BANKING AWARENESS PRACTICE MCQs FOR SBI SPECIAL MANAGEMENT EXECUTIVE EXAM

1. Banks in our country normally publicize that additional interest rate is allowed on retail domestic term deposits of ____
a) Minors
|b) Married Women
c) Senior citizens
d) Government Employees
e) Rural residents

2. When the rate of inflation increases ___
a) Purchasing power of money increases
b) Purchasing power of money decreases
c) Value of money increases
d) Purchasing power of money remains unaffected
e) Amount of money in circulation decreases

3. A centralized database with online connectivity to branches, internet as well as ATM network which has been adopted by almost all major banks of our country is known as ___
a) Investment Banking
b) Core Banking
c) Mobile Banking
d) National Banking
e) Specialized Banking

4. Which of the following is NOT considered a money market instrument?
a) Treasury Bills
b) Repurchase Agreement
c) Commercial Paper
d) Certificate of Deposit
e) Shares and Bonds

5. Which of the following is necessary while opening deposit accounts in banks?
a) Will
b) Registration
c) Nomination
d) Indemnity
e) Guarantee

6. Which of the following is not a banking term?
a). Letter of credit
b). MIBOR
c). Factoring services
d). Entry load
e). None of these

7. Which of the following organizations issue the rules of global trade?
a) IMF
b) World Trade Organization
c) Foreign trade
d) G-20
e) None

8. One single statement that depicts the financial position of a Bank and / or Business enterprise at a given point of time is called:
a) Statement of product details
b) Foreign exchange
c) Balance Sheet
d) Balance of payment
e) Trading and Manufacturing account

9. The Reverse Mortgage Scheme is launched to give benefit to which of the following groups of society?
a) Persons below 60 yrs
b) Senior Citizens
c) Unemployed youth
d) Orphans
e) All the above

10. One of the major challenges banking industry is facing these days is curbing deliberate efforts of some people to bring money earned through illegal activities in circulation. Which of the following act is passed to prevent this activity?
a) Payment & settlements Act
b) Control money supply Act
c) Narcotics and Psychotropic substance Act
d) Prevention of Money laundering Act
e) None

11. Which of the following scheme is not meant for investment purposes?
a) National saving certificate
b) Infrastructure bonds
c) Mutual funds
d) Letter of credit
e) None of these

12. Basel norms which are important regulatory stipulations are meant for which sector?
a) Insurance
b) Banking
c) Micro finance
d) Pension funds
e) None

13. Systematic investment Plans relates to:
a) Mutual Funds
b) Life Insurance Companies
c) Commercial Banks
d) Post office savings schemes
e) None

14. Euro money is the official currency of ___?
a) NATO
b). United Nations
c) European Union
d) Germany and England
e) None of these

15. Which of the following is an example of cash less purchase?
a) Debit card
b) Credit card
c) ATM withdrawal
d) All of the above
e) None

16. Whose signature appears on Indian Rs. 100 note?
a) Finance Minister
b) RBI Governor
c) Finance Secretary
d) Chairman, Planning Commission
e) None

17. While discussing investments there is a mention of short term government security. What is this investment?
a) Debenture
b) Mutual funds
c) Treasury bill
d) Share
e) None of these

18. NBFCs are an important part of the Indian financial system. what is meant by this term?
a) New Banking Financial Companies
b) Non Banking Financial Companies
c) Neo Banking Financial Confederation
d) Non banking Fiscal Companies

19. Banking loan against property requires the asset to be free from encumbrances. What does it mean?
a) The asset to be free from any liability
b) The asset to be properly registered
c) The property to be fully constructed
d) The asset should not have multiple owners
e) None

20. RBI stipulates a healthy mix of CASA in the business figures of banks. What is CASA?
a) Customer Analysis and Savings Pattern
b) Cost Appreciation and selling Analysis
c) Current Account and saving Account
d) Credit and savings Aggregate
e) None of these

21. Which one of the following is not an electronic banking delivery channel?
a) Mobile Vans
b) Mobile Phone Banking
c) Internet Banking
d) Tele Banking
e) ATM

22. The Rate at which the domestic currency can be converted into foreign currency and vice-versa is known as the ____
a) Exchange rate
b) MIBOR
c) Inter bank Call money rate
d) Base rate
e) LIBOR

23. Now-a-days Banks are selling third party products. Example of third party product is:
a) Mutual funds
b) Term deposits
c) Credit cards
d) All of these
e) None

24. Electronic Clearing Service in banks can be availed only by:
a) Individuals
b) Corporates
c) Senior Citizens
d) All of these
e) None

25.What is the full form of CRR as used in banking sector?
a) Crucial Reserve Rate
b) Cash Reserve Ratio
c) Current Reserve Ratio
d) Core Current Ratio
e) None.

