into either 4 paisas or 12 pies. So one rupee was equal to 16 annas, 64 paises of 192 pies. In 1957, decimalisation occurred and the rupee was divided into 100 naye paise (Hindi/Urdu for new paisas).

83
Q

Nuclear Suppliers Insurance Policy

A

India’s first and world’s 27th global nuclear insurance pool was launched by GIC. The insurance pool provides capacity for insurance coverage to operators and suppliers for any nuclear liability towards third party.

84
Q

Masala Bonds

August2016

A

Masala bond is a term used to refer to a financial instrument through which Indian entities can raise money from overseas markets in the rupee, not foreign currency. These are Indian rupee denominated bonds issued in offshore capital markets. The rupee denominated bond is an attempt to shield issuers from currency risk and instead transfer the risk to investors buying these bonds. Interestingly currency risk is borne by the investor and hence, during repayment of bond coupon and maturity amount, if rupee depreciates, RBI will realize marginal saving. Experts believe that Indian currency is still a bit overvalued. In a way masala bond is a step to help internationalize the Indian rupee. Investors in these bonds will have a clear understanding and view on the Indian rupee risks. Therefore, a stable Indian currency would be key to the success of these bonds. It is believed that as the investors in a masala bond will bear the currency risk, they would demand a currency risk premium on the coupon and hence borrowing cost for Indian corporates through this route would be slightly higher. It may still be cheaper if one considers the currency risk. Though raised in Indian currency, these bonds will be considered as part of foreign borrowing by Indian corporate and hence would have to follow the RBI norms in this regard. Under the automatic route, companies can raise as much as $750 million per annum through Masala bonds

IAS (11 decks)

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