The Five C’s of Credit: Capacity, Capital, Collateral, Conditions and Character

When you apply for a loan, the lender will evaluate your request in order to determine whether or
not it is a good decision to lend you and your business money. A common evaluation framework
is the Five C’s of Credit: capacity, capital, collateral, conditions and character.

Capacity refers to your ability to meet the loan payments. The prospective lender will want to
know exactly how you intend to repay the loan. The lender will consider the cash flow from the
business, the timing of repayment, and the probability of successful repayment of the loan.
Lenders will also consider payment history as an indicator of future payment potential. For
example, if you have a history of not paying back loans then it becomes more difficult to obtain
additional loans.

Capital is the money invested in the business and is an indicator of how much is at risk should
the business fail. Lenders will generally consider the company's debt-to-equity ratio to
understand how much money the lender is being asked to lend (debt) in relation to how much the
owners have invested (equity). A high debt-to-equity ratio also indicates that the company
already has a high level of loans and could be a higher financial risk.

Collateral is a form of security for the lender. Banks usually require collateral as a type of
insurance in case you cannot repay the loan. If you default on the loan, then the lender takes
possession of the collateral in place of the debt. The loan agreement should carefully specify all
items serving as collateral. Equipment, buildings, accounts receivable, and inventory are all
potential forms of collateral. A lender will normally want the term of the loan to match the useful
life of the asset used as collateral. For example, if equipment with a five-year expected life span
is used as collateral, then the term of the loan will generally be five years or less. In some cases,
the lender may ask for a third-party guarantee where someone else signs a document promising
to repay the loan if you cannot.

Conditions refer to the intended purpose of the loan, for example working capital, additional
equipment, or new offices. The size of loan in relation to the specific use will help the lender
evaluate your loan request. Conditions also include the national, industry level, and local
economic situation. A volatile or unstable economic situation can negatively impact the
evaluation. However, positive expectations can increase the likelihood of obtaining the loan.

Character is the obligation that a borrower feels to repay the loan. Since there is not an accurate
way to judge character, the lender will decide subjectively whether or not you are sufficiently
trustworthy to repay the loan. The lender will investigate your payment history, review a credit
bureau report, and consider your educational background and experience in business. The quality
of your references and the background and experience of your employees will also be
considered.
foreign exchange reserve
Deposits of a foreign currency held by a central bank. Holding the currencies of other countries
as assets allow governments to keep their currencies stable and reduce the effect of economic
shocks. The use of foreign exchange reserves became popular after the decline of the gold
standard.

What Are Foreign Exchange Reserves?

By Kofi Bofah, eHow Contributor
updated: September 29, 2009

What Are Foreign Exchange Reserves?

Foreign exchange reserves are stores of international currency held by the central banks of
nations around the world. The primary purpose of the foreign exchange reserve is for the
international settlement of debts and payments between governments.

Foreign exchange reserves have broken the link to the gold standard and are now predominately
associated with foreign currency and bonds, particularly U.S. dollars and Treasuries. Foreign
exchange reserve policy affects exchange rates, international trade and inflation.

Official International Payments

1. Foreign exchange reserves are used to make international payments between countries.
These payments are associated with military spending, government aid and loans to build
infrastructure. Countries remain committed to building strong foreign exchange reserves
in order to stay in good standing with allies and to help balance the world economy.
National debt defaults devalue currency and are disastrous, commercially, because
governments and private entities will be reluctant to transact business with countries that
cannot honor payments.
 Gold Standard and the U.S. Dollar

2.

U.S. dollars are no longer backed by gold.

Gold and silver were once the only accepted medium for settling international payments
between nations, prior to the 1944 Bretton Woods Agreements. The Bretton Woods
system and International Monetary Fund emerged to establish commercial protocol
between industrial nations, many of which had been devastated by two world wars. The
United States was untouched by war at home and became the world's supreme power to
make loans to Western Europe and Japan.

International exchange rates were pegged to the U.S. dollar, which was in turn backed
and convertible into gold at a set rate. Both mediums would function as foreign exchange
reserves to make payments. The system collapsed in 1971 when the U.S. abandoned
convertibility of gold into dollars. The U.S. dollar is still the most dominant currency for
foreign exchange reserves, but it is no longer backed by gold.

Central banks have always used foreign exchange reserves to influence exchange rates
and, consequently, international trade and inflation.