26.What is the full form of LAF as used in the banking world very frequently ?
a) Liquid Advances Finance
b) Liquidity Adjustment Facility
c) Legal Adjournment Formality
d) Local Advance Finance
e) Late Arrival of Finance

27.Where is the headquarters of International Monetary Fund?
a) Geneva
b) Paris
c) London
d) Manila
e) Washington DC

28. Many Regional Rural Banks are given licence to open branches in small cities and towns. These licences are given by:
a) Cabinet Committee on Economic Affairs
b) Reserve Bank Of India
c) NABARD
d) Indian Banks' Association
e) None of these

29. Which of the following organisations/agencies is not associated with the world of Banking and Finance?
a) SEBI
b) AMFI
c) RBI
d) ECGC
e) SPCA

30. Banks recover term loan from the parties in EMIs. What does the letter 'E' represent in the term?
a) Easy
b) Effective
c) Equated
d) Essential
e) Economical

31. What is the Bank Rate at Present?
a) 2%
b) 4%
c) 8.25%
d) 8%
e) None of these

32. Which of the following is not a scheduled commercial bank?
a) IDBI
b) AXIS
c) HDFC
d) NABARD
e) Kotak Mahindra Bank

33. Which of the following certainly is an effort in the direction of Financial Inclusion?
a) Internet Banking
b) Anywhere Banking
c) No-frills Account
d) Foreign Currency Accounts
e) All of these

34. Who amongst the following Padma Bhushan awardees is a famous Banker?
a) Azim H Premji
b) Kapila Vatsyayan
c) Chanda Kochhar
d) Waheeda Rahman
e) Brajesh Mishra

35. Which of the following Acts has specially been launched to facilitate banks in recovery of bad loans?
a) RBI Act
b) Banking Regulation Act
c) Companies Act
d) Income Tax Act
e) SARFAESI Act

36. The financial assistance or loans of Rs. 10,000 by a bank to a very small borrower will be called?
a) Business Finance
b) Govt. Finance
c) Micro Finance
d) Small Finance
e) KYC finance

37. Who amongst the following cannot work as a Business Correspondent as given in the scheme launched by the banks ?
a) Kirana Store
b) Post Office
c) Self Help Group
d) A Bank Officer
e) Co-operative Society

38. Some banks are financing big projects like construction of roads, bridges etc. Finacing such projects means banks are helping exactly in:
a) Infrastructural Development
b) Project Management
c) Developing Core Sector Industry
d) Financial Inclusion
e) All of these

39. As we know, a lot of new concepts are being used in the field of banking these days, which of the following is NOT one such concept/product directly associated with banks ?
a) RTGS
b) SMS alert
c) Demat Account
d) ATM/Debit card
e) Number Portability

40. Which of the following is NOT a Nationalised bank?
a) Union Bank of India
b) Central Bank of India
c) YES Bank
d) Syndicate Bank
e) Indian Bank

41. Interest payable on savings bank accounts is?
a) De-regulated by RBI
b) Regulated by State Governments
c) Regulated by Central Govt
d) Regulated by RBI
e) Regulated by Finance Minister

42. The usual deposit accounts of banks are?
a) Current accounts, electricity accounts and insurance premium accounts.
b) Current accounts, post office savings, bank accounts and term deposit accounts.
c) Loan accounts, savings bank accounts and term deposit accounts.
d) Current accounts, savings bank accounts and term deposit accounts.
e) Current bill accounts and term deposit accounts.

43. Fixed deposits and recurring deposits are?
a) Repayable after an agreed period
b) Repayable on demand
c) Not repayable
d) Repayable after death of depositors
e) Repayable on demand or after an agreed period as per bank's choice

44. Accounts are allowed to be operated by cheques in respect of?
a) Both savings bank accounts and fixed deposit accounts.
b) Savings bank accounts and current accounts.
c) Both savings bank accounts and loan accounts.
d) Both savings bank accounts and cash accounts only.
e) Both current accounts and fixed deposit accounts.

45. Which of the following is correct statement?
a) No interest is paid on current deposit accounts.
b) Interest is paid on current accounts at the same rate as term deposit accounts.
c) The rate of interest on current accounts and savings accounts are the same.
d) No interest is paid on any deposit by the bank.
e) Savings deposits are the same as current deposits.

46. Banking services delivered to a customer by means of a computer control system that does not directly involve banks branch is called?
a) Universal banking
b) Virtual banking
c) Narrow banking
d) Brick & Mortal banking
e) None

47. Financial inclusion means provision of ?
a) Financial services namely payments, remittances, savings, loans and insurance at affordable cost to persons not yet given the bank
b) Ration at affordable cost to persons not yet given the same
c) House at affordable cost to persons not yet given the same
d) Food at affordable cost to persons not yet given the same
e) Education at affordable cost to persons not yet given the same

48. When a bank returns a cheque unpaid, it is called?
a) Payment of the cheque
b) Drawing of the cheque
c) Canceling of the cheque
d) Dishonour of the cheque
e) Taking of the cheque

49. Who is the Chairman of the committee constituted by RBI to study issues and concerns in the Micro Finance Institutions (MFI) Sector?
a) YH Malegam
b) Dr. KC Chakraborty
c) C. Rangrajan
d) M. Damodaran
e) Usha Thorat

50. Which of the following types of accounts are known as 'Demat Accounts'?
a) Accounts which are Zero Balance
b) Accounts which are opened to facilitate repayment of a loan taken from the bank. No other business can be conducted from there
c) Accounts in which shares of various companies are traded in electronic form
d) Accounts which are operated through internet banking facility
e) None of the above

51. NEFT means?
a) National Electronic Funds Transfer
b) Negotiated Efficient Fund Transfer system
c) National Efficient Fund Transfer solution
d) Non Effective Fund Transfer system
e) Negotiated Electronic Foreign Transfer system.

