Beruflich Dokumente
Kultur Dokumente
February 2008
1
This report is primarily based on the Government Finance Statistics Manual 2001
(GFSM 2001) and Monetary and Financial Statistics Manual 2007 (MFSM 2007)
published by the International Monetary Fund (IMF), Washington, D.C. It may be
mentioned here that the author was a Member of the Expert Group Meeting at IMF,
Washington D.C. in February 2001 to discuss the Draft GFS Manual 2001 and to
incorporate final round changes and conclusions in GFSM 2001 (refer the Preface by
Mrs. Carol S. Carson, the then Director, Statistics Department, IMF in the GFS Manual
2001, p.ix, reproduced here as Annex).The author was also the Country Coodinator for
India on IMF Government Finance Statistics (GFS) and Special Data Dissemination
Standards (SDDS) when he worked as Economic Adviser in the Ministry of Finance,
Government of India during 1989-2006.
Glossary on
Accrual Accounting
Government Finance Statistics
Monetary and Financial Statistics
Glossary
Accrual Accounting and GFS
Prof. Tarun Das , Ph.D.
Accounts payable: Also called A/P, accounts payable are the bills a business
organization owes to suppliers.
Accounts receivable: Also called A/R, accounts receivable are the amounts
owed to the company by the customers.
Adjusted overall fiscal balance. The overall fiscal balance adjusted to exclude
some or all revenue, grants, certain enclave activities such as the mineral sector,
and/or large and infrequent transactions that could distort the fiscal analysis.
Adjusting entries: Special accounting entries that must be made when the
books are closed at the end of an accounting period. Adjusting entries are
necessary to update the accounts for items that are not recorded in daily
transactions.
Aging report: An aging report is a list of all receivable amounts and their due
dates. An aging report can also be prepared for accounts payable, which helps to
manage outstanding bills.
Allowance for bad debts: Also called reserve for bad debts, is an estimate of
uncollectable accounts. It is known as a "contra" account because it is listed with
the assets, but it will have a credit balance instead of a debit balance. For
balance sheet purposes, it is a reduction of accounts receivable.
Asset. An entity over which ownership rights are enforced by institutional units,
individually or collectively, and from which economic benefits may be derived by
its owners by holding it or using it over a period of time.
Balance sheet. A statement of the stocks of assets owned by a unit, the stocks
of financial claims (liabilities) held by other units against the owner or owners of
those assets, and the net worth of the unit or sector at a specific time. See asset,
financial claim, liability, and net worth.
Balancing item. The net value of a set of accounting entries, usually obtained by
subtracting one aggregate from a second aggregate.
Capital: Also called equity. Money invested in the business by the owners.
Capital tax. A tax levied once or at irregular and very infrequent intervals on the
values of the assets or net worth of institutional units or on the values of assets
transferred between institutional units as a result of legacies, gifts inter vivos, or
other transfers.
Cash surplus/deficit. The net cash inflow from operating activities minus the net
cash outflow from investments in nonfinancial assets.
Cash. The sum of cash on hand and cash equivalents. Cash on hand consists of
notes, coins, and deposits held on demand with a bank or other financial
institution. Cash equivalents are highly liquid investments that are readily
convertible to cash on hand at the government’s option and overdrafts
considered integral to the cash management function.
Central bank subsector. The unit or group of units consisting of the central
bank itself, currency boards or independent currency authorities that issue
national currency that is fully backed by foreign exchange reserves, and other
government-affiliated agencies that are separate institutional units and primarily
perform central bank activities.
Central government. The government whose political authority extends over the
entire territory of the country. The central government can impose taxes on all
resident institutional units and on nonresident units engaged in economic
activities within the country. Typically it is responsible for providing collective
services for the community as a whole, such as national defense. In addition, it
may provide services for the benefit of individual households, such as health and
education, and it may make transfers to other institutional units.
Chart of accounts: The list of account titles used to keep accounting records.
