8 I BANK FINANCIAL MANAGEMENT

(c) Speculation
Speculative forces can have a major effect on exchange rates. In an expectation, that a
currency
will be devalued, the speculator will short sell the currency for buying it back cheaper at a
later
date. This very act can lead to vast movements in the market, as the expectation for
devaluation
grows and extends to other market participants.
Speculative deals provide depth and liquidity to the market and at times, act as a cushion too,
if
the views do not lead to a contagious effect.
1.4 EXCHANGE RATE MECHANISM Types and Calculation
Due to the vastness of the market, operating in different time zones, most of the Forex deals
are
done on SPOT basis, meaning thereby that the delivery of the funds takes place on the second
working day following the date of deal/contract. The rate at which such deals are done is
known
as SPOT rates. Spot rates are the base rates for other FX rates. The date of delivery of funds
on
the date, on which the exchange of currencies actually takes place, is also referred to as 'value
date'. The delivery of FX deals can be settled in one or more of the following ways:
Ready or Cash
Settlement of funds takes place on the same day (date of deal), e.g., if the date of Ready/Cash
deal is 5 October 2009 (Monday), settlement date will also be 5 October 2009.
Tom
Settlement of funds takes place on the next working day of the date of deal, e.g., if the date of
TOM deal 5 October 2009 (Monday), settlement date would be 6 October 2009 (Tuesday,
provided it is a working day for the markets dealing as well as where currency is to be
settled). If
Tuesday is a holiday, in any of the 2 countries, the settlement date will be next working day
in
both the countries.
Spot
Settlement of funds takes place on the second working day after/following the date of
contract/deal, e.g., if the date of Spot deal is 5 October, 2009 (Monday), settlement date will
be 7
October, 2009. (Presuming all markets are working on 5, 6 and 7 October 2009). If not, it will
the next working day in both the countries.
Forward
Delivery of funds takes place on any day after Spot date, e.g., if the date of forward deal is 5
October 2009 (Monday), for value settlement date 30 October 2009 or 30 November 2009, it
is a
forward deal.

1) Net Tax Revenue = Gross Tax Revenue (-) NCCD transferred to the National Calamity
Contingency fund (-) States share
2) Total Revenue Receipts = Net Tax Revenue + Total Non- Tax revenue
3) Capital Receipts = Non- debt receipts + Debt Receipts
4) Total Receipts = Total Revenue Receipts + Capital Receipts+ Drawdown of Cash Balance
5) Financing of Fiscal Deficit : Debt Receipts + Draw-down of cash balance
6) Non- Plan Expenditure = Revenue Non- Plan Expenditure + Capital Non-plan Expenditure
7) Plan Expenditure = Revenue Expenditure + Capital Expenditure
8) Total Expenditure = Total Non-plan Expenditure + Total Plan Expenditure
9) Revenue Deficit = Revenue expenditure (-) Revenue receipts
10) Gross Fiscal Deficit is the excess of total expenditure including loans, net of recoveries
over
revenue receipts (including external grants) and non- debt receipts
11) Net Fiscal deficit = The gross fiscal deficit (-) interest payments
12) Net Primary deficit = Net fiscal deficit ( ) net interest payments
13) NCCD: National Council on Crime and Delinquency.

Banking Industry in India

The past decade or so has been historically momentous for the banking industry in India.
Starting
with Narsimham committee report of 1991, Indian banking has seen a total change in the
scenario during the last 18 years. The process of deregulation which was set in motion has
brought in sea change in Indian banking. Regulated interest rates, directed investment/credit
have
become thing of the past. The Reserve Bank of India has been more concerned about
prudential
norms and disclosure requirements.
During the last decade, several new private sector banks have come into existence. They have
diverse ownership pattems. Similarly foreign banks have been given clearances for
expansion.
These measures have resulted in a keen competition in the banking sector. The new entrants
have
brought modem technology, new products, and aggressive marketing. Public sector banks and
old private sector banks had to take cognizance of these developments and change their ways.
Profitability has become the most important parameter in banks' functioning.
Indian banks have shown that they are alive to the changing environment and have geared up
to
face the new challenges. They have realised that the bottom-line is very critical and
demonstrated their will and skills in changing colours.
Let Us Sum Up
In this last unit, we have dealt with the most important issue, viz., profitability. Profitability
for
banks depend on six factors, viz., interest income, fee-based income, trading income, interest

expenses, staff expenses and other operating expenses.