Balance ofPaymentsA statement that containsdetails ofallthe economic transactionsof acountry with the rest of the world, for a given time period, usually one year. The statement hastwo parts: the Current Account and the Capital Account.The Current Account gives a record of a countrys: (a) Trade alance which shows the differenceof e!portsandimportsof physical goodssuchasmachinery,te!tiles, chemicalsandtea, (")#nvisi"les that comprise services (rendered and received) such as transportation and insuranceand certain other flows, nota"ly private transfers "y individuals. $hen imports of goods e!ceede!ports, it isreferredtoasaTrade%eficit. &owever, theoverall current account positiondepends on "oth the trade "alance and the performance of #nvisi"les.The Capital Account contains details of the inward and outward flows of capital and internationalgrants and loans. '!amples of such flows are e!ternal assistance, foreign (direct and()*T+),#)) investments, su"scription to -lo"al %epository *eceipts or '.*)C)/0'*T#,')/%1 and deposits of non2residents. #nflows on the capital account ae helpful in financing acurrent account %'+#C#T. Anygapthat remainsiscovered"ydrawingone!changeorgoldreserves, or "y credit from the #nternational 3onetary +und. %epending on the nature of imports,a deficit on the current account indicates an e!cess of investment over domestic saving in aneconomy.1olongasthisdeficit is4ept inchec4(evaluatedasapercentageof theC*)11%)3'1T#C (*)%.CT), the %'T 1'*0#C' *AT#) would remain within managea"le limits.A challenge posed to #ndia some years ago was the upward pressure on the *upees e!changerate in the wa4e of large capital account inflows. 1o, to maintain the competitiveness of #ndiase!ports, the *eserve an4 of #ndia (*#) resorted to purchases of foreign e!change. &owever,this has also caused money supply to increase, and the *# has had to sterili5e suchmoneti5ation "y raising the CA1&*'1'*0'*AT#)or "y engaging in )('/3A*6'T)('*AT#)/1.Balance Sheet A statement of the financial position of an enterprise, as on a certain date, and inacertainformat showingthetypeandamountsof thevarious A11'T1owned, ,#A#,#T#'1owed, and shareholders funds.BankGuaranteeThefinancial guaranteesandperformanceguaranteesissued"y"an4son"ehalf of their clients. Afinancial guaranteeassuresrepayment of money. (e.g. anadvancereceivedonanelectrificationcontract), intheevent of non2completionof thecontract "ytheclient. Aperformance guarantee provides an assurance of compensation in the event ofinade7uateor delayedperformanceonacontract. Adeferredpayment guaranteepromisespayment of instalments due to a supplier of machinery or e7uipment.Bank Rate or Repo Rate The rate of interest charged "y the *eserve an4 of #ndia (*#) onfinancial accommodatione!tendedto"an4sand+#/A/C#A,#/1T#T.T#)/1. Thesupport isprovidedintheformof a"illsrediscountingfacilityandadvancesor *'+#/A/C'againstspecified A11'T1 (e.g. T*'A1.*8#,,1 and %AT'%1'C.*#T#'1) or (*)3#11)*8/)T'1.The intent "ehind changing the an4 *ate at certain 9unctures is to raise or lower the cost offunds that "an4s o"tain from the *#. This, in turn, would alter the structure of "an4s interestrates and there"y serve to cur" or encourage the use of credit. &owever, the an4 *ate is arelatively passive instrument of credit control. #n the wa4e of the 'ast Asian currency crisis, the*# used the an4 *ate in con9unction with the CA1& *'1'*0' *AT#) and other measures tosta"ili5e the e!change rate of the *upee.#nrecent times, it has"een*#sendeavourtoma4ethean4*aeandeffectivesignallingdevice as well as a reference rate. &owever, since fre7uent changes in the an4 *ate may "e1undesira"le, the short2term *'()1 interest rate seems to "e a useful supplement in influencingthe flow and cost of funds in the short term.Bear A person who e!pects share prices in general to decline and who is li4ely to indulge in Blue ChipA share of a company that is financially very sound, with an impressive trac4 record ofearnings and %#0#%'/%1, and which is highly regarded for its competent management, 7ualityproducts and:or services. '!amples in #ndia are &industan ,ever, -u9arat Am"u9a Cements, and*ec4itt ; Colman among others.BondAlong2termde"t instrument onwhichtheissuer paysinterest periodically, 4nownasCoupon. onds are secured "y C),,AT'*A,in the formof immova"le property. $hilegenerally, "onds have a definite 3AT.*#T8, (erpetual onds are securities without any maturity.#n the ..1., the term %''/T.