Closing: Closing the books refers to procedures that take place at the end of an
accounting period. Adjusting entries are made, and then the income and expense
accounts are "closed." The net surplus/ profit that results from the closing of the
income and expense accounts is transferred to an equity account such as
retained earnings.
one or more future events. Contingencies are not treated as financial assets or
liabilities because they are not unconditional claims or obligations.
Cost of goods sold: Cost of inventory items sold to customers. It may consist of
several cost components, such as merchandise purchase costs, freight, and
manufacturing costs.
Counterparty. (1) The second unit in a two-unit transaction. (2) The second unit
in a financial claim (either the debtor or the creditor).
Credit memo: Writing off all or part of a customer's account balance. A credit
memo is required, when a customer who bought merchandise on account
returned some merchandise, or overpaid on their account.
Currency. The notes/ coins in circulation that are used to make payments.
Current assets: Assets that are in the form of cash or will generally be
converted to cash or used up within one year. Examples are accounts receivable
and inventory.
Current liabilities: Liabilities payable within one year. Examples are accounts
payable and payroll taxes payable.
Current market price (value). The market price (value) on the date for which a
stock or flow is recorded. See market price (value).
Current transfer. Any transfer that is not a capital transfer. See transfer and
capital transfer.
Debit memo: Billing a customer again. A debit memo would be required, for
example, when a customer has made a payment on their account by check, but
the check bounced.
Debt assumption. The acceptance by one unit of responsibility for the debt of
another unit, including the assumption of a guaranteed debt when the creditor
invokes the contract conditions permitting the guarantee to be called.
Debtor. The unit required to make payments in accordance with the terms and
conditions specified in a contract underlying a financial claim.
Deposit. A financial asset that has a fixed nominal value, and can be used to
make payments or as a medium of exchange. It may earn interest or entitle the
deposit holder to specific services.
Derived measure. An analytic tool that summarizes the values of selected flows
or stocks that have been individually recorded in the GFS system. Derived
measures consist of aggregates and balancing items.
Discount factor. A number used to convert a future cash flow, such as a debt
payment, to its present value. Normally, a discount factor is estimated as the
amount that would have to be invested now, at an appropriate interest rate given
the risk associated with the future cash flow, to generate an amount equal to the
future cash flow.
Equity: The net worth of your company. Also called owner's equity or capital.
Equity comes from investment in the business by the owners, plus accumulated
net profits that have not been paid out to the owners. Equity accounts are
balance sheet accounts.
Expense accounts: These are the accounts used to keep track of the costs of
doing business: where money goes. Examples are advertising, payroll taxes, and
wages. Expenses are income statement accounts.
Extra budgetary unit. A government unit not financed by the legislative budget
of the controlling government.
Financial claim. An asset that entitles one unit, the owner of the asset and the
creditor, to receive one or more payments from a second unit, the debtor,
according to the terms and conditions specified in a contract between the two
units. See liability.
General ledger: A general ledger is the collection of all balance sheet, income,
and expense accounts used to keep the accounting records of a business.
Government. The public authorities of a country and their agencies, which are
entities established through political processes that exercise legislative, judicial,
and executive authority within a territorial area. The principal economic functions
of a government are (1) to assume responsibility for the provision of goods and
services to the community on a nonmarket basis, either for collective or individual
consumption, and (2) to redistribute income and wealth by means of transfer
payments. An additional characteristic of government is that these activities must
be financed primarily by taxation or other compulsory transfers.
Gross debt position. The sum of all liabilities except shares and other equity
and financial derivatives.
Gross saving. The gross operating balance minus net capital transfers
receivable.
Household. A person or small group of persons who share the same living
accommodation, pool some or all of their income and wealth, and consume
certain types of goods and services collectively, mainly housing and food.
Imputed social contribution [GFS]. The value that would be needed to secure
the de facto entitlement to social benefits when a government unit provides social
benefits directly to their employees, former employees, or dependents out of their
own resources without involving an insurance enterprise or an autonomous or
non-autonomous pension fund.
Income accounts: These are the accounts maintained to keep track of sources
of income. Examples are merchandise sales, consulting revenue, and interest
income.
