Bank Rate, SLR, CRR , Inflation
Bank
Rate:
It is the
rate at which the RBI rediscounts bill of exchange or other commercial papers. In
other words, it is the rate at which the RBI extends credit to the commercial
bank . Bank Rate is also called Discount Rate.
Cash
Reserve Ratio:
The RBI Act,
1934, stipulates that a commercial bank is required to keep in cash a portion
of its deposits with the RBI , this is known as Cash Reserve Ratio. The RBI can
very this ratio from 3% to 15%.
Statutory
Liquidity Ratio:
The
Statutory Liquidity Ratio specifics that a commercial bank invests a designed
minimum proportion of its total assets in liquid assets, such as cash, gold and
unencumbered approved securities. This is a method of quantitative controls in
addition to the cash reserve ratio. The SLR cannot be raised beyond 40%
Inflation:
In a broods sense,
inflation is that state in which the prices of goods and services rises on the
one hand and value of money falls on the other . When money circulation exceeds
the production of goods and services, the state of inflation takes place in the
economy. Inflation is of two types:
(i)
Demand
Pull Inflation
(ii)
Cost
Push Inflation
Demand
Pull Inflation:
Demand Pull
Inflation is that inflation when prices rise due to higher demand for goods and
services over the available supply. In other words, demand pull inflation takes
place when increase in production lags behind the increase in money supply.
Cost Push
Inflation:
Cost Push
Inflation is another type of inflation in which prices rises due to increased
input costs.
Foreign
Direct Investment (FDI):
Investment
of foreign assets into domestic structure, equipments and organisations. It
does not include foreign investment into the stock markets. Foreign Direct
investment is thought to be more useful to a country than investment in the
equity of its companies because equity investments are potentially hot money
which can leave at first sign of trouble, whereas FDI is durable and generally
useful whether things go well or badly.
Hot
Money:
Money which
flees quickly from country to country either in response to better earning or
in apprehension of adverse circumstances.
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