Fungibility is a good or asset's interchangeability with other individual goods or assets of the same type.
Speculative demand for money

It is the demand for money as a store of wealth
Money is being treated as a wealth and is in demand

Full bodied coins - intrinsic value of coin > face value [silver coin value is 25/- but if its face value is 1]
Token coin - intrinsic value < face value

Goal of a $5trillion economy by 2024-25,

Ombudsman- an official appointed to investigate individuals' complaints against a company or organization, especially a public authority.
Foreign Institutional Investors are registered under the SEBI (Foreign Institutional Investors) Regulations, 1995.

Not with Ministry of Finance or Ministry of External Affairs or Ministry of Commerce

Reflation

Expansion of economy because of Govt stimulus either by fiscal policy or monetary policy

Fictitious capital

Capital having no counterpart in productive sector is called as fictitious capital
Flows of fictitious finance consist of credit in circulation, bonds on the basis of future earnings, interest on loans

Refinancing

Means that loans are not given directly to the individual and business.
It is a way for banks to get funding needed by individual and business for projects.
Ex: NABARD, SIDBI, NHB, MUDRA

Interest Coverage Ratio

The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt.
Interest coverage ratio of less than one means the company’s EBIDTA (Earnin Before Interest, Depreciation ,Taxes, and Amortization) is not sufficient to repay interest, let alone principal

If it is less than 1, then debtor is unable to pay its interests. Such companies are also called “I companies’.

Liquidity Coverage Ratio

It is the proportion of highly liquid assets held by financial institutions, to ensure their ongoing ability to meet short-term obligations

Net Stable Funding Ratio NSFR

NSFR is defined as the amount of available stable funding relative to the amount of required stable funding
“Available sta le funding” (ASF) is defined as the portion of capital and liabiliti expected to be reliable over the time horizon (one year usually)
"Required stable funding" (RSF) of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its off-balance sheet (OBS) exposures.

Subprime borrowers

A subprime borrower is a person considered to have relatively high credit risk for a lender.
Subprime borrowers fall in a lowe credit score category

Subordinated debt/Junior debt

W.r.t claims on assets or earnings on the subordinated debts, it is more risky than unsubordinated debts
In case of default, creditors who gave subordinated debts to borrowers are paid only after the senior debt holders were paid in full
So little guarantee in case of default.

Market Infrastructure Institutions (MII)

These institutions are systemically important for the country’s financial development and serve as the infrastructure necessary for the securities market.
They include stock exchanges, depositories and clearing corporations
SEBI constituted R Gandhi committee to review the norms of Market Infrastructure Institutions.

Merchant Discount rate MDR

The merchant has to pay the issuer bank which issued Point of Sale PoS machines what is known as merchant discount rate (MDR).
The MDR that the merchant pays is divided among three entities,

the issuer bank (which issues the debit card),
the acquirer bank (which installs the PoS),
and the payment gateway.

The issuer bank gets the maximum share of the MDR
RBI waived off MDR

Loan ever greening

In this, the banks lend money to the firms to pay their interest obligations until their conditions improve.

Inflation Tax

Inflation erodes the value of money and the people who hold currency suffer in this process.
Not an actual legal tax paid to a government;
Inflation tax refers to the penalty for holding cash at a time of high inflation.

Base Effect in Inflation rates

Inflation rate is defined as the rate of increase of prices w.r.t previous year
So the previous year price level determines the current inflation rates which is called base effect
For example, if the previous year prices are too high and the current year prices are also high, this leads to lower inflationary rates because of base effect
OR if the previous year prices are too low and little variations in the current year prices reflects high inflationary rates
Variation in inflation rates due to previous year is called Base Effect while variation in inflation rates due to prices in current year is called Price Effect

Price Effect in Inflation rates

Inflation rate values are varied depending on the price levels of current years which is called Price Effect in inflation rates
Variation in inflation rates due to previous year is called Base Effect while variation in inflation rates due to prices in current year is called Price Effect

Amortization

Amortization is the paying off of debt with a fixed repayment schedule in regular installments over a period of time
For example with a mortgage or a car loan.
It also refers to the spreading out of capital expenses for intangible assets over a specific duration (usually over the asset's useful life) for accounting and tax purposes.

Capital expenses of intangible assets are spread out over a specific duration

Sinking funds

Funds for repaying debts

Currency Swap

Exchange of interest and sometimes of principal in one currency for the same in another currency.
Interest payments are exchanged at fixed dates through the life of the contract.

Interest rate Swap

An interest rate swap is an agreement between two counterparties in which one stream of future interest payments is exchanged for another based on a specified principal amount.
Interest rate swaps usually involve the exchange of a fixed interest rate for a floating rate, or vice versa, to reduce or increase exposure to fluctuations in interest rates

Bilateral netting

Bilateral netting is when two parties combine all their swaps into one master swap, creating one net payment, instead of many, between the parties.
Bilateral netting reduces accounting activity, complexity, and fees associated with more trades and payments.
Indian financial contract laws do not permit bilateral netting but allows multilateral nettings

Multilateral netting is where parties can offset claims against each other through a central counterparty.