52. Distribution of insurance products and insurance policies by banks as corporate agents is known as?
a) General insurance
b) Non life insurance
c) Bancassurance
d) Insurance Banking
e) Deposit Insurance

53. In respect of partnership business, LLP stands for:
a) Local Labour Promotion
b) Low Labour Projects
c) Limited Loan Partnership
d) Longer Liability Partnership
e) Limited Liability Partnership

54. What is a stale cheque?
a) A cheque issued without drawer's signature.
b) A cheque with only signature of the drawer.
c) A cheque which has completed 3 months from the date of its issue.
d) Any one of the above.
e) None

55. Interest on savings bank account is now calculated by banks on?
a) Minimum balance during the month
b) Minimum balance from 7th to last day of the month
c) Minimum balance from 10th to last day of the month
d) Maximum balance during the month
e) Daily product basis

56. Largest shareholder (in percentage shareholding) of a Nationalized bank is ?
a) RBI
b) NABARD
c) LIC
d) Govt of India
e) IBA

57. An account that can be opened by business organisations and also individuals is known as a?
a) Term deposit
b) Checking Account
c) Saving Bank deposit
d) No Frills Accounts
e) Current deposit

58. A worldwide financial messaging network which exchanges messages between banks and financial institutions is known as?
a) CHAPS
b) SWIFT
c) NEFT
d) SFMS
e) CHIPS

59. Buy now & pay later refers to?
a) Foreign Currency
b) Internet Banking
c) US Dollars
d) Traveler's cheques
e) Credit Cards

60. Which one of the following is not 'Money Market Instrument'?
a) Treasury Bills
b) Commercial Paper
c) Fixed Deposit
d) Equity Shares
e) None

61. Which one of the following is a retail banking product?
a) Home Loans
b) Working capital finance
c) Corporate Term Loans
d) All the above
e) None

62. Finance Ministry has asked the RBI to allow common ATMs that will be owned and managed by non-banking entities hoping to cut transaction costs for banks. Such ATMs are known as?
a) Black label ATMs
b) Offsite ATMs
c) On site ATM's or red ATMs
d) Third party ATMs
e) White label ATMs

63. Technological advancement in the recent times has given a new dimension to banks, mainly to which one of the following aspects?
a) New Age Financial Derivatives
b) Service Delivery Mechanism
c) Any Banking
d) Any type banking
e) Multilevel Marketing

64. Which of the following is NOT a function of the Reserve Bank of India?
a) Fiscal Policy Functions
b) Exchange Control Functions
c) Issuance, Exchange and Destruction of currency notes
d) Monetary Authority Functions
e) Supervisory and Control Functions

65. Which of the following is NOT required for opening a bank account?
a) Identity Proof
b) Address Proof
c) Recent Photographs
d) Domicile Certificate
e) None

66. What is the maximum deposit amount insured by DICGC?
a) Rs. 2,00,000 per depositor per bank
b) Rs. 2,00,000 per depositor across all banks
c) Rs. 1,00,000 per depositor per bank
d) Rs. 1,00,000 per depositor across all bank
e) None

67. The present Foreign Trade Policy of India will continue till?
a) Dec 2012
b) Mar 2013
c) Mar 2014
d) Jun 2013
e) Dec 2014

68. With reference to a cheque who is drawee?
a) The bank that collects cheque.
b) The payee's bank.
c) The endorsee's bank.
d) The endorser's bank.
e) The bank upon which the cheque is drawn.

69. In which of the following fund transfer mechanisms, funds can be moved from one bank to another and where the transaction is settled instantly without being bunched with any other transaction?
a) RTGS
b) NEFT
c) TT
d) EFT
e) MT

70. Banking Ombudsman Scheme is applicable to the business of ?
a) All Scheduled commercial banks excluding RRBs.
b) All Scheduled commercial banks including RRBs.
c) Only Public Sector Banks
d) All Banking Companies
e) All scheduled banks except private banks.

71. Nationalization of banks aimed at all of the following except?
a) Provision of adequate credit for agriculture, SME & exports.
b) Removal of control by a few capitalists.
c) Provision of credit to big industries only.
d) Access of banking to masses.
e) Encouragement of a new class of entrepreneurs.

72. Which one of the following banks is headed by a Woman CEO?
a) Bank of Baroda
b) HDFC Bank
c) Central Bank of India
d) PNB
e) ICICI

73. Base Rate is the rate below which no Bank can lend their funds. Who sets up this 'Base Rate' for Banks?
a) Individuals Banks Board
b) Ministry of Commerce
c) Ministry of Finance
d) RBI
e) Interest Rate Commission of India

74. What is a 'Debit Card'?
a) It is a card issued by a Rating Agency.
b) It is a card which can be used for withdrawing cash or making payment even in the absence of any balance in the account.
c) It is a card which can be used for withdrawing cash or making payment at Point of Sales (POS) if there is balance in the account.
d) It is a card issued to borrowers
e) It is a card which can be used for making STD calls.