Income statement: Also called a profit and loss statement or a "P&L." It lists
income, expenses, and net profit (or loss) which equals income minus expenses.
Institutional unit. An economic entity that is capable, in its own right, of owning
assets, incurring liabilities, and engaging in economic activities and in
transactions with other entities.
Interest [GFS]. The expense that a debtor incurs for the use of the principal
outstanding, which is the economic value that has been provided by the creditor.
Interest accrues continuously over the period that the liability exists. The rate at
which interest accrues may be stated as a percentage of the outstanding
Inventories. Goods and services held by producers for sale and use in
production at a later date.
Land. The ground itself, including the soil covering, associated surface water,
and major improvements that cannot be physically separated from the land, but
excluding buildings and other structures constructed on the land or through it,
such as roads, office buildings, and tunnels, cultivated vineyards, orchards, other
plantations of trees, animals, crops, subsoil assets, non-cultivated biological
resources, and water resources below the ground.
financial asset. The payments that the creditor has a contractual right to receive
are also the payment or payments that the debtor is contractually obligated to
provide. See financial claim.
Loan. A financial instrument that is created when a creditor lends funds directly
to a debtor and receives a nonnegotiable document as evidence of the asset.
Long-term liabilities: Liabilities that are not due within one year. An example
would be a mortgage payable.
Market output. Goods and services that are sold at economically significant
prices, otherwise disposed of on the market, or intended for sale or disposal on
the market.
Market price/ value. The amount for which goods, assets other than cash,
services, labor, or the provision of capital are in fact exchanged or could be
exchanged for cash.
Market producer. A unit that markets its entire output, where market output
includes output in the form of own-account capital formation.
Monetary gold. Gold coins, ingots, and bars with a purity of at least 995/1000
that are (1) owned by units performing monetary authority functions and (2) a
part of the official reserve assets.
Mutual agreement. An action taken with prior knowledge and consent by two
units, but not necessarily entered into voluntarily.
Net financial worth. The total value of all financial assets minus the total value
of all liabilities.
Net income: Called profit or net profit and equals income minus expenses. Net
income is the bottom line of the income statement (also called the profit and loss
account).
Net operating balance. Revenue minus expense. It measures the change in net
worth resulting from transactions.
Net worth. The total value of all assets minus the total value of all liabilities.
Nominal value of debt. The amount that a debtor owes to a creditor at any
moment. It reflects the value of the instrument at creation and subsequent
economic flows, such as transactions, valuation changes (excluding market price
changes), and other changes, such as debt forgiveness. It is equal to the
Nonfinancial asset. Any asset other than a financial asset. Nonfinancial assets
consist of fixed assets, inventories, valuables, and nonproduced assets. Most
nonfinancial assets provide benefits either through their use in the production of
goods and services or in the form of property income.
Nonfinancial public sector. The group of units consisting of all units of the
general government sector plus all resident nonfinancial public corporations.
Nonmarket output. Goods and services that are supplied free or at prices that
are not economically significant to other institutional units or the community as a
whole.
Nonproduced asset. An asset needed for production that has not itself been
produced.
Obligations for social security benefits. Social security benefits that have
already been earned according to the existing laws and regulations but are
payable in the future.
Operating leasing. A productive activity that involves renting fixed assets for
terms less than the expected service lives of the assets. The lessor provides a
service to the lessee in exchange for the lease payments. See financial lease.
Other changes in the volume of assets. Any change in the value of an asset or
liability that does not result from a transaction or a holding gain or loss.
Output. The value of goods and services produced within a unit by processes of
production. It is a national accounting concept that is not measured directly in the
GFS system.
Overall primary balance. The overall fiscal balance plus net interest expense.
Post: To summarize all journal entries and transfer them to the general ledger
accounts. This is done at the end of an accounting period.
Present value. The current value of a future cash flow, normally determined by
dividing the future cash flow by a discount factor.
Primary operating balance. The net operating balance plus net interest
expense. See net operating balance.
Principal outstanding. The economic value that has been provided by a creditor
to a debtor.