Budget 2020-21 allows bilateral netting in India

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

SWIFT is a messaging network that connects banks and other financial institutions across the world.
On receiving message through SWIFT, banks abroad (mostly branches of Indian banks) especially in the case of Indian firms provide funds to them
This credit which is against import documents is normally for 90 days and this facility is used regularly especially by companies which are in the business of gold, gems and jewellery
Companies take recourse to this form of funding as the costs of raising money overseas are relatively lower compared to rupee funding.
Feb 2018, RBI directed banks to link SWIFT to their Core Banking Solution.

Note: There is also another SWIFT Single Window Interface for Facilitating Trade by CBEC

Global Depository Receipts GDR

They are bank certificates issued in more than one country for share in foreign company
The shares are held by a foreign branch of an international bank.
The shares trade as domestic shares but are offered for sale globally through the various bank branches.
A GDR is a financial instrument used by private markets to raise capital denominated in either U.S. dollars or euros.

CAMELs rating system

It is a global rating system to check the health of banks
Followed by RBI
CAMELS stands for capital adequacy; asset quality; management; earnings; liquidity; and systems and control

Reserve Currencies

A reserve currency is a large quantity of currency maintained by central banks and other major financial institutions to prepare for investments, transactions and international debt obligations, or to influence their domestic exchange rate
Ex: US Dollar, Euro
Indian rupee does not have reserve currency status

Direct selling:

A marketing, distribution and sale of goods or providing of services as a part of network of direct selling. No shop/establishment/outlet

Pyramid scheme or Money Circulation scheme:

It involves an unsustainable business which rewards people for enrolling others into a business that offers a non-existent or worthless product.

Ponzi scheme:

It is a fraudulent investing scam promising high rates of return with little risk to investors.

Chit fund

Subscribers pool instalments to the chit fund. After a period, each subscriber gets the entire pooled fund after a discount cut by the chit fund.
The benefit of chit fund is that a subscriber can get a large amount of money in a short time
As per Supreme Court, Chit funds are a part of concurrent list
Chit funds are registered by the State governments. (Chit Fund Act 1982)

The Prize chits and Money Circulation (Banning) Act 1978 usually defines the illegal Chit funds.
SEBI does not regulate Chit funds. RBI, Registrar of Chits, State Govt regulates Chit fund companies

Direct Selling and Money Circulation guidelines 2016

Provision for appointment of monitoring authority at both Central and state level to deal with money circulation schemes
It prohibits such entities from using misleading and deceptive or unfair recruitment practices.
It bars entities involved from charging any entry fee from agents

Discount and Finance House of India Ltd.(DFHI)

Setup by RBI in 1988
As there are less instruments to provide short term money requirements and often banks involvement required for meeting money market needs
To develop money markets in India and to provide liquidity to money market instruments

ATM labels

Banks OWN ATM	Owned and Operated by respective bank	carry banks logo
Brown label ATM	Owed by third party. Handles concerned bank cash handling and back end server connectivity	carry banks logo
White label ATM	Owned and Operated by third party. Serve customers across all banks. Ex: Tata's IndiCash	carry firms logo

Objective of Brown and White label ATMs are to cut operational costs and financial inclusion.

Cryptocurrency

Cryptocurrency is a type of digital currency that uses cryptography for security and anti-counterfeiting measures
Ex: Bitcoin, Ethereum, Ripple
RBI ban on cryptocurrency but SC in Mar 2020 lifted the ban

Characteristics of Cryptocurrency

It has no intrinsic value

It is not redeemable for another commodity such as Gold

Has no physical form and exists only in the network
Its supply is not determined by a Central Bank and the network is completely decentralised

Cryptocurrency might become the new tool of neo-liberal economics which further augments the case of privatization of currency

Subhash Chandra Garg committee on Crypto currency

2019
Draft recommendation is to ban private cryptocurrencies in India.
Instead the panel recommended the introduction of a single cryptocurrency for the whole country that is backed by the Reserve Bank of India (RBI).

Bitcoins

Bitcoin is a digital currency that is not supported by any country’s government or cen ral bank.
Also known as crypto-currency,
It can be traded for services or goods with sellers who accept bitcoins as payment
Ex: GBMiners- bitcoin company
In 2017, 1 bitcoin value is around 1000 dollars
No country central banker recognised it
Limited number of Bitcoins

Block chain

A blockchain is a public ledger of all Bitcoin transactions that have ever been executed.
It is constantly growing as ‘completed’ blocks are added to it with a new set of recording
The blocks are added to the blockchain in a linear, chronological order.
Fingerprint of each block is added to the next thus creating an irreversible chain.
Each node (computer connected to the Bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network.
The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block.

South Asia’s first Blockchain incubator is located in New Delhi. /li>
This technology could help in preventing frauds like PNB fraud
Blockchain applications could be further extended to sectors such as insurance, law, real estate and digital art, and could be used to further strengthen our national institutions, including the judiciary and the Election Commission.

Block Chain Bill of Rights

Presidio Principles for blockchain
By World Economic Forum Global Blockchain Council
To establish a global baseline for developers, corporates and governments building blockchain applications

Libra/DIEM is the Facebook's cryptocurrency

ICICI used block chain technology for cross border remittances with Emirates Bank. Later used by Yes bank and Axis bank

Finance - Imp Terms & Definitions