75. Bad advances of a Bank are called?
a) Standard accounts
b) Book debts
c) Non Performing Assets
d) Out of order accounts
e) Overdrawn accounts

76. Axis Bank is a?
a) Public Sector Bank
b) Private Sector Bank
c) Co-operative Bank
d) Foreign Bank
e) Gramin Bank

77. By increasing repo rate, the economy may observe the following effects ______
a) Rate of interest on loans and advances will be costlier.
b) Industrial output would be affected to an extent.
c) Banks will increase rate of interest on deposits.
d) Industry houses may borrow money from foreign countries.
e) All of these.

78. Increased interest rates, as is existing in the economy at present will_______
a) Lead to reduction in borrowings
b) Lead to lower GDP growth.
c) Mean higher cost of raw materials.
d) Mean lower cost of raw materials.
e) Mean higher wage bill.

79. Which of the following schemes is launched to provide pension to the members of unorganized sectors in India?
a) Swabhiman
b) Jeevan Dhara
c) Jeevan Kalyan
d) ASHA
e) Swalamban

80. A cheque returned for insufficiency of funds. Payee will have right to issue notice and approach court of law for justice under section 138 of which act?
a) Indian Penal Code
b) Negotiable Instrument Act
c) Criminal Procedure Code
d) Payment and Settlement Act
e) Indian Contract Act

81. Mr. Rajendra had filed a complaint with Banking Ombudsman and is not satisfied with the decision. What is the next option available for him to get his problem redressed?
a) Write to the CMD of the Bank.
b) File an appeal before the Finance Minister.
c) File an appeal before the Banking Ombudsman again.
d) File an appeal before the Dy. Governor RBI.
e) Simply close the matter as going to court involves time and money.

82. Which of the following is an example of Financial assets?
a) National Saving Certificate
b) Infrastructure Bonds
c) Indira Vikas Patra
d) Krishi Vikas Patra
e) All of these

83. Bank branches which can undertake foreign exchange business directly are known as:
a) Authorized dealers
b) Foreign dealers
c) Overseas branches
d) Approved dealers
e) Exchange branches

84. Insurance cover for bank deposits in our country is provided by ____
a) SBI
b) Govt of India
c) GIC
d) LIC
e) DICGC

85. The Financial Literacy does not include which of the following?
a) How to invest the funds
b) How to use the limited funds carefully
c) How to minimize the risks
d) How to reinvest the money earned
e) None of these

86. 'ADB' refers to-
a) Amedical Development Bank
b) Amedical Depository Bureau
c) Additional Debit Balance
d) Only a&b
e) Asian Development bank

87. When a banker talks about CDR, what is he talking about?
a) Corporate Debt Restructuring
b) Corporate Debt Rollover
c) Company Debt Rollover
d) Corporate Deposit Restructuring
e) Company Deposit Restructuring

88. Expand the term ALM as used in Banking/Finance sector?
a) Asset Liability Management
b) Asset Liability Maturity
c) Asset Liability Mismatch
d) Asset Liability Manpower
e) Asset Liability Maintenance

89. Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are terms most closely related to which of the following industries/ markets?
a) Capital Market
b) Banking industry
c) Commodities market
d) Money Market
e) Mutual funds

90. What is the maximum period for which domestic term deposits are normally accepted by the banks in our country?
a) 3 yr
b) 5 yr
c) 7 yr
d) 10 yr
e) 12 yr

91. If you wish to purchase some US Dollars for your travel abroad, you should approach?
a) The Ministry of Finance
b) The US Embassy
c) Any Bank Branch authorized to do such activity
d) The Reserve Bank of India
e) External Affairs Ministry

92. What does the letter 'L' stands for in the term LAF commonly used in financial/economic news?
a) Liquidity
b) Least
c) Liabilities
d) Long
e) Liquid

93. Which of the following is not classified as a Commercial Bank?
a) Public Sector Bank
b) Foreign Bank
c) Private Sector Bank
d) Regional Rural Bank
e) Urban Cooperative Bank

94. Which of the following is not the name of the a Banking Organization?
a) HDFC
b) IDBI
c) YES
d) SEBI
e) ICICI

95. Money laundering means
a) Concealment of income source mainly to avoid income tax
b) Money acquired from undisclosed sources and deposited in foreign banks
c) Money acquired from undisclosed sources and deposited in foreign banks
d) Process of conversion of money obtained illegally to appear to have originated from legitimate sources to convert black money into white money
e) Money acquired from drug trafficking

96. Monetary Policy as an arm of the economic policy is administered by
a) Government of India
b) RBI
c) SBI
d) Govt of the respective states
e) None

97. Which of the following is not a primary function of a Bank?
a) Granting loans
b) Collecting cheques/ drafts of Customers
c) Arranging VISA for students for abroad education
d) Issuing bank drafts
e) Selling Gold/Silver Coins.

