Economy

Question 1

Full form of IFSC

Answer 1

International Financial Services Centre

Question 2

What is an IFSC?

Answer 2

Centre which caters customers outside the jurisdiction of the domestic economy.

1. Such centres deal with flows of finance, financial products and services across borders.
2. London, New York and Singapore can be counted as global financial centres.

Question 3

What are the services offered by an IFSC?

Answer 3

1. Fund-raising services for individuals, corporations and governments.
2. Asset management and global portfolio diversification undertaken by pension funds, insurance companies and mutual funds.
3. Wealth management.
4. Global tax management and cross-border tax liability optimization, which provides a business opportunity for financial intermediaries, accountants and law firms.
5. Global and regional corporate treasury management operations that involve fund-raising, liquidity investment and management and asset-liability matching.
6. Risk management operations such as insurance and reinsurance.
7. Merger and acquisition activities among trans-national corporations.

Question 4

Can an IFSC be set up in a special economic zone (SEZ)?

Answer 4

The SEZ Act 2005 allows setting up an IFSC in an SEZ or as an SEZ after approval from the central government.

Question 5

IFSCs in India

Answer 5

The first IFSC in India has been set up at the Gujarat International Finance Tec-City (GIFT City) in Gandhinagar

Question 6

Why has IFSC been in news in sept 2020?

Answer 6

The National Stock Exchange (NSE) and Singapore Exchange (SGX) have entered into a formal agreement to cement the key terms for operationalizing the NSE IFSC-SGX Connect.

● This will bring together international and Gujarat International Finance Tec-City (GIFT) participants to create a bigger liquidity pool for Nifty products in GIFT City.

Question 7

What are government Securities?

Answer 7

A government security (G-Sec) is a tradeable instrument issued by the central government or state governments.

Question 8

Who issues a G-sec?

Answer 8

Central or state government

Question 9

What are the key features of a G-sec?

Answer 9

Key features:

1. It acknowledges the government’s debt obligations.
2. Such securities can be both short term (treasury bills — with original maturities of less than one year) or long term (government bonds or dated securities — with original maturity of one year or more).
3. The central government issues both: treasury bills and bonds or dated securities.
4. State governments issue only bonds or dated securities, which are called the state development loans.
5. Since they are issued by the government, they carry no risk of default, and hence, are called risk-free gilt-edged instruments.
6. FPIs are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time.

Question 10

Why are G-secs volatile?

Answer 10

G- Sec prices fluctuate sharply in the secondary markets. Factors affecting their prices:

1. Demand and supply of the securities.
2. Changes in interest rates in the economy and other macro-economic factors, such as, liquidity and inflation.
3. Developments in other markets like money, foreign exchange, credit and capital markets.
4. Developments in international bond markets, specifically the US Treasuries.
5. Policy actions by RBI like change in repo rates, cash-reserve ratio and open-market operations.