*'1 refers to long2term de"t instrumetns which are not secured"y specific collateral, so as to distinguish them from "onds.BondInsuranceA formfocredit enhancement whichprovidesafinancial guaranteeontheo"ligations of a de"t instrument. The purpose of credit enhancement is to increase the safety ofde"t securities. Apart from financial guarantees, other forms of credit enhancement include letterof credit, overcollaterali5ation, etc. )vercollaterali5ation involves the provision of additional assetsas security.Bonus Shares The issue of shares to the shareholders of a company, "y capitali5ing a part of thecompanys reserves. The decision to issue "onus shares, or stoc4 %#0#%'/% as in the ..1., may"einresponsetotheneedtosignal anaffirmationtothee!pectationsof shareholdersthattheprospects of the company are "right< or it may "e with the motive of "ringing down the shareprice in a"solute terms, in order to ensure continuing investor interest. +ollowing a "onus issue,though the num"er of total shares increases, the proportional ownership of shareholders does notchange. The magnitude of a "onus issue is determined "y ta4ing into account certain rules, laiddownforthepurpose. +or e!ample, theissuecan"emadeout of freereservescreated"ygenuine profits or "y share (*'3#.3 collected in cash only. Also, the residual reserves, after theproposed capitali5ation, must "e at least => percent of the increased (A#%2.( CA(#TA,. Theseand other guidelines must "e satisfied "y a company that is considering a "onus issue. )1ee also3A*6'T CA(#TA,#?AT#)/.)oo4 uilding Aprocess used to ascertain and record the indicative su"scription "ids ofinterestedinvestors toaplannedissueof securities. Theadvantages of this techni7ueofo"tainingadvancefeed"ac4, arethat it results inoptimal pricingandremoves uncertaintyregarding mo"ili5ation of funds.The concept of "oo4 "uilding is alien to #ndias (*#3A*8 3A*6'T< so, towards the end of @AAB,efforts were under way, to introduce this mechanism as an option in the case of large issues(minimumsi5e: *s.@>>crore). Anissuewasdividedintoa(lacement (ortion andanothertermed /et )ffer to the (u"lic. +or the (lacement (ortion, the e!ercise of "oo4 "uilding ena"lesthe issuing company to interact with institutional and individual investors, and collect particulars ofthe num"er of shares they would "uy at various prices. The procedure is carried out "y a leadmanager to the issue, called the oo4 *unner. #t commences with the circulation of a preliminary(*)1('CT.1 and an indicative price "and, for the purpose of forming a syndicate ofunderwriters, comprising +#/A/C#A, #/1T#T.T#)/1, 3.T.A, +./%1 and others. Thissyndicate, in turn, contacts prospective investors in order to elicit their 7uotes. These 7uotes areforwarded to the "oo4 runner, who prepares a schedule of the si5e of orders at different prices.After receiving a sufficient num"er of orders, the company and the merchant "an4ers decide theissue price and underwriting particulars. There are some other aspects of "oo4 "uilding arisingfrom the guidelines issued"y the1ecurities and '!change oard of#ndia.A change "roughta"out in @AAC was that the "oo4 "uilding process could "e applied to the e!tent of @>> percent of2the issue si5e,for large issues as defined a"ove. #nterestingly, the process has "een used in#ndia to place de"t securities as well.Book Value #t is the amount of /'T A11'T1 that would "e availa"le per '.D.#T8 1&A*', aftera company pays off all ,#A#,#T'1 including (*'+'*'/C' 1&A*'1 from the sale proceeds ofall its A11'T1 li7uidated at A,A/C' 1&'' values.Break-even Point The point where the revenues from a "usiness operation e7ual the total costs(+#E'% C)1T1 F 0A*#A,' C)1T1). Thus, a profit accrues when revenues e!ceed the "rea42even point. The "rea42even volume is computed "y dividing the fi!ed costs (+C) "y the difference"etween the selling price per unit (1()andvaria"le costper unit(0C). +orinstance, if+Cis*s.=,>>>, 0C is *s.G> and 1( is *s.HB, the "rea42even volume is =,>>>:(HB2G>) F @G> units ofoutput.The "rea42even point in terms of revenues can "e determined "y dividing the fi!ed costs "y thecontri"ution margin ((1(20C):1(). Thus.=>>>2222222222222F *s.