98. Reserves that can act as a liquidity buffer for Commercial Banks during crisis times are
a) CAR
b) CRR
c) CAR & CRR
d) CRR & SLR
e) SLR

99. National Bank for Agriculture and Rural Development (NABARD) is established in
July, 1982 as per recommendations of Committee headed by
a)Narasimhan
b) Saraf
c) Rangarajan
d) Sivaraman
e) Bimal Jalan

100. What is the name of the trade Association of IT & BPO companies in India?
a) NASSCOM
b) FICCI
c) CII
d) AIMA
e) ASSOCHAM

Answers
1) c; 2) b; 3) b; 4) e; 5) c; 6) d; 7) b; 8) c; 9) b; 10) d;
11) d; 12) b; 13) a; 14) c; 15) d; 16) b; 17) c; 18) b; 19) a; 20) c;
21) a; 22) a; 23) a; 24) d 25) b; 26) b; 27) e; 28) b; 29) e; 30) c;
31) c; 32) d; 33) c; 34) c; 35) e; 36) c; 37) d; 38) a; 39) e; 40) c.
41) a; 42) d; 43) a; 44) b; 45) a; 46) b; 47) a; 48) d; 49) a; 50) c;
51) a; 52) c; 53) e; 54) c; 55) e; 56) d 57) a; 58) b; 59) e; 60) c;
61) a; 62) e; 63) b; 64) a; 65) d; 66) c; 67) c; 68) e; 69) a; 70) b;
71) c; 72) e. 73) a 74) c; 75) a; 76) b; 77) a; 78) c; 79) e; 80) b;
81) d; 82) a; 83) a; 84) e; 85) e; 86) e; 87) a; 88) a; 89) b; 90) d;
91) c; 92) a. 93) e; 94) d; 95) d; 96) b; 97) c; 98) d: 99) d: 100) a

BANKING AWARENESS PRACTICE QUESTIONS FOR BANK EXAMS

1. World Trade Organization's (WTO) 9th Ministerial Conference is to be held in December, 2013. Where is it to be held?
a) Bali, Indonesia
b) Cancun, Mexico
c) Geneva, Switzerland
d) Hongkong
e) None of the above

2. In August, 2013, Govt of India set up a 7 member panel to revisit Tax laws and to recommend measures for a stable tax administration. Who heads the panel?
a) Naina Lal Kidwai
b) Bimal Jalan
c) Parthasarathi Shome
d) Dr Y V Reddy
e) None of the above

3. Which of the following is NOT a Direct Tax?
a) Income Tax
b) Corporation Tax
c) Property Tax
d) Gift Tax
e) Service Tax

4. Open Market Operations are carried out by RBI to
a) Lend money to State Governments
b) Shore up the Rupee value
c) Adjust Market Liquidity and thereby controlling money supply
d) To bring down Gold prices
e) None of the above.

5. 'Laissez-faire' in economic parlance means
a)Totally controlled market
b) Completely free market
c) Capitalistic market
d) Monopolistic market
e) None of the above

6. What is a Debt Fund?
a) Mutual Fund that invests in Fixed Income Securities like Bonds & Treasury bills
b) Mutual Fund that invests only in Shares and Equities
c) Mutual Fund that invests only in Infrastructure Bonds
d) Mutual Fund that invests only in long term Deposits
e) None of the above

7. Find the 'odd man out' of the following.
a) Certificate of Deposit
b) Term Deposit
c) Savings Bank Deposit
d) Commercial Paper
e) Capital Gains Deposit

8. What is NOT true with regard to TDS (Tax Deducted at Source) on Interest on Bank
Deposits for the Financial Year 2013-14?
a) TDS is done when interest on all the FDs of a Customer crosses Rs. 10000/- per year
b) TDS is not done for interest on Tax Saving FDs
c) TDS is done at the rate of 10% on the total Interest
d) TDS is not done on interest from Savings Bank Accounts
e) None of the above

9. Current Foreign Trade Policy (Exim Policy) covers the period
a)2013-18
b) 2012-17
c) 2010-15
d) 2011-16
e) 2009-14

10. Ben Bernanke is the Chairman of USA's Central Bank, 'Federal Reserve'. Who will
succeed him?
a) Janet Yellen
b) Christine Lagarde
c) Oliver Kahn
d) John Kerry
e) None of the above

11. While Indian Railways is the largest Public Sector Employer in India, who is the largest Private Sector Employer in India?
a) Reliance Industries
b) Infosys
c) Wipro
d) TCS
e) None of the above

12. Which State in India has the highest Per Capita Income?
a) Goa
b) Punjab
c) Karnataka
d) Tamilnadu
e) Haryana

13. As per the latest Companies Act, what is the minimum number of member's required
to form a Public Limited Company?
a) 1
b) 50
c) 7
d) 2
e) 10

14. Regional Rural Banks(RRBs) are owned by
a) Only RBI and Sponsor Bank
b) Only Govt of India and Sponsor Bank
c) Only Sponsor Bank, Govt of India and State Government concerned
d) Only Sponsor Bank and State Government concerned
e) None of the above

