Banking - Important Banking Concepts
Q1: What is Balance of Trade?
Answer: The value of a country’s exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on financial assets.
Q2: What is Balance of Payments?
Answer: A list of all of a country’s international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; Payments out of the country (payments) are entered as negative numbers called debits. A single numbers summarize all of a country’s international transactions: the balance of payments surplus.
Q3: What is NOSTRO Account?
Answer: A Nostro account is maintained by an Indian Bank in the foreign countries.
Q4: What is VOSTRO Account?
Answer: A Vostro account is maintained by a foreign bank in India with their corresponding bank.
Q5: What is BCBS?
Answer: Basel Committee on Banking Supervision is an institution created by the Central Bank governors of the Group of Ten nations.
Q6: What is LIBOR?
Answer: London InterBank Offered Rate. An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.
Q7: What is STRIPS?
Answer: It stands for Separate Trading for Registered Interest & Principal Securities.
Q8: What do you mean by term “CASA” related to bank?
Answer: CASA stands for Current Account Savings Account. The CASA ratio shows how much deposit a bank has in the form of current & saving account deposits in the total deposit. A higher CASA ratio means better operating efficiency of the bank because on current account there is no interest payable whereas on savings account a tiny 3.5% interest is payable by the bank. CASA ratio shows how much of the deposit of the bank comes from the current & savings deposit.
Q9: What is Cash Reserve Ratio (CRR)?
Answer: It refers to the minimum percentage of net demand and time liabilities to be kept by commercial banks with central bank. Reserve Bank increases CRR during inflation and decreases the same during deflation.
Q10: Define Statutory Liquidity Ratio (SLR)
Answer: Statutory Liquidity Ratio (SLR): It refers to minimum percentage of net demand and time liabilities which commercial banks required to maintain with themselves. SLR is increased during inflation or excess demand and decreased during deflation or deficient demand.
Q11: What is Reverse Repo Rate?
Answer: Reverse Repo Rate: Securities are acquired by the RBI from the commercial banks with a simultaneous commitment to re-sell them to the commercial banks at pre- determined rate and date.
Q12: What is Fiat Money?
Answer: Fiat Money refers to money by order/authority of the government. It includes notes and coins.
Q13: What is Fiduciary Money?
Answer: Fiduciary Money refers to money backed up by trust between the payer and the payee.
Q14: What does High powered Money signify?
Answer: It includes currency (R) with the public and cash (c) reserves with banks. High powered money = R + C.
Q15: What is Legal Reserve Ratio (LRR)?
Answer: It refers to that legal minimum fraction of total deposits which the commercial banks are required to keep. It is sum of CRR and SLR.
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