@I,G>>((HB2G>):HB)which e7uals the revenues at @G> units.Budget A financial plan that pro9ects receipts and payments of an entity covering a specific periodof time, usually one year. #ts primary purpose is to achieve financialcontrol. udgets could "edistinguished on the "asis of time span, function and fle!i"ility. +or instance, "udgets may "eshort2term or long2term< similarly, there are 1ales udgets, Cash udgets, Capital'!penditureudgets and other to cover different functions.Budget Deficit 1ee %'+#C#TCall oney A term used for funds "orrowed and lent mainly "y "an4s for overnight use. This is amar4et which "an4s access in order to meet their reserve re7uirements or to cover a suddenshortfall infundsandtheinterest rateisdetermined"ysupplyanddemandconditions. Thesituation arises when "an4s face an unforeseen shortfallin funds, perhaps "ecause they haveinvested a large amount in other A11'T1, e.g., -)0'*/3'/T 1'C.*#T#'1 and loans or dueto heavy withdrawals "y depositors for different reasons. &igh call money rates are an indicationof such a mismatch or of a deli"erate policy to su"stantially "orrow short2term and lend long2term.The more stringent re7uirements relating to the Cash *eserve *atio fromJanuary @AAB,particularlytheseverepenaltyfor default, hasalsoforced"an4sto"orrowshort2term< thise!plains the sudden "ut short2lived 9umps in the call money rate.An alternative sourcefor "an4s would "e to do *'()1 dealswiththe %iscount and +inance&ouse of #ndia (%+) or 1ecurities Trading Corporation of #ndia (1TC#), using the e!cess securityholdings. #ncidentally,%+ isalsoanactiveintermediaryinthecall moneymar4et. esides,certain +#/A/C#A, #/1T#T.T#)/1 and corporate entities (through (*#3A*8 %'A,'*1) havealso "een permitted to participate as lenders. The announcement "y the *eserve an4 of #ndia(*#) in April, @AAB to permit private sector 3.T.A, +./%1 to lend in the call money:/)T#C'3)/'8:#,, *'%#1C)./T#/- mar4et may alleviate the situation considera"ly. #ncidentally, thismeasure also provides these entities a facility for par4ing short2term funds. .ltimately, though, the*# intends to ma4e the callmoney:notice money:term money mar4et into a purely inter2"an4mar4et, with the additionalinvolvement of (rimary %ealers. Accordingly, the *'()1 mar4et is"eing widened and developed for the "enefit of non2"an4 participants, who may "e permitted todoreposdeals(i.e., "orrowingfunds) aswell. +urther, theunderlyingeligi"lesecuritieswill3include(1.)/%1, corporate)/%1, andothersindemateriali5edform. 3oreover, theparticipation of non2"an4s in the call:notice money mar4et is to cease "y the end of @AAA.Capital !de"uacy Ratio A re7uirement imposed on "an4s to have a certain amount of capital inrelation to their A11'T1,i.e., loans and investments as acushion against pro"a"le losses ininvestments and loans. #n simple terms, this means that for every *s.@>> of ris42weighted assets,a "an4 must have *s. E in the form of capital. Capitalis classified into Tier # or Tier ##. Tier #comprises share capital and disclosed reserves, wheteas Tier ## includes revaluation reserves,hy"rid capital and su"ordinated de"t. +urther, Tier ## capital should not e!ceed Tier # capital. Theris4 weightage depends upon the type of assets. +or e!ample, it is 5ero ongovernmentguaranteed assets, K> percent on short2term "an4 claims on @>> percent on private sector loans.(*is4 weights on -)0'*/3'/T 1'C.*#T#'1 are "eing introduced.) The capital ade7uacy ratiois percentage of total capital funds to the total ris42weighted assets.CashReserve Ratio#CRR$Alegal o"ligation onall 1C&'%.,'%C)33'*C#A,"an4se!cluding *'-#)/A, *.*A, A/61 to maintain certain reserves in the form of cash with the*eserve an4 of #ndia (*#). The reserves, to "e maintained over a fortnight, are computed as apercentage of a "an4s net demand and time ,#A#,#T#'1. an4s earn interest on eligi"le cash"alances thus maintained and it contri"utes to their profita"ility. &owever, such interest paymenttendstoattenuatemonetarycontrol, andhencetheseoutflowsneedto"emoderatedif thesituation so demands. An alternative that has "een suggested is to fi! a lower level of reservesand pay a modest interest.Central BankThepremier "an4inacountrythat dischargestheresponsi"ilitiesof issuingcurrency, managing 3)/'8 1.