Produced asset. A nonfinancial asset that has come into existence as the output
from a production process.
Profit and loss statement (P&L): An income statement that lists income,
expenses, and net profit (or loss). The net profit (or loss) equals income minus
expenses.
Property expense. The expense payable by one unit to a second unit for the
use of a financial asset or tangible nonproduced asset owned by the second unit.
See property income.
Property income [GFS]. The income received when a unit places a financial
asset or a tangible nonproduced asset that it owns at the disposal of another unit.
Interest, dividends, withdrawals from income of quasi-corporations, property
income attributed to insurance policyholders, and rent are the types of property
income recognized in the GFS system.
Public sector. The group of units consisting of all units of the general
government sector plus all public corporations.
Real holding gain. The value accruing to an asset as a result of a change in its
price relative to the prices of goods and services in general. An increase in the
relative price of an asset leads to a positive real holding gain and a decrease in
the relative price of an asset leads to a negative real gain, otherwise called a real
holding loss. The reverse is true for liabilities.
Recording basis. The set of guidelines that determines the time assigned to
flows and, in some cases, the types of flows that are recorded. See accrual basis
of recording, cash basis of recording, commitments basis of recording, and due-
for-payment basis of recording.
Recurrent tax. A tax that is levied regularly rather than once or at irregular
intervals. See non-recurrent tax.
Rent. The property income or expense accrued with respect to certain leases of
land, subsoil assets, and other naturally occurring assets. Rent accrues
continuously to the asset’s owner throughout the period of the contract.
Reserve for bad debts: Also called allowance for bad debts, it is an estimate of
uncollectable customer accounts. It is known as a "contra" account because it is
listed with the assets, but it will have a credit balance instead of a debit balance.
For balance sheet purposes, it is a reduction of accounts receivable.
Retained earnings: Profits of the business that have not been paid to the
owners; profits that have been "retained" in the business. Retained earnings are
an "equity" account that is presented on the balance sheet and on the statement
of changes in owners' equity.
Royalties. A name often given to payments with respect to a lease for the
extraction of subsoil assets owned by another unit. In the GFS system, these
payments are classified as rent.
Severance. (1) A tax imposed on the extraction of minerals and fossil fuels. (2) A
payments to workers/ survivors, who lose their jobs because of redundancy,
incapacity, or accidental death.
Shares/ other equity. Instruments and records acknowledging, after the claims
of all creditors have been met, claims on the residual value of a corporation. Most
equity securities do not provide the right to a predetermined income or to a fixed
sum on dissolution of the corporation. Ownership of equity is usually evidenced
by shares, stocks, participations, or similar documents.
voluntary. A general government unit can pay social contributions on behalf of its
employees (an expense) or receive social contributions as the operator of a
social insurance scheme (either revenue or the incurrence of a liability).
Social risk. An event or circumstance that may adversely affect the welfare of
households either by imposing additional demands on their resources or by
reducing their incomes.
Subsector. A group of institutional units that are all members of the same sector.
Tax assessment. An estimate, made by the taxpayer or the tax authority, of tax
due.
Tax credit. An amount deductible from the tax that otherwise would be payable.
advance payment received for some consulting services which will be performed
in the future.
Use of goods and services. The value of goods and services used by
government for the production of other goods and services, with the exception of
goods and services used in the production of assets as own-account capital
formation. Also included is the value of goods purchased for resale less the net
change in inventories of work in progress, finished goods, and goods held for
resale. The value of goods and services acquired for in-kind transfers to
households or as grants are excluded because they are not used in a production
process.
Valuables. Produced goods of considerable value that are acquired and held
primarily as stores of value and not used primarily for purposes of production or
consumption.
Wages and salaries [GFS]. All compensation of employees except for social
contributions by employers. Included are payments in cash or in kind. Social
contributions paid by deduction from employees’ wages and salaries are included
in wages and salaries. Excluded are reimbursements of expenditures made by
employees in order to enable them to take up their jobs or to carry out their work,
such as expenditures on tools, equipment, special clothing, or other items that
are needed exclusively or primarily to enable them to carry out their work. Also
excluded are social benefits paid by employers. See compensation of
employees.