15. Davos in Switzerland is famous for Annual meeting of World Business leaders,Politicians and thought leaders. Which organization conducts this meeting?
a) World Economic Forum - A Swiss Non-profit Foundation
b) World Bank
c) International Monetary Fund
d) World Trade Organization
e) None of the above

16. What is 'Deficit Financing'?
a) Lending of money by Banks to companies with losses
b) Practice in which a government spends more money than it receives as revenue
c) Lending of money by RBI to State Governments
d) Lending of money by World Bank to Poor countries
e) None of the above

17. Who is the author of 'Das Kapital' which is a critical analysis of Political Economy?
a) Maxim Gorky
b) Karl Marx
c) Leo Tolstoy
d) Amartya Sen
e) None of the above

18. The 'Bharatiya Mahila Bank' the first nationalised bank for women will have a Seed
Capital of Rupees
a)500 Crores
b) 5000 Crores
c) 100 Crores
d) 1000 Crores
e) None of the above

19. JNNURM (Jawaharlal Nehru National Urban Renewal Mission) is a Govt. of India
scheme for?
a) Urban Employment
b) Urban Finance
c) Urban Education
d) Urban Development & Modernization
e) 'a', 'b' & 'c' of the above

20. Which Country is the largest producer of Wheat in the world?
a) India
b) USA
c) Peoples Republic of China
d) Russia
e) None of the above

21. The first NBFC (Non Banking Financial Company) to be converted into a Bank in
India is
a)Kotak Mahendra Finance Ltd. in 2003
b) Reliance Finance Ltd. in 2005
c) L&T Finance Ltd. in 2008
d) Shriram Finance Ltd. in 2006
e) None of the above

22. What is 'Operation Flood'?
a) Flood Control Program of Govt. of India
b) River Linking Project of Govt. of India
c) Dairy Development Project of NDDB(National Dairy Development Board)
d) Irrigation Development Plan of Govt. of India
e) None of the above

23. What is the Target set for Farm Credit in Union Budget for 2013-14?
a) Rs 7,00,000 Crore
b) Rs 5,00,000 Crore
c) Rs 5,75,000 Crore
d) Rs 3,00,000 Crore
e) None of the above

24. What is 'Financial Inclusion'?
a) Delivery of Banking Services at affordable cost
b) Providing Banking Services to the vast sections of disadvantaged and low income
groups
c) Availability of Banking and payment services to entire population without
discrimination
d) All the 3 above
e) None of the above

25. How much amount is earmarked approximately for capital infusion in to Public Sector
Banks in FY 2013-14?
a) Rs. 14,000 Crores
b) Rs. 10,000 Crores
c) Rs. 20,000 Crores
d) Rs. 18,000 Crores
e) None of the above

26. The threshold for cash transactions to be monitored by Banks as per RBI guidelines isa)
Rs. 50 Lakh
b) Rs. 10 Lakh
c) Rs. 5 Lackh
d) Rs.50,000
e)Rs. 25,000

27. On 10th October, 2013 a group member organisation of the World Bank has launched
Bonds worth US $ 1 billion linked to Rupee for boosting investments in India. Name
this organization.
a) International Monetary Fund (IMF)
b) International Finance Corporation (IFC)
c) Asian Development Bank (ADB)
d) United Nations Development Programme (UNDP)
e) None of the above

28. National Bank for Agriculture and Rural Development (NABARD) is established in
July, 1982 as per recommendations of Committee headed by
a)Narasimhan
b) Saraf
c) Rangarajan
d) Sivaraman
e) Bimal Jalan

29. What is the name of the trade Association of IT & BPO companies in India?
a) NASSCOM
b) FICCI
c) CII
d) AIMA
e) ASSOCHAM

30. Name the Bank which has recently announced 'eKYC' facility to open Savings and
Loan accounts based on just Aadhar and Finger prints scan for New Customers.
a) HDFC Bank
b) SBI
c) Axis Bank
d) IDBI Bank
e) Punjab National Bank

31. RBI guidelines require Banks to roll out more secured 'Chip+ PIN' Debit/Credit cards
to their customers. What is the deadline set by RBI for this?
a) November 30th, 2013
b) December 31st, 2013
c) March 31st, 2014
d) September 30th, 2013
e) None of the above

32. Which Sector contributed maximum to GDP of India as per Economic Survey 2012-13?
a) Industrial
b) Services
c) Agriculture
d) Infrastructure
e) None

33. What is 'Employee Attrition'?
a) Employees filing suits against their Employers
b) Employees filing suits against each other
c) Employees striking work
d) Employer loosing Employees through resignation/retirement/retrenchment
e) None of the above

34. Rs. 2058 Crore Jet-Etihad deal is the largest Foreign investment in Indian Aviation
Sector so far. Where is the Etihad headquarters is located?
a) Dubai
b) Muscat, Oman
c) Kuwait
d) Singapore
e) Abu Dhabi