((,8 "y appropriate measures in order to maintain price sta"ilityand economic growth, maintaining the e!change value of the domestic currency, superintendenceand regulationof the commercial"an4s, etc. #n#ndia, the*eserve an4 of #ndia (*#) is theCentral an4. *#, therefore, carries out the duties mentioned a"ove, and also acts as a "an4erto the Central and 1tate -overnments. esides this, it also manages the pu"lic de"t, i.e., fund2raising programmes of the government.Commodity%uturesA standardi5edcontract guaranteeingdeliveryof acertain7uantityof acommodity (such aswheat, soy"eans, sugarorcopper) on a specified future date, at a priceagreed to, at the time of the transaction. These contracts are standardi5ed in terms of 7uantity,7uality and delivery months for different commodities. Contracts on certain commodities such aspepper and coffee are already traded in #ndia. 3oreover, the 6a"ra Committee in @AA=recommendedthat futurestrading"epermittedinseveral other commoditiesincludingrice,cotton, soya"ean and castor oil. +urther, in an interesting development, a committee appointed "ythe *eserve an4 of #ndia under the chairmanship of *.0. -upta has recommended that #ndiancorporates "e allowed to hedge in offshore futures and )(T#)/1 mar4ets in a phased manner.The committee su"mitted its report in /ovem"er @AAC. (1ee also Appendi! ##).Credit RatingThe e!ercise of assessing the credit record, integrity and capa"ility of aprospective "orrower to meet de"t o"ligations. Credit rating relates to companies, individuals andeven countries. #n the case of a companys de"t instrument, such formal evaluation with the aid of7uantitative and 7ualitative criteria, culminates in the assignment of a letter rating to the security.Theinstrument could"ea%''/T.*', +#E'%%'()1#T)*C)33'*C#A,(A('*. Therating represents in rating agencys opinion at that time on the relative safety of timely payment ofinterest andprincipal associatedwiththeparticular de"t o"ligation. Thisopinionrestsontheagencys assessment of the willingness and capa"ility of the issuer to meet the de"t o"ligations.Themethodologyistoe!amine4eyfactorsli4ethe"usiness, themanagement, regulatoryenvironment, competition and fundamental aspects including the financial position. A high creditrating can help in reducing the interest cost and also facilitate placement of the de"t security. Therating agencies in#ndia are Credit*atingand #nformation 1ervices of #ndia,imited (C*#1#,),#C*A, and Credit Analysis and *esearch (CA*').4A recent development in#ndiaistheratingof fi!eddepositsof "an4s, 1T*.CT.*'%%'T),#-AT#)/1 and securiti5ed de"ts. 3oreover, performance ratings can now "e o"tained "yreal estate developers and ,(- "ottlers. #t is e!pected that ratings will soon "e e!tended to chitfunds and 3.T.A, +./%1, esides, a general credit rating service not lin4ed to any de"t issuemay "e availed of "y a company. This service is already offered "y #ndian rating firms. C#*1#,, fore!ample, calls it Credit Assessment. This rating can "e used in negotiations with new "an4ers, forperformance guarantees, etc. #nternational rating agencies also underta4e sovereign rating, i.e. ofcountries.Current !ssetsThe assets which are e!pected to "e converted into cash or consumed duringthe )perating Cycle of a "usiness. The operating cycle is the time ta4en for the se7uence ofevents from the purchase of raw materials to the collection of cash from customers for goodssold. &ence, it isalso4nownastheCashConversionCycle. &owever,if rawmaterialsare"ought on credit, then the cash conversion cycle is shorter than the operating cycle "y the periodof credit availa"le. '!amplesof current assetsarecash, short2terminvestmentsparticularly3)/'8 3A*6'T securities, raw materials, wor42in2process, finished goods, and ACC)./T1*'C'#0A,'.Current &ia'ilities The claims against a company that will "ecome due within a year. These aremainly ,#A#,#T#'1onaccount of pruchaseof materials or services renderedtothefirm.'!amplesincludeaccountsand(*)3#11)*8/)T'1paya"le, aswell asta!esandloanrepayments falling due within the year.Current Ratio This ratio is a measure of a companys a"ility to pay its short2term de"ts as they"ecomedue. #t iscomputedfromaA,A/C'1&''T"ydividingC.**'/TA11'T1"yC.**'/T ,#A#,#T#'1. #n #ndia, the general norms for this li7uidity ratio is @.II De'entureA de"t securityissued"ycompanies, havingacertain3AT.*#T8and"earingastated C).()/ *AT'. %e"entures may "e unsecured or secured "y A11'T1 such as land and"uilding of the issuing company. %e"enture holders have a prior claim on the earnings (coupon)and A11'T1 in the event of li7uidation, as compared to (*'+'*'/C' and e7uity shareholders.(1ee also )/%, %''/T.*' *'%'3(T#)/ *'1'*0' and %''/T.*' T*.1T''.)Deficit #n general, it connotes a shortfall. #n the conte!t of a .%-'T, it refers to the e!cess ofe!penditureover revenuesduringacertainperiod. &owever, therearespecificmeasuresofdeficit used in #ndia for a financial year, as descri"ed "elow :Revenue DeficitThe e!cess of e!penditure over receipts in the revenue account fothe-overnment of #ndia. *eceipts include ta!es and non2ta! revenues such as interest and%#0#%'/%1 and also grants. 