Exchange Rates
3. Central banks trade domestic notes against foreign currency collectively to affect
exchange rate movements. International central banks trade, sell or simply run the
printing presses to create domestic currency, which is then used to buy foreign exchange.
Buying foreign currency by creating money devalues the home currency against that
particular medium.

Conversely, foreign central banks strengthen the home currency by releasing foreign
currency back into the marketplace out of the reserves in exchange for the domestic
currency, which is then taken out of circulation.

The United States Federal Reserve Bank of New York manages the U.S. foreign
exchange reserves on behalf of the U.S. Treasury.

International Trade
 4. Exchange rates affect international trade by influencing the prices of goods relative to
each other by nationality. Exports sell for low prices overseas when the domestic
currency has been devalued against competing foreign exchange. Meanwhile, imports
become more expensive when the home currency is weak. Tourists and business travelers
visit nations with weaker currencies in order to exploit additional buying power.

Central banks manipulate foreign exchange reserves for competitive advantages. Export
economies add to foreign exchange reserves in order to devalue the home currency and
sell cheap goods overseas. China leads the world in foreign exchange reserves and carries
over $2 trillion in U.S. dollars, which effectively devalues the yuan and drives China's
export economy.

Inflation and Loss

5. Fiat currency, which identifies money that is not backed by gold, is always susceptible to
long-term devaluation, or inflation. Inflation identifies the loss of purchasing power that
occurs over time. Central banks pressure the value of domestic currency through printing
and creating money in order to buy foreign exchange.

Nations that hold large amounts of foreign currency incur losses in purchasing power as
the exchange values of that currency decrease. Foreign exchange reserves earn little in
terms of interest. This means that interest income will not overcome the losses realized
from holding depreciating currency. Treasury officials decide whether foreign exchange
reserves would have been of better service to the home nation as domestic investments

WHAT IS SLR? What is CRR? What is BANK RATE?,

What are REPO AND REVERSE REPOs? What is
difference between CRR and SLR?
Click Here to Know the Latest CRR Rates SLR Rate, Bank Rate, Repo and Reverse Repo
Rates for Banks in India

What is Bank rate? Bank Rate is the rate at which central bank of the country (in India it is
RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for
short-term purposes. Any upward revision in Bank Rate by central bank is an indication that
banks should also increase deposit rates as well as Prime Lending Rate. This any revision in the
Bank rate indicates could mean more or less interest on your deposits and also an increase or
decrease in your EMI.

What is Bank Rate ? (For Non Bankers) : This is the rate at which central bank (RBI) lends
money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also
tend to move up, and vice-versa. Thus, it can said that in case bank rate is hiked, in all likelihood
banks will hikes their own lending rates to ensure and they continue to make a profit.

What is CRR? The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has
come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1),
the Reserve Bank, having regard to the needs of securing the monetary stability in the country,
can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling
rate. [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the
Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of
total of their demand and time liabilities].

RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from
time to time. Increase in CRR means that banks have less funds available and money is sucked
out of circulation. Thus we can say that this serves duel purposes i.e. it not only ensures that a portion
of bank deposits is totally risk-free, but also enables RBI to control liquidity in the system, and thereby,
inflation by tying the hands of the banks in lending money.

What is CRR (For Non Bankers) : CRR means Cash Reserve Ratio. Banks in India are
required to hold a certain proportion of their deposits in the form of cash. However, actually
Banks don’t hold these as cash with themselves, but deposit such case with Reserve Bank of
India (RBI) / currency chests, which is considered as equivlanet to holding cash with
themselves.. This minimum ratio (that is the part of the total deposits to be held as cash) is
stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, When a bank’s
deposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will have to hold
additional Rs 9 with RBI and Bank will be able to use only Rs 91 for investments and lending
/ credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks
will be able to use for lending and investment. This power of RBI to reduce the lendable
amount by increasing the CRR, makes it an instrument in the hands of a central bank through
which it can control the amount that banks lend. Thus, it is a tool used by RBI to control
liquidity in the banking system.

What is SLR? Every bank is required to maintain at the close of business every day, a minimum
proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and
un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is
known as Statutory Liquidity Ratio (SLR). Present SLR is 24%. (reduced w.e.f. 8/11/208, from
earlier 25%) RBI is empowered to increase this ratio up to 40%. An increase in SLR also restrict
the bank’s leverage position to pump more money into the economy.