35. Which company is the World's largest Steel manufacturer?
a) Nippon Steel, Japan
b) Arcelor Mittal, Luxemborg
c) POSCO, South Korea
d) Tata Steel, India
e) None of the above

ANSWERS:
1) a 2) c 3) e 4) c 5) b 6) a 7) d 8) e 9) e 10) a
11) d 12) a 13) c 14) c 15) a 16) b 17) b 18) d 19) d 20) c
21) a 22) c 23) a 24) d 25) a 26) b 27) b 28) d 29) a 30) c
31) a 32) b 33) d 34) e 35) b 

BANKING AWARENESS PRACTICE MCQs FOR BANK EXAMS

1. Which of the following is NOT a banking related term?
a) SWIFT
b) CAMELS
c) TRIPS
d) CAR
e) STRIPS

2. Which of the following is not a component of bank deposits?
a) Fixed deposit
b) Current A/c deposit
c) Recurring Deposit
d) Safe deposits
e) None of these

3. Which of the following taglines is NOT associated with the State Bank of India?
a) Pure banking, nothing else
b) The name you can bank upon
c) Nation Bank on us
d) Banker to every Indian
e) With you all the way

4. KYC Guidelines have been issued by RBI Under the provisions of?
a) Banking Regulation Act
b) RBI Act
c) Negotiable Instrument Act
d) Prevention of Money Laundering Act
e) None of these

5. In the context of banking sector, DRT is associated with?
a) Recurring
b) Loan recovery
c) Deposit insurance
d) Demand and time liabilities of banks
e) None of these

6. What is meant by a Scheduled Bank?
a) A Bank functioning under provisions of Banking Regulation Act, 1949
b) A Bank included in 2nd scheduled of RBI Act 1934
c) A Bank incorporated under banking companies Act, 1956
d) A Bank authorized to do Banking Functions
e) None of these

7. The issue of fresh securities by an unlisted company for the first time is called?
a) Exchange traded Fund
b) Initial Public Offering
c) Rights issue
d) Follow-on Public Offering
e) None of these

8. Fixed deposits are for the bank______
a) Fixed Assets
b) Time liability
c) Demand liability
d) Current Assets
e) None of these

9. Expanded form of the term CAGR?
a) Calculated Annual Growth Rate
b) Compounded Annual Growth Rate
c) Corresponding Annual Growth Rate
d) Corrected Annual Growth Rate
e) Comparative Annual Growth Rate

10. With reference to a cheque which of the following is a 'Drawee Bank'?
a) The Bank that collects the cheque
b) The endorsee's bank
c) The Payee's cheque
d) The endorser's bank
e) The bank upon which the cheque is drawn

11. What does letter 'A' denote in the term LAF?
a) Adequacy
b) Addition
c) Adjustment
d) Advance
e) Accreditation

12. The term 'BSR' refers to?
a) Banks Selling Rate
b) Basic Statistical Returns
c) Annual returns submitted by banks to RBI in respect of priority sector advances
d) Quarterly statement of advances to agriculture
e) None of the above

13. Which of the following is NOT considered a part of time and demand liabilities of the banks for the purpose of cash reserve ratio?
a) Paid-up capital
b) Fixed deposit
c) Savings deposit
d) Recurring deposit
e) None of these

14. ______ Rate is Controlled by the individual Banks?
a) Bank Rate
b) Base Rate
c) CRR
d) Repo Rate
e) SLR

15. What is the expanded form of ECS as used in banking sector?
a) Effective Clearing System
b) Electronic Confirmation System
c) Electronic Clearing System
d) Enabled Clearing System
e) None of these

16. Who becomes the first President of Administrative Tribunal of the Asian
Development Bank (ADB)?
a) Christine lagarde
b) Pascal lamey
c) Surin Pitsuwan
d) Lakshmi Swaminathan
e) Ashwini Chandran

17. Which of the following is NOT a mode of foreign capital inflow in India?
a) No-Frill Account
b) FDI
c) FII
d) NRI Account
e) None of these

18. Truncated Cheque means?
a) Shared Clearing
b) Cheques presented will be processed by the depositing branch itself
c) Physical movement of instruments from branch to clearing house
d) Movement of electronic image instead of physical movement of instruments
e) None of these

19. Which of the following assets can be mortgaged?
a) Stock
b) Book debts
c) National Saving Certificates
d) Shares
e) Land and Building

20. Fiscal Policy refers to?
a) Balance of Payments
b) Govt. taxes, expenditure and borrowings
c) Govt. borrowings from Equity Market
d) Sale and purchase of securities by RBI
e) None of these

ANSWERS:
 1. c; 2. d; 3. b; 4. a; 5. b; 6. b; 7. b; 8.
b; 9. b; 10. e; 11. c; 12. b; 13. a; 14. b; 15. c;
16. d; 17. a; 18. d; 19. e; 20. b.