1ome fo the e!penditure items are interest, 1.1#%#'1, certaindefence outflows, salaries, pensions etc. Thus, the revenue dficit is a good indicator of whetherthegovernment islivingwithinitsmeans.Therecent phenomenonof highlevelsof revenuedeficit financed"y"orrowings tomeet consumptione!penditurehas ominous implications.$hereas outflows on account of interest charges and loan repayments will go up, the creation ofproductive A11'T1 decelerates, as funds are diverted to current e!penditure.#n the .nion udget @AAG2AC, it was proposed that a high2level, '!penditure 3anagement and*eforms Commission, "e appointed to tac4le the issue of pu"lic e!penditure management andcontrol concerning the Central -overnment.Budget DeficitThefigurethat results"ysu"tractingthetotal e!penditures(onrevenueandcapital accounts) from the total receipts (on revenue and capital accounts) of the -overnment of#ndia. The "udget deficit is financed through the issue of Ad hoc T*'A1.*8 #,,1 and:or "ydrawingdowncash"alanceswiththe*eservean4of #ndia.Asmentioneda"ove, revenuereceipts include ta! and non2ta! revenues. Capital receipts comprise recovery of loans, proceeds5from the sale of government assets and "orrowings other than through Treasury ills. Capitale!penditure includes loans and advances to states and pu"lic sector units, and capital outlay.Deflation A phenomenon of falling prices in an economy, which may "e due to a contraction in3)/'8 1.((,8.Direct (a)esTa!es whose impact and incidence are on the same person. The ta!es levied onincome, and wealth ta! are instances of direct ta!es.Disinvestment The sale of shareholding "y an individual or institution in order to raise cash.DiversificationThe process of spreading out investments so as to limit e!posure and reduceris4. #ndividuals do this "y investing in shares of different companies or "y com"ining stoc4s with%''/T.*'1, 3.T.A,+./%shares, +#E'%%'()1#T1andother investment vehicles.Companies achieve diversification "y venturing into new and unrelated "usiness areas.DividendThe payment made "y a company to its shareholders. ,egal and financialconsiderations have a "earing on the level of dividend to "e paid. +or instance, dividends may "epaid out of profits alone< so also, a growing company needs funds to finance its e!pansion andhence may pay only a modest dividend, in order to conserve resources.*arnings Per Share #*PS$ The net profits of a company e!pressed on a per ('D.#T8) 1&A*'"asis. #t isarrivedat "ydividingthefigureof profitsafter ta!esand%#0#%'/%1paidon(*'+'*'/C' 1&A*'1, if any, "y the num"er of e7uity shares outstanding. Therefore, it doesnot reveal the potential impact of dilution in earnings on account of securities such as converti"lesor warrants that may "e outstanding.3oreover, an improvement in '(1 does not necessarilyindicate a more productive use of the total amount of funds availa"le with a firm.*conomic Value !dded #*V!$ A tool for evaluating and selecting stoc4s for investment, and alsoused as a measure of managerial performance. An American consultancy firm, 1tern 1tewart iscredited with the development of this tool in the late eighties. #t is calculated "y su"tracting thetotal cost of capital from the after2ta! operating profits of a company.'0A F After2ta! )perating (rofits L Total cost of capital)peratingprofitssimplymeanearnings"eforeinterest andta!es. Thecost of capital isthecomposite cost of total e7uity and de"t, which together are deployed in various A11'T1 such asland, "uildings, machines, #/0'/T)*#'1, receiva"les and cash. Total e7uity includes reservesand shares (*'3#.3, for which an appropriate )(()*T./#T8 C)1T must "e considered. Apositive '0A is deemed to "e a good sign and the higher it is, the "etter. '0A e!pressed on a pershare "asis facilitates comparison "etween companies.%inancial Institution A non2"an4ing financial intermediary (company corporation or co2operativesociety) carrying on any of the activities specified in the relevant section of the *eserve an4 of#ndiaAct. Theseactivities includelending, investinginshares andother securities, *'2(.*C&A1', insurance and CT +./%1.