Accrued interest
This is the interest that has been earned by an investor but not become due for
payment to the investor. Bond buyers pay bond sellers accrued interest
whenever a bond is purchased. Thus, if a bond were sold between its semi-
annual interest payment dates, the purchaser would pay the market price of the
bond plus the appropriate fraction of the accrued coupon interest earned but not
yet received by the party selling the bond. The amount of accrued interest helps
determine the price of a bond.
Annuity
An equal amount paid every year in lieu of a lump sum payment for a certain
fixed period or for life. Some investment schemes offered by commercial banks,
Life Insurance companies, investment companies, Unit Trusts offer annuity
payments.
Auction
• Private Placement: After having discovered the coupon through the auction
mechanism, if on account of some circumstances the Government / Central
Bank decides to further issue the same security to expand the outstanding
quantum, the government usually privately places the security with Central
Bank, who in turn may sell these securities at a later date through their open
• On-tap issue: Under this scheme of arrangements after the initial primary
placement of a security, the issue remains open to yet further subscriptions.
The period for which the issue remains open may be sometimes time specific
or volume specific
Bank Credit
Commercial banks predominantly provide short term credit for financing working
capital needs, although, some of the larger universal banks may aggressively
provide term loans. The various types of advances provided by the commercial
banks are cash credits, overdrafts, demand loans, purchase and discount of
commercial bills and installment or hire purchase credit.
One basis Point is 1/100th of 1 % point i.e. 100 basis point will make 1% point. It
is used to measure changes in yields of a bond. For example, if a bond yielding
6.09% changes in price to yield 6.20%, it is said to have increased 11 basis
points. Basis points (bps) are commonly referred to as "beeps".
Bank Rate
The minimum rate at which the Central Bank makes short-term advances
(usually for overnight) to the commercial banks.
Bond Rating
Bridge Loan
Bridge Loans are given at the time when the entities come out (or want to come
out) with a public offer in the capital market, but need financing for Covering the
cost of issues and for Using the loan proceeds as a bridge for the funds that are
obtained only after the public issue gets completed.
CRR is the statutory reserve that has to be maintained by banks either in cash or
as balance with the Central Bank. CRR is intended to be a reserve by which the
Central Bank assures itself that the bank is safe and has the liquidity for servicing
its depositors. In India, as per Section 42 of the Reserve Bank of India (RBI) Act,
RBI is allowed to announce any level of CRR depending on the market
conditions within a certain band, the minimum being 3% and the maximum 15%.
Constituent Account
Coupon
Bonds typically pay interest periodically at the pre specified rate of interest. The
annual rate at which the interest is paid is known as the coupon rate or simply
the coupon. Interest is usually paid every half-year though some bonds pay
interest monthly, quarterly, annually or at some other frequency. The dates on
which the interest payments are made are known as the coupon due dates.
Convexity
dP= -Duration*Price*dY+0.5*Convexity*Price*dYsqrd.
where
dP = change in price ("delta P")
dY = change in yield ("delta Y")
Credit Risk
Credit risk is the risk that an issuer of a debt security or a borrower may default
on its obligations. In a slightly different context, it is also defined as the risk that
payment may not be made on the sale of a negotiable instrument (i.e. counter-
party risk).
Current Yield
This is the yield or return derived by the investor on purchase of the instrument
(yield related to purchase price) It is calculated by dividing the coupon rate by the
purchase price of the debenture. For example, if an investor buys a 10% US$100
debenture of ABC company at US$90, his current Yield on the instrument would
be computed as:
Current Yield = (10%*100)/90 X 100, That is 11.11% p.a.
In the fixed income securities markets, there are a number of ways that days
between dates are computed for interest rate calculations. The day count basis
indicates the manner by which the days in a month and the days in a year are to
be counted. The notation utilized to indicate the day count basis is (days in
month)/ (days in year).