What is SLR ? (For Non Bankers) : SLR stands for Statutory Liquidity Ratio. This term is
used by bankers and indicates the minimum percentage of deposits that the bank has to
maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of
cash and some other approved to liabilities (deposits) It regulates the credit growth in India.

What are Repo rate and Reverse Repo rate?

Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When
the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that
in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate;
similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI.
The RBI uses this tool when it feels there is too much money floating in the banking system. An increase
in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest.
As a result, banks would prefer to keep their money with the RBI

Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected
in the banking system by RBI, whereas Reverse repo rate signifies the rate at which
the

Latest Important Banking Sector Data

6.00% (w.e.f.
Bank Rate
29/04/2003)

6.00% Increased from

(w.e.f. 5.00% to 5.50% wef
24/04/2010) 13/02/2010; and then
Cash Reserve Ratio (CRR) again to 5.75% wef
27/02/2010; and now
to 6.00% wef
24/04/2010

Increased from 24%

Statutory Liquidity Ratio 25%(w.e.f. which was
(SLR) 07/11/2009) continuing since.
08/11/2008
 5.00% Increased from
4.50% which was
Reverse Repo Rate (w.e.f. continuing since
(16/09/2010) 27/07/2010

6.00% Increased from

5.75% which was
Repo Rate under LAF (w.e.f. continuing since
16/09/2010) 27/07/2010

BSE Sensex
Bombay Stock Exchange Sensitive Index. A value-weighted stock market index, which tracks
the performance of the 30 largest stocks on the Bombay Stock Exchange. The 30 stocks are
chosen at random times, whenever the market has significantly changed enough to warrant the
changes, and are chosen by the value of their free float shares. Although the index only tracks a
very small percentage of the total stocks traded on the BSE, the index typically comprises about
one fifth of the market capitalization of the entire stock exchange.

Certificate Of Deposit - CD

What Does Certificate Of Deposit - CD Mean?

A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a
specified fixed interest rate and can be issued in any denomination. CDs are generally issued by
commercial banks and are insured by the FDIC. The term of a CD generally ranges from one
month to five years.
Investopedia explains Certificate Of Deposit - CD
A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts
holders from withdrawing funds on demand. Although it is still possible to withdraw the money,
this action will often incur a penalty.

For example, let's say that you purchase a $10,000 CD with an interest rate of 5% compounded
annually and a term of one year. At year's end, the CD will have grown to $10,500 ($10,000 *
1.05).

CDs of less than $100,000 are called "small CDs"; CDs for more than $100,000 are called "large
CDs" or "jumbo CDs". Almost all large CDs, as well as some small CDs, are negotiable.

A certificate of deposit , also called a CD, is a type

of savings certificate. A client deposits a certain amount of funds with a bank for a
fixed period, usually from one to five years although longer terms are possible, and
in return is guaranteed a locked interest rate which is higher than that of a
traditional savings account. For people who want non-risky methods of investment
with guaranteed returns, such as the elderly, youth wanting to set money aside, or
people with limited funds, a certificate of deposit is an excellent investment
alternative, because when the certificate of deposit is held by an Federal Deposit
Insurance Corporation (FDIC) insured bank and is for less than $100,000 US Dollars
(USD), the client will never lose his or her money.

Fixed deposits are loan

arrangements where a specific amount of funds is placed on deposit under the
name of the account holder. The money placed on deposit earns a fixed rate of
interest, according to the terms and conditions that govern the account. The actual
amount of the fixed rate can be influenced by such factors at the type of currency
involved in the deposit, the duration set in place for the deposit, and the location
where the deposit is made.

Money Market: Introduction

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Whenever a bear market comes along, investors realize (yet again!) that the stock market is a
risky place for their savings. It's a fact we tend to forget while enjoying the returns of a bull
market! Unfortunately, this is part of the risk-return tradeoff. To get higher returns, you have to
take on a higher level of risk. For many investors, a volatile market is too much to stomach -
the money market offers an alternative to these higher-risk investments.
The money market is better known as a place for large institutions and government to manage
their short-term cash needs. However, individual investors have access to the market through a
variety of different securities. In this tutorial, we'll cover various types of money market
securities and how they can work in your portfolio.

Money Market: What Is It?