#n general, this term refers to the %evelopment +inance #nstitutions such as #%# and #+C#, as wellas the .nit Trust of #ndia (.T#) and the ,ife #nsurance Corporation of #ndia (,#C). &owever, amore specific classification could "e as shown "elow :6+inancial #nstitutions%evelopment 1peciali5ed:1ectoral #nvestment 1tate ,evelan4s (/ational) +inancial #nstitutions #nstitutions #nstitutions#%# T+C# .T# 1+Cs#C#C# T%#C# ,#C 1#%Cs1#%# *CTC -#C (with#+C# 'E#3 A/6 su"sidiaries)1C#C# /AA*%#*# and others1#%# : 1mall #ndustries %evelopment an4 of #ndia.1C#C# : 1C#C# ,td.1+Cs: 1tate +inancial Corportions.T+C#: Tourism +inance Corporation of #ndia ,td.T%#C# : Technology %evelopment and #nformation Company of #ndia ,td.*CT% : *is4 Capital and Technology +inance Corporation ,imited.%iscal Policy The use of ta! and e!penditure powers "y a government. -overnment all over theworld, are vested with the tas4 of creating infrastructure (e.g., roads, ports, power plants, etc.)andarealsore7uiredtoensureinternal ande!ternal security. Theseresponsi"ilitiesentailgovernment e!pendituresonvariousfrontsLcapital outlays, thedefenceforces, police, theadministrative services and others. Ta!es are a ma9or source of revenue to meet these outflows.Thus, the .nion -overnment collects income ta!, 'EC#1' %.T8, customs duty, etc., through itsdifferent arms.Anincreaseingovernment spendingwithout amatchingincreaseininflowsmaycauseore!cer"ate a %'+#C#T. ut, government spending also contri"utes to aggregate demand for goodsandservicesLdirectly,andindirectly"yincreasingprivateincomeswhichstimulatesprivatedemand.Gross Domestic Product #DGP$ This is a comprehensive measure of the economic activity thatta4es place in a country during a certain period. #t is the total value of final goods and servicesproducedinaneconomyinayear. Thecomputationisonthe"asisof valueaddedLthecontri"ution of a producing enterprise is the difference "etween the value of its finished productand the cost of materials used. &ence, national output is the total value added "y all producingenterprises. 3ore specifically, gross domestic product is e!pressed asC M # M - M (E L 3)$here C stands for consumption, which is the e!penditure "y consumers on consumption goodsand services. #is -ross private %omestic #nvestment representing the ac7uisition of new capital goods(e.g., plant and machinery) and inventory additions "y "usiness enterprises, as well asconstruction of factories, houses, etc.- denotes government e!penditure on goods and services.(E23) represents the difference "etween e!ports (1) and imports (3) of goods and services.7+avala (ransaction An #ndian term which refers to a mode of transfering of funds out of #ndia orinto the country, "ypassing official and legal channels. As an e!ample, an individual may transferhis ill2gotten cash to a discreet "an4 in a foreign country. .sing the havala route, he gives therupees to an intermediary in #ndia, who then arranges a reciprocal deposit of an e7uivalent amoutto his account in the chosen "an4. At a later date, the funds could "e "rought into #ndia throughanother havala transaction. 1ince such deals circumvent official channels, there is a loss to thenation in terms of the net inflow of foreign e!change.ICICIAn acronym for #ndustrialCredit and #nvestment Corporation of #ndia ,imited, which is aprivatesectortermlendinginstitutionset upin@ABB. #tssponsorsincludeforeigninstitutions,nota"ly the $orld an4. esides granting term loans, particularly foreign currency loans, it assists"usinesses "y %#1C)./T#/- "ills, providing ,'A1' finance, managing (.,#C #11.'1 andproviding 0'/T.*' CA(#TA,. The corporation has also "een instrumentalin setting up otherimportant institutions such as Credit *ating and #nformation 1ervices of #ndia ,imited (C*#1#,) forcredit rating. Technology %evelopment and #nformation Company of #ndia (T%#C#) for thepromotionofindigenoustechnology and 1C#C#forfinancingtheshipping industry.#nitsdrivetowards "ecoming a glo"al financial supermar4et, #C#C#s new thrust areas are "an4ing, financialadvisory services and 3.T.A, +./%1.ICR!Anacronymfor thecredit ratinginstitution. #nvestment #nformationandCredit *atingAgency of #ndia ,imited, which has su"se7uently "een rechristened as #C*A ,imited. The agencyhas "een promoted "y various financialinstitutions including #ndustrial+inance Corporation of#ndia, 1tate an4 of #ndia and .nit Trust of #ndia. The role of this agency li4e Credit *ating and#nformation 1ervices of #ndia ,imited (C*#1#,), is to assist investors in assessing the credit ris4 ofvarious securities such as )/%1 and C)33'*C#A, (A('*, "y assigning letter ratings. (1ee'D.