For example, 30/360 assumes that each of the twelve months in a year consists
of exactly 30 days. On the other hand, Actual/Actual considers the actual number
of days in a month and the actual number of days in a year. Other types of day
count basis are Actual/360, Actual/365, and 30/360 European. The 30/360
European day count basis differs from 30/360 basis in the algorithm used to
handle the end of the month.
Actual/360
This calculates the actual number of days between two dates and assumes the
year has 360 days. Many money market calculations with less than a year to
maturity use this day count basis.
For example, A Rs. 1 crore six month CD issued on 15/04/04 and maturing on
15/10/04, with an 8% coupon would pay an interest payment of:
Actual/365
This calculates the actual number of days between two dates and assumes the
year has 365 days.
Using an Actual/365 day count basis, a Rs. 1 crore six month CD issued on
15/04/04 and maturing on 15/10/04, with an 8% coupon would pay an interest
payment of:
Actual/Actual
This day count basis calculates the actual number of days between two dates
and assumes the year has either 365 or 366 days depending on whether the
year is a leap year. More accurately, if the range of the date calculation includes
February 29 (the leap day), the divisor is 366, otherwise the divisor is 365.
Notice that even though 2004 is a leap year, the denominator used for this
calculation was 365 because February 29, 2004 does not fall into the date range
of the calculation. If the issue date was before February 29, the divisor would
have been 366 instead.
30/360
This day count convention assumes that each month has 30 days and the total
number of days in the year is 360 (12 months x 30 days per month). There are
adjustments for February and months with 31 days.
30/360 European
The 30/360 day count basis is different outside of the United States. They further
simplified this calculation. The formula for the 30/360 European day calculation
follows:
Assume Date 1 is of the form M1/D1/Y1 and Date 2 is of the form M2/D2/Y2. Let
Date 2 be later than Date 1.
Then:
If D1 = 31, change D1 to 30
If D2 = 31, change D2 to 30
Days between dates = (Y2-Y1) x 360 + (M2-M1) x 30 + (D2-D1)
Demand Loan
Demand loans have to be repaid when demanded by the creditor and as such
they are short-term loans. The demand loan comprises of minimum level of
borrowing which the borrower is expected to use throughout the year.
Cash Flows occur over a period of time. But even under complete absence of
inflation or risk, money still has time value. US$100 receivable today, after one
year or after 10 years is not same in value. To make an absolute comparison,
these cash flows in different periods have to be expressed in terms of today's
value or present value. Cash Flows that are discounted by suitable rate of return
are known as discounted cash flows.
Duration
Bonds with longer terms are more volatile than shorter term bonds because cash
flows are received over a longer period of time, and therefore are subject to a
greater deal of uncertainty. Similarly, market prices of higher coupon bonds are
less volatile than a lower coupon bond because a greater proportion of the
bond's total return is realized with the semi-annual payments than at maturity.
Face Value
Face value is the amount that is to be paid to an investor at the maturity date of
the security. Debt securities can be issued at varying face values. The face value
is also known as the repayment amount or par.
Forward Transactions
Coupon payments are made at regular intervals throughout the life of a debt
security and may be quarterly, semi-annual (twice a year) or annual payments.
Fixed rate securities generally have semi-annual coupon payments. The
frequency of coupon payments is a key factor in determining the overall return
from an investment. At first glance, a debt security offering a high interest rate
appears to be a better investment than a security with a low interest rate, but the
actual return received depends on how often the interest is paid. A security that
has an annual interest rate of 10% and a semi-annual coupon payment will pay
5% every six months.
For all government loans and state loans, the interest is calculated on the basis
of 360 days a year. In this method, each month is regarded of 30 days
irrespective of actual number of days in that month.
The interest is calculated on the basis of 365 days a year basis. The interest on
most of the debt securities excluding the government loans and the state loans
are calculated on the basis of 365 days a year basis. Actual numbers of days that
have expired since last interest payment date are counted for accrued interest
payment.
The IRR is that discount rate at which the NPV of a cash stream becomes zero.
Here, the net present value is given (as zero) and the discount rate is calculated.
If the IRR is greater than the required rate of return (discount rate), then the
security/project is worth investing in, otherwise not.