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The money market is a subsection of the fixed income market. We generally think of the term
fixed income as being synonymous to bonds. In reality, a bond is just one type of fixed income
security. The difference between the money market and the bond market is that the money
market specializes in very short-term debt securities (debt that matures in less than one year).
Money market investments are also called cash investments because of their short maturities.

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Money market securities are essentially IOUs issued by governments, financial institutions and
large corporations. These instruments are very liquid and considered extraordinarily safe.
Because they are extremely conservative, money market securities offer significantly lower
returns than most other securities.

One of the main differences between the money market and the stock market is that most money
market securities trade in very high denominations. This limits access for the individual investor.
Furthermore, the money market is a dealer market, which means that firms buy and sell
securities in their own accounts, at their own risk. Compare this to the stock market where a
broker receives commission to acts as an agent, while the investor takes the risk of holding the
stock. Another characteristic of a dealer market is the lack of a central trading floor or exchange.
Deals are transacted over the phone or through electronic systems.

The easiest way for us to gain access to the money market is with a money market mutual funds,
or sometimes through a money market bank account. These accounts and funds pool together the
assets of thousands of investors in order to buy the money market securities on their behalf.
However, some money market instruments, like Treasury bills, may be purchased directly.
Failing that, they can be acquired through other large financial institutions with direct access to
these markets.

There are several different instruments in the money market, offering different returns and
different risks. In the following sections, we'll take a look at the major money market
instruments.

Money Market: Treasury Bills (T-Bills)

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Treasury Bills (T-bills) are the most marketable money market security. Their popularity is
mainly due to their simplicity. Essentially, T-bills are a way for the U.S. government to raise
money from the public. In this tutorial, we are referring to T-bills issued by the U.S. government,
but many other governments issue T-bills in a similar fashion.

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T-bills are short-term securities that mature in one year or less from their issue date. They are
issued with three-month, six-month and one-year maturities. T-bills are purchased for a price that
is less than their par (face) value; when they mature, the government pays the holder the full par
value. Effectively, your interest is the difference between the purchase price of the security and
what you get at maturity. For example, if you bought a 90-day T-bill at $9,800 and held it until
maturity, you would earn $200 on your investment. This differs from coupon bonds, which pay
interest semi-annually.

Treasury bills (as well as notes and bonds) are issued through a competitive bidding process at
auctions. If you want to buy a T-bill, you submit a bid that is prepared either non-competitively
or competitively. In non-competitive bidding, you'll receive the full amount of the security you
want at the return determined at the auction. With competitive bidding, you have to specify the
return that you would like to receive. If the return you specify is too high, you might not receive
any securities, or just a portion of what you bid for. (More information on auctions is available at
the TreasuryDirect website.)

The biggest reasons that T-Bills are so popular is that they are one of the few money market
instruments that are affordable to the individual investors. T-bills are usually issued in
denominations of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000 and $1 million. Other
positives are that T-bills (and all Treasuries) are considered to be the safest investments in the
world because the U.S. government backs them. In fact, they are considered risk-free.
Furthermore, they are exempt from state and local taxes. (For more on this, see Why do
commercial bills have higher yields than T-bills?)

The only downside to T-bills is that you won't get a great return because Treasuries are
exceptionally safe. Corporate bonds, certificates of deposit and money market funds will often
give higher rates of interest. What's more, you might not get back all of your investment if you
cash out before the maturity date.

Money Market: Certificate Of Deposit (CD)

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A certificate of deposit (CD) is a time deposit with a bank. CDs are generally issued by
commercial banks but they can be bought through brokerages. They bear a specific maturity date
(from three months to five years), a specified interest rate, and can be issued in any
denomination, much like bonds. Like all time deposits, the funds may not be withdrawn on
demand like those in a checking account.

CDs offer a slightly higher yield than T-Bills because of the slightly higher default risk for a
bank but, overall, the likelihood that a large bank will go broke is pretty slim. Of course, the
amount of interest you earn depends on a number of other factors such as the current interest rate
environment, how much money you invest, the length of time and the particular bank you
choose. While nearly every bank offers CDs, the rates are rarely competitive, so it's important to
shop around.
A fundamental concept to understand when buying a CD is the difference between annual
percentage yield (APY) and annual percentage rate (APR). APY is the total amount of interest
you earn in one year, taking compound interest into account. APR is simply the stated interest
you earn in one year, without taking compounding into account. (To learn more, read APR vs.
APY: How The Distinction Affects You.)

The difference results from when interest is paid. The more frequently interest is calculated, the
greater the yield will be. When an investment pays interest annually, its rate and yield are the
same. But when interest is paid more frequently, the yield gets higher. For example, say you
purchase a one-year, $1,000 CD that pays 5% semi-annually. After six months, you'll receive an
interest payment of $25 ($1,000 x 5 % x .5 years). Here's where the magic of compounding
starts. The $25 payment starts earning interest of its own, which over the next six months
amounts to $ 0.625 ($25 x 5% x .5 years). As a result, the rate on the CD is 5%, but its yield is
5.06. It may not sound like a lot, but compounding adds up over time.

The main advantage of CDs is their relative safety and the ability to know your return ahead of
time. You'll generally earn more than in a savings account, and you won't be at the mercy of the
stock market. Plus, in the U.S. the Federal Deposit Insurance Corporation guarantees your
investment up to $100,000.

Despite the benefits, there are two main disadvantages to CDs. First of all, the returns are paltry
compared to many other investments. Furthermore, your money is tied up for the length of the
CD and you won't be able to get it out without paying a harsh penalty.

Money Market: Commercial Paper

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For many corporations, borrowing short-term money from banks is often a laborious and
annoying task. The desire to avoid banks as much as possible has led to the widespread
popularity of commercial paper. (See Why do companies issue bonds instead of borrowing
from the bank?)
Commercial paper is an unsecured, short-term loan issued by a corporation, typically for
financing accounts receivable and inventories. It is usually issued at a discount, reflecting current
market interest rates. Maturities on commercial paper are usually no longer than nine months,
with maturities of between one and two months being the average.

For the most part, commercial paper is a very safe investment because the financial situation of a
company can easily be predicted over a few months. Furthermore, typically only companies with
high credit ratings and credit worthiness issue commercial paper. Over the past 40 years, there
have only been a handful of cases where corporations have defaulted on their commercial paper
repayment.

Commercial paper is usually issued in denominations of $100,000 or more. Therefore, smaller

investors can only invest in commercial paper indirectly through money market funds.

Money Market: Banker's Acceptance

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A bankers' acceptance (BA) is a short-term credit investment created by a non-financial firm and
guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in
the secondary market.
For corporations, a BA acts as a negotiable time draft for financing imports, exports or other
transactions in goods. This is especially useful when the creditworthiness of a foreign trade
partner is unknown.

Acceptances sell at a discount from the face value:

Face Value of Banker's Acceptance $1,000,000

Minus 2% Per Annum Commission for One Year -$20,000
Amount Received by Exporter in One Year $980,000

One advantage of a banker's acceptance is that it does not need to be held until maturity, and can
be sold off in the secondary markets where investors and institutions constantly trade BAs.
Money Market: Eurodollars

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Contrary to the name, eurodollars have very little to do with the euro or European countries.
Eurodollars are U.S.-dollar denominated deposits at banks outside of the United States. This
market evolved in Europe (specifically London), hence the name, but eurodollars can be held
anywhere outside the United States.
The eurodollar market is relatively free of regulation; therefore, banks can operate on
narrower margins than their counterparts in the United States. As a result, the eurodollar market
has expanded largely as a way of circumventing regulatory costs.

The average eurodollar deposit is very large (in the millions) and has a maturity of less than six
months. A variation on the eurodollar time deposit is the eurodollar certificate of deposit. A
eurodollar CD is basically the same as a domestic CD, except that it's the liability of a non-U.S.
bank. Because eurodollar CDs are typically less liquid, they tend to offer higher yields.

The eurodollar market is obviously out of reach for all but the largest institutions. The only way
for individuals to invest in this market is indirectly through a money market fund
Money Market: Repos

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Repo is short for repurchase agreement. Those who deal in government securities use repos as a
form of overnight borrowing. A dealer or other holder of government securities (usually T-bills)
sells the securities to a lender and agrees to repurchase them at an agreed future date at an agreed
price. They are usually very short-term, from overnight to 30 days or more. This short-term
maturity and government backing means repos provide lenders with extremely low risk.
Repos are popular because they can virtually eliminate credit problems. Unfortunately, a number
of significant losses over the years from fraudulent dealers suggest that lenders in this market
have not always checked their collateralization closely enough.

There are also variations on standard repos:

• Reverse Repo - The reverse repo is the complete opposite of a repo. In this case, a dealer
buys government securities from an investor and then sells them back at a later date for a
higher price
• Term Repo - exactly the same as a repo except the term of the loan is greater than 30
days.

• Real Time Gross Settlement

• From Wikipedia, the free encyclopedia
• Jump to: navigation, search
• Real time gross settlement systems (RTGS) are funds transfer systems where transfer of
money or securities[1] takes place from one bank to another on a "real time" and on
"gross" basis. Settlement in "real time" means payment transaction is not subjected to any
waiting period. The transactions are settled as soon as they are processed. "Gross
settlement" means the transaction is settled on one to one basis without bunching or
netting with any other transaction. Once processed, payments are final and irrevocable.

Real Time Gross Settlement

The acronym 'RTGS' stands for Real Time Gross Settlement.The Reserve Bank of India (India's
Central Bank) maintains this payment network. RTGS system is a funds transfer mechanism
where transfer of money takes place from one bank to another on a 'real time' and on 'gross'
basis. This is the fastest possible money transfer system through the banking channel. Settlement
in 'real time' means payment transaction is not subjected to any waiting period. The transactions
are settled as soon as they are processed. 'Gross settlement' means the transaction is settled on
one to one basis without bunching with any other transaction. Considering that money transfer
takes place in the books of the Reserve Bank of India, the payment is taken as final and
irrevocable.

Fees for RTGS vary from bank to bank. Both the remitting and receiving must have Core
banking in place to enter into RTGS transactions. Core Banking enabled banks and branches
have assigned RTGS 11-character alphanumeric codes, which are required for transactions along
with recipient's account number.

RTGS is a large value (minimum value of transaction should be Rs. 1,00,000) funds transfer
system whereby financial intermediaries can settle interbank transfers for their own account as
well as for their customers. The system effects final settlement of interbank funds transfers on a
continuous, transaction-by-transaction basis throughout the processing day. Customers can
access the RTGS facility between 9 am to 4:30 pm on week days and 9 am to 12 noon on
Saturday [1].

The statistics of transactions for the month of March 2004 shows that in the interbank market
transactions involving 45,000 instruments and aggregating Rs. 1,79,000 crore (1,790 billion)
were settled. High value instruments (3,17,000) settlement aggregated Rs. 2,74,000 crore
(2,740 billion). However, settlement of MICR instruments (145 lakhs) accounted for only
Rs. 54,000 crore (540 billion). RTGS will eliminate settlement risk in the case of interbank and
high value transactions.

Banks could use balances maintained under the cash reserve ratio (CRR) instead of the intra-day
liquidity (IDL) to be supplied by the central bank for meeting any eventuality arising out of the
real time gross settlement (RTGS). The RBI fixed the IDL limit for banks to three times their net
owned fund (NOF).

The IDL will be charged at Rs 25 per transaction entered into by the bank on the RTGS platform.
The marketable securities and treasury bills will have to be placed as collateral with a margin of
five per cent. However, the apex bank will also impose severe penalties if the IDL is not paid
back at the end of the day.

The RTGS service window for customer's transactions is available from 9.00 hours to 16.30
hours on week days and from 9.00 hours to 12.30 noon on Saturdays for settlement at the RBI
end. However, the timings that the banks follow may vary depending on the customer timings of
the bank branches.

What Does Beta Mean?

A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the
market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that
calculates the expected return of an asset based on its beta and expected market returns..

Also known as "beta coefficient".

Investopedia explains Beta
Beta is calculated using regression analysis, and you can think of beta as the tendency of a
security's returns to respond to swings in the market. A beta of 1 indicates that the security's
price will move with the market. A beta of less than 1 means that the security will be less volatile
than the market. A beta of greater than 1 indicates that the security's price will be more volatile
than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the
market.

Many utilities stocks have a beta of less than 1. Conversely, most high-tech Nasdaq-based stocks
have a beta of greater than 1, offering the possibility of a higher rate of return, but also
posing more risk.

What is a Floating Rate?

Interest rates and exchange rates are an everyday part of the world’s economic life.
Any time that currency is borrowed, loaned, or exchanged for another type of
currency, these rates come into play. These rates can be fixed at a certain value, or
can be free to change with market fluctuations and other changing conditions. A
rate that changes with market conditions on a periodic basis is called a floating
rate.

Re: WHAT IS MEAN BY SHARE & DEBENTURE? WHAT IS THE DIFFERENCE

BETWEEN THEM? Answer
#1
share:A unit of ownership interest in a corporation or
financial asset. While owning shares in a business does not
mean that the shareholder has direct control over the
business's day-to-day operations, being a shareholder does
entitle the possessor to an equal distribution in any
profits, if any are declared in the form of dividends. The
two main types of shares are common shares and preferred
shares.
Debenture:A certificate or voucher acknowledging a debt.
An unsecured bond issued by a civil or governmental
corporation or agency and backed only by the credit
standing of the issuer.

Difference:A debenture is an unsecured loan you offer to a

company. The company does not give any collateral for the
debenture, but pays a higher rate of interest to its
creditors. In case of bankruptcy or financial difficulties,
the debenture holders are paid later than bondholders.
Debentures are different from stocks and bonds, although
all three are types of investment. Below are descriptions
of the different types of investment options for small
investors and entrepreneurs.

Debentures and Shares

When you buy shares, you become one of the owners of the
company. Your fortunes rise and fall with that of the
company. If the stocks of the company soar in value, your
investment pays off high dividends, but if the shares
decrease in value, the investments are low paying. The
higher the risk you take, the higher the rewards you get.

Debentures are more secure than shares, in the sense that

you are guaranteed payments with high interest rates. The
company pays you interest on the money you lend it until
the maturity period, after which, whatever you invested in
the company is paid back to you. The interest is the profit
you make from debentures. While shares are for those who
like to take risks for the sake of high returns, debentures
are for people who want a safe and secure income.

Initial public offering

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An initial public offering (IPO), referred simply as an "offering" or "flotation", is when a

company (called the issuer) issues common stock or shares to the public for the first time. They
are often issued by smaller, younger companies seeking capital to expand, but can also be done
by large privately-owned companies looking to become publicly traded.

In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine
what type of security to issue (common or preferred), best offering price and time to bring it to
market.

An IPO can be a risky investment. For the individual investor it is tough to predict what
the stock or shares will do on its initial day of trading and in the near future since
there is often little historical data with which to analyze the company. Also, most
IPOs are of companies going through a transitory growth period, and they are
therefore subject to additional uncertainty regarding their future value.

he Stock Market - A Beginner's Guide

The stock market is a creature in and of itself. At times it makes sense and at other times, no one
can explain why it acts the way it does. What is clear is that, over the long run, the stock market
will climb and climb faster than almost any other traditional investment. With that said, there are
also moments (that sometimes last years) when the value of the stock market gets out of whack
with the underlying companies and with the economy. I’ll try to explain my views below.

How the stock market works.

How stocks are valued.
Why the stock market is a good investment (in the long term).
Why the stock market gets out of whack with reality.
Recommended ways to invest in the stock market.

How the stock market works.

The stock market is driven by supply and demand. The number of shares of stock dictates the
supply and the number of shares that investors want to buy dictates the demand. It's important to
understand the for every share that is purchased, there is someone on the other end selling that
share (or vice versa). The stock market is really just a big, automated superstore where everyone
goes to buy and sell their stock. The main players in the stock market are the exchanges.
Exchanges are where the sellers are matched with buyers to both facilitate trading and to help set
the price of the shares. The primary exchanges are the Nasdaq, the New York Stock Exchange
(NYSE), all of the ECNs (electronic communication networks) and a few other regional
exchanges like the American Stock Exchange and the Pacific Stock Exchange. Years ago, all of
the trading was done through the traditional exchanges (like the NYSE, American and Pacific
Exchanges) but now almost all of the trading is done through the Nasdaq, which uses ECNs and
thousands of other firms with access to the Nasdaq to facilitate trading.

Here's an example of one of the many ways that the stock market works:

You open an account with E*Trade. You send E*Trade a check for $1,000. E*Trade deposits
the check into a trading account that is listed under your name. You log onto E*Trade and place
an order to buy 100 shares of a stock in Company A, which is currently trading at $5. E*Trade
uses it's network to tell the Nasdaq and all of it's related networks that there is demand for 100
shares of Company A's stock. The Nasdaq finds someone who is willing to sell 100 shares of
Company A and, instantaneously, they execute the trading of stock between you and the person
selling the shares. The trade information is sent to a clearinghouse where the information is
processed and the shares will now be registered to you. Basically, the clearinghouse will
designate 100 shares of Company A to E*Trade and E*Trade will designate those 100 shares as
yours. The actual stock certificates are typically held "in street name" and never really need to
exchange hands (although you could request that the stock certificates be transferred to your
name).