#T8 -*A%#/-.)IDBIAn acronym for the #ndustrial %evelopment an4 of #ndia, which is the ape! term lendinginstitution in the field of industrial finance. +rom @ACG, #%# has "een functioning as a separateentity,whollyowned"ythe-overnment of #ndia. #n@AAB, #%# issuede7uity sharesthroughpu"licsu"scription. #t isactiveinprovidingfinancethroughtermloans, %#1C)./T#/-and*'%#1C)./T#/- of"ills,*'+#/A/C#/-loansgranted"y1tate +inancial Corporationsand"an4s. #t has also su"scri"ed to securities of +#/A/C#A,#/1T#T.T#)/1. esides theseactivities, #%# also performs the important tas4 of co2ordinating the functions and operations ofothertermlendinginstitutionsinthecountry.#%# hasplayeda4eyroleinsettingup1mall#ndustries %evelopment an4 of #ndia (1#%#) and more recently, the /ational1toc4 '!changeand Credit Analysis and *esearch (CA*'). ,i4e other financial institutions venturing into newerareas. #%# has turned to leasing, asset credit and merchant "an4ing.Inflation The phenomenon of rising prices of goods and services in general. #t can come a"outdur to a scaricity of supplies in relation to demand< this is 4nown as demand2pull inflation. #t mayalso result from an increase in the cost of some critical input, such as steel or petroleum, whichthen triggers off a gradual rise in prices in general< this is 4nown as cost2push inflation.InsiderA term used for one who has access to information concerning a company, that is notpu"licly availa"le and is of such a nature that it ena"leshim or her to ma4e su"stantial profits inshare transactions.arket Capitali,ation The value of e7uity shares outstanding at prevailing mar4et prices.3ar4et capitali5ation F /um"er of shares ! 3ar4et price of each share.3ar4et capitali5ation may "e determined for a company or for the stoc4 mar4et as a whole. 1omestoc4mar4et playersattempt togaugethepriceappreciationpotential of astoc4"yrelatingmar4et capitali5ation to the companys sales, (1ee (*#C'21A,'1 *AT#)).8ion to the latter and helps in determinign the actual margin in the formerN account.ergerThecom"inationof two (or more) companies into oneentity, usually through thee!change of shares. Three common forms of mergers are :@. &ori5ontal, uniting similar plants and products.K. 0ertical, com"ining plants in different stages of production.I. Conglomerate, uniting dissimilar plants and products.utual%undAnorgani5ation that mo"ili5esthesurpluses of savers and invests thesame indifferent securities. Thus, an individual who owns a share in a mutual fund has a proportionateclaim on the ()*T+),#) of investment vehicles held "y the fund. #n financial nominclature, theterm mutual fund refers to the )pen2end type of investment company which has no limit on thenum"erof sharesthat it canissue. The.nit Trust of #ndias, .nits@AG=schemeisaprimee!ample. &owever, in common parlance, the term mutual fund refers to "oth the )('/2'/% andC,)1'%2'/% types of investment companies.3anaging an open2end fund however, involves some distinct challenges. The portfolio managermust estimate the ma!imum possi"le demand for *'%'3(T#)/ and accordingly retain someli7uidA11'T1. 3oreover, dailyclaculationof the/A0re7uiresasophisticatedinformationsystem..-!SD!.An acronymfor /ational Association of 1ecurity %ealers Automated Duotations1ystem, which is a nationwide networ4 of computers andother electronic e7uipment thatconnects dealers in the over2the2counter mar4et across the ..1. The system provides the latest#% and A16#/- (*#C'1 7uoted for any security "y different dealers. This ena"les an investortohavehisorhertransactiondoneat the"est price. %ueto/A1%AD, theover2the2countermar4et in the ..1. is li4e a vast "ut convenient trading floor on which several thousand stoc4s aretraded.-ational Stock *)change #-S*$#t is a nationwide screen2"ased trading networ4 usingcomputers, satellite lin4 and electronic media that facilitate transactions in securities "y investorsacross #ndia. The idea of this model e!change (traced to the (herwani Committeerecommendations) was an answer to the deficiencies of the older stoc4 e!changes as reflected insettlemtn delays, price rigging and a lac4 of transparency.'fforts to get the e!change going "egan with its incorporation in /ovem"er @AAK. The sponsors,mainly +#/A/C#A, #/1T#T.T#)/1, include #%#, -#C and ,#C with #%# playing the lead role. #nthe earlier stages, it was contemplated that the /1' would function primarily as a wholesale de"tmar4et ($%3) and that for 'D.