Issuer
The organisations which offer the debt securities for sale are know as Issuer of
the debt. Debt issuers include the Government, banks and companies.
Issued at Discount
An instrument that is initially issued at a price less than its face value is know to
be issued at a discount. For example, a bond having face value of Rs.100 and
issued at Rs.95 is said to be issued at a discount.
Maturity premium
Monetary Policy
Implemented by the Central Bank, it is policy using money supply and control of
credit in the economy to control the general direction of interest rates, inflation
and maintain the stability of the exchange rate of the currency.
Mortgage
Nationalized Banks
Negotiable Instruments
Banks have to maintain statutory reserves on their NDTL. For calculating its
NDTL, a bank has to first sum up its total gross liabilities, which include all
demand and term deposits. Once the gross demand and time liabilities (DTL) is
determined, the bank can deduct its Interbank assets (IBA) from this DTL only to
the extent of its Interbank liabilities (IBL). The banks are required to maintain
their CRR and SLR with reference to the NDTL as of the reporting Friday.
NPV of a cash stream is simply the difference between the present value of cash
outflow and summation of present values of cash inflows at a given discount rate.
Here, the discount rate is given and the NPV is calculated. If the NPV is positive,
the security/project will be worth investing in, otherwise not. This is because a
positive NPV implies that the security/ project provides a return higher than the
discount rate per annum.
Nidhi
A type of Mutual Benefit Finance company which exits in India. A Mutual Benefit
Finance company is notified as a Nidhi company under Section 620A of the
Indian Companies Act, 1956 by the Government of India based on the
performance of the company. To become a nidhi, benefit funds need to have
2000 members and a paid-up capital of Rs.25 lakhs (Rs.2.5 million). Once the
benefit funds comply with these, Department of Company Affairs declares such
companies as Nidhis.
Nostro Account
An account opened by a domestic bank with a foreign bank in their currency for
the purpose of remittances and withdrawals is known as a nostro account.
Private Banks
Private Bank is a bank registered as public limited company where private share
holders have the majority share.
Promissory Note
bearer of the instrument. Maker is the person who makes the promissory note
and promises to pay, and the person to whom the payment is made is the payee.
Reset Date
The date at which the interest rate on a debt security is reset to a new rate.
Scheduled Banks
Scheduled banks are those, which must have a minimum paid-up capital and
reserves and must also satisfy the Central Bank that its affairs are not conducted
in a manner detrimental to the interests of its depositors. Scheduled banks are
required to maintain a certain amount of reserves with the Central Bank. They, in
return, enjoy the facility of financial accommodation and remittance facilities at
concessional rates from the Central Bank. They are also entitled to get refinance
facilities from the Central Bank.
SLR is the statutory reserve that is set aside by banks for investment in cash,
gold or unencumbered approved securities valued at a price not exceeding the
current market price. SLR should not be less than 25% and not exceeding 40%
of NDTL as per Section 24 of the Banking Companies Regulation Act. The
effective SLR level that a bank has to maintain keeps changing depending on the
announcement by the RBI in its credit policies The objectives of SLR are 1) to
restrict the expansion of bank credit 2) to augment the investment of the banks in
Government securities and 3) to ensure solvency of banks.
Strip Transaction
Term to Maturity
Term Loan
Simply speaking, value at risk is the forecasted amount that may be lost, on the
investments and other exposures that the bank may have, if an adverse market
move were to happen.
Vostro Account
A domestic currency account opened by a foreign bank with a domestic bank for
the purpose of remittances and withdrawals in domestic currency is known as a
vostro account.
Yield Curve
The yield to maturity is the annualized return from a debt security from the date it
is bought in the secondary market to the date of its redemption. YTM is the return
on holding the instrument to maturity. The YTM assumes that any coupon
payments received before redemption can be reinvested at this yield.
A bond that pays no periodic interest and sold at a deep discount from the face
value. Buyer's rate of return comes from the gradual appreciation of the bond.
Annex
Government Finance Statistics Manual 2001 (GFSM 2001)