BAKING TERMINOLOGY

•  
• Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement date. Accrued interest on bonds must be added to their purchase price.
• Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.
• Ask Price: The lowest price at which a dealer is willing to sell a given security.
• Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans, leases, and other assets. Most ABS are backed by auto loans and credit cards – these issues are very similar to mortgage-backed securities.
• At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument.
• Basis Point: One hundredth of 1%. A measure normally used in the statement of interest rate e.g., a change from 5.75% to 5.81% is a change of 6 basis points.
• Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.
• Bid-ask Spread: The difference between a dealer’s bid and ask price.
• Bid Price: The highest price offered by a dealer to purchase a given security.
• Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. They are issued by large and well-established firms that have impeccable financial credentials.
• Bond: Publicly traded long-term debt securities, issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal at maturity.
• Book Value: The amount of stockholders’ equity in a firm equals the amount of the firm’s assets minus the firm’s liabilities and preferred stock. /p>
• Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities.
• Brokerage Fee: The commission charged by a broker.
• Bull Markets: Favorable markets associated with rising prices and investor optimism.
• Call Option: The right to buy the underlying securities at a specified exercise price on or before a specified expiration date.
• Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity.
• Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original purchase price.
• Capital Markets: The market in which long-term securities such as stocks and bonds are bought and sold.
• Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a specified period, and premature withdrawals incur interest penalties.
• Closed-end (Mutual) Fund: A fund with a fixed number of shares issued, and all trading is done between investors in the open market. The share prices are determined by market prices instead of their net asset value.
• Collateral: A specific asset pledged against possible default on a bond. Mortgage bonds are backed by claims on property. Collateral trusts bonds are backed by claims on other securities. Equipment obligation bonds are backed by claims on equipment.
• Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high credit standings.
• Common Stock: Equity investment representing ownership in a corporation; each share represents a fractional ownership interest in the firm.
• Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated from one period to the next.
• Contract Note: A note which must accompany every security transaction which contains information such as the dealer’s name (whether he is acting as principal or agent) and the date of contract.
• Controlling Shareholder: Any person who is, or group of persons who together are, entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer, or more of the voting power at general meetings of the issuer, or who is or are in a position to control the composition of a majority of the board of directors of the issuer.
• Convertible Bond: A bond with an option, allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion price is the specified value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond’s value over the conversion price.
• Corporate Bond: Long-term debt issued by private corporations.
• Coupon: The feature on a bond that defines the amount of annual interest income.
• Coupon Frequency: The number of coupon payments per year.
• Coupon Rate: The annual rate of interest on the bond’s face value that a bond’s issuer promises to pay the bondholder. It is the bond’s interest payment per dollar of par value.
• Covered Warrants: Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise.
• Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors.
• Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves. Any changes in the size of the monetary base has to be fully matched by corresponding changes in the foreign reserves.
• Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.
• Custody of Securities: Registration of securities in the name of the person to whom a bank is accountable, or in the name of the bank’s nominee; plus deposition of securities in a designated account with the bank’s bankers or with any other institution providing custodial services.
• Default Risk: The possibility that a bond issuer will default ie, fail to repay principal and interest in a timely manner.
• Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to buy (sell) the shares of a listed company at a specified price.
• Derivative Instrument: Financial instrument whose value depends on the value of another asset.
• Discount Bond: A bond selling below par, as interest in-lieu to the bondholders.
• Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to increase returns or be exposed to less risk.
• Duration: A measure of bond price volatility, it captures both price and reinvestment risks to indicate how a bond will react to different interest rate environments.
• Earnings: The total profits of a company after taxation and interest.
• Earnings per Share (EPS): The amount of annual earnings available to common stockholders as stated on a per share basis.
• Earnings Yield: The ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).
• Equity: Ownership of the company in the form of shares of common stock.
• Equity Call Warrants: Warrants issued by a company which give the holder the right to acquire new shares in that company at a specified price and for a specified period of time.
• Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend or the period of time between the announcement of the dividend and the payment (usually two days before the record date). For transactions during the ex-dividend period, the seller will receive the dividend, not the buyer. Ex-dividend status is usually indicated in newspapers with an (x) next to the stock’s or unit trust’s name.
• Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument. Interest is calculated on face/nominal value.
• Fixed-income Securities: Investment vehicles that offer a fixed periodic return.
• Fixed Rate Bonds: Bonds bearing fixed interest payments until maturity date.
• Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates.
• Fundamental Analysis: Research to predict stock value that focuses on such determinants as earnings and dividends prospects, expectations for future interest rates and risk evaluation of the firm.
• Future Value: The amount to which a current deposit will grow over a period of time when it is placed in an account paying compound interest.
• Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will grow over a period of time when it is placed in an account paying compound interest.
• Futures Contract: A commitment to deliver a certain amount of some specified item at some specified date in the future.
• Hedge: A combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk.
• Income: The amount of money an individual receives in a particular time period.
• Index Fund: A mutual fund that holds shares in proportion to their representation in a market index, such as the S&P 500.
• Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time. The company can be referred to as an IPO for a period of time after the event.
• Inside Information: Non-public knowledge about a company possessed by its officers, major owners, or other individuals with privileged access to information.
• Insider Trading: The illegal use of non-public information about a company to make profitable securities transactions
• Intrinsic Value: The difference of the exercise price over the market price of the underlying asset.
• Investment: A vehicle for funds expected to increase its value and/or