#T8 1&A*'1, it would play a complementary role to the om"ay1toc4 '!change (1'). &owever, /1's active operations in stoc4s have unleashed competitivepressures on the 1' and the latter has conse7uently streamlined its outmoded trading system.1' mem"ers see4 to e!tend their new on2line system (),T) to other towns and cities. Themagnitude of /1's impact can "e gauged from the fact that in +e"ruary @AAG, daily turnover ine7uity shares on the e!change had crossed *s.@>>> crore, al"eit temporarily. #t $%3 segmentinvolves transactions in T*'A1.*8 #,,1, -)0'*/3'/T 1'C.*#T#'1, (1. )/%1,C)33'*C#A, (A('*, C'*T#+#CAT' )+ %'()1#T and %''/T.*'1. )ther distinct featuresof the /1' include :@. 1eparation of the ownership (and management) of the e!change from the right to tradeon the e!change.K. 3em"ership of the e!change is "ased on professional merit and financial soundness.9I. A fullyautomatedscreen2"asedtradingsystemthat will connect mem"ersacrossthelength and "readth of #ndia. The system is order driven and provides fle!i"ility to usersas to the 4inds of orders that may "e placed. Additionally, it furnishes voluminous mar4etinformation on2line, upon re7uest.-on-performing!sset #-P!$Acredit facilitywhichceasestogenerateincomefora"an4.-enerally, it is one on which interest or any amount to "e received has remained past due for aperiod of two 7uarters as on 3arch I@, @AAB. An amount under a credit facility is past due when ithasnot "eenpaidwithinI>daysfromtheduedate. +or CA1&C*'%#Tand)0'*%*A+Tfacilities,thereare somespecifiedcriteriaforidentifying/(As. #ncome from/(Ascannot "eta4en to the profit and loss accounts of "an4s, as per *eserve an4 of #ndias directive.Primary ReserveThe sum of (a) cash reserves, legally re7uired to "e held "y a "an4 and (")wor4ing reserves maintained to facilitate operations such as payments to depositors and creditdis"ursement. The level of wor4ing reserves depends on several factors that include the scale ofoperations, profile of depositors, "usiness conditions, and si5e of the 1'C)/%A*8 *'1'*0'.Prime &ending Rate #P&R$ The rate of interest charged "y "an4s on $)*6#/- CA(#TA, andshort term loans to their most credit2worthy "orrowers. The prime rate serves as a "enchmar4 fordeciding on the interest rate to "e charged to other "orrowers. Accordingly, ma9or "an4s and also+#/A/C#A, #/1T#T.T#)/1 in #ndia periodically announce their (,*s depending on their cost offunds and competitive lending rates. +rom )cto"er @AAC, the *eserve an4 of #ndia has decidedto permit "an4s to announce separate (rime Term ,ending *ates on term loans of three yearsand"eyond. 3orerecently, "an4shave"eengiventhefreedomtohavedifferent (,*sfordifferent maturities.Pu'lic IssueAn invitation to the pu"lic at large to su"scri"e to shares or other securities of acompany. A pu"lic issue entails numerous ta4s such as organi5ing the syndicate of./%'*$*#T'*1, "ro4ers andothers, preparationof the(*)1('CT.1andfulfilment ofseveral formalities including, nota"ly, prior approval from 1'# and the *egistrar of Companies. Canvassingfor theissueisdonemainly"ythe"ro4erswhoapproachprospectiveinvestorsdirectlyor viasu"2"ro4ersandsupplyapplicationforms andinformative"rochures. (1eealso(*)1('CT.1.)S*BIAn a""reviation for 1ecurities and '!changeoardof #ndia, which is a regulatory "odyesta"lished under the 1ecurities and '!change oard of #ndia Act, @AAK. #ts role is to protect theinterestsof investorsinsecurirties, topromotethedevelopment of securitiesmar4etsandtoregulate the same. Towards the achievement of these goals, 1'# is empowered to adopt variousmeasures which include :@. *egulating the "usiness at stoc4 e!changes at other mar4ets.K. *egistration of stoc4 "ro4ers, su"2"ro4ers, transfer agents, registrars to issues,3'*C&A/T A/6'*1, ./%'*$#*T'*1 and others.I. *egulating 3.T.A, +./%1.=. (romoting investor education.B. .nderta4ing inspection and audit of stoc4 e!changes and various intermediaries.Secondary arket The segment of +#/A/C#A, 3A*6'T1 in which securities that have already"eenissuedaretraded. Thusthesecondarymar4et comprisessecuritye!changesandalsotransactions ta4ing place elsewhere, as e.g., 6'* %'A,1, (1ee also +#/A/C#A, 3A*6'T1.)10Statutory &i"uidity Ratio #S&R$The portion of net demand and time ,#A#,#T#'1 that1C&'%.,'% commercial "an4s (e!cluding *'-#)/A, *.*A, A/61) must invest in specifiedfinancial A11'T1suchasT*'A1.*8#,,1and-)0'*/3'/T1'C.*#T#'1. The1,*indirectly serves as an instrument of credit control, "y reducing the moneti5ation of the %'+#C#Tthat would have ta4en place if funds from the "an4ing system were not statutorily pre2empted "ythe government sector..11