In a nutshell, that's how the stock market works. The stock market is really just like any other
marketplace - it facilitates the exchange of goods between interested parties and works to reduce
distribution costs and set prices.

How stocks are valued.

Stocks have two types of valuations. One is a value created using some type of cash flow, sales
or fundamental earnings analysis. The other value is dictated by how much an investor is willing
to pay for a particular share of stock and by how much other investors are willing to sell a stock
for (in other words, by supply and demand). Both of these values change over time as investors
change the way they analyze stocks and as they become more or less confident in the future of
stocks. Let me discuss both types of valuations.

First, the fundamental valuation. This is the valuation that people use to justify stock prices.
The most common example of this type of valuation methodology is P/E ratio, which stands for
Price to Earnings Ratio. This form of valuation is based on historic ratios and statistics and aims
to assign value to a stock based on measurable attributes. This form of valuation is typically
what drives long-term stock prices.

The other way stocks are valued is based on supply and demand. The more people that want to
buy the stock, the higher its price will be. And conversely, the more people that want to sell the
stock, the lower the price will be. This form of valuation is very hard to understand or predict,
and is often drives the short-term stock market trends.

Why the stock market is a good investment (in the long term).

It’s all about risk and return, and because your money is at more risk in the stock market than if
you park it in a savings or CD (by the way, the money you invest in a CD is probably reinvested
by the company offering the CD), the potential return is higher. It’s true that the gyrations in the
stock market can cause both large losses and large gains, but if your investment time horizon is
long enough, these short-term fluctuations will result in relatively high returns. It is generally
accepted, that the average long term return from investing in stocks is 10-12%. This is much
higher than the average CD or savings rate of 4-6%.
Why the stock market gets out of whack with reality.

Over the long term, the stock market is driven by underlying economic, financial and global
growth. But in the short run, the market is driven by simple greed and fear, which are dictated by
human emotions. During periods of prosperity, the stock market often rises faster than
underlying earnings. During tough economic times, political uncertainty, and low consumer
confidence, the stock market often performs worse than the underlying fundamentals predict.

Recommend ways to invest in the stock market.

• Don’t try to time the market. As tempting as it is to try, it is not possible to time the
stock market. People have written millions of pages of research on this topic and NO
ONE has ever found a legitimate way to determine its trends.
• Use cost averaging. By buying stocks on a periodic basis (like once a paycheck, once a
month or even once a year), you will always be buying at an average price. If you try to
time the market, you may be buying at a high or low valuation.
• Take taxes into account. When you buy stocks, try to hold them for more than one year
so you get taxed at the long term capital gains rate, which is currently 18%. If you sell
your stock before one year, you will be taxed at your ordinary income tax rate, which is
almost always higher than 18%, sometimes twice as high.
• Invest as much as possible into tax-sheltered 401K, 403B and IRAs. By investing in
tax deferred plans, you are able to invest money and not worry about the tax
implications. With 401K and 403B plans, you get to invest your earnings before taxes, so
the investment will grow on a higher base. For example, if you received a paycheck for
$2,000 gross pay and taxes were taken out, you'd be left with only $1,200 or so to invest.
The investment return on $1,200 could be substantial, but if you could invest that same
$2,000 in a tax deferred account, you would be investing and earning a return on $2,000
instead of $1,200. Also, many employers offer matching investments that could make
that $2,000 investment equivalent to a $4,000 investment. Put as much as you can into
these tax deferred investments.
• Diversify your investments. Don't just invest in stocks. It is better if you diversify
your investments into other asset classes including real estate (a house), cash (savings
account or CD) and maybe even bonds. That way, if one asset class really
underperforms, you will have some exposure to the better performing assets.
• Diversify your stocks (mutual funds). When investing in the stock market, don't load
up on just one or two stocks. Diversify your investments across many stocks. If your
portfolio is not large enough to buy 15 or more different stocks, you should consider
purchasing one or more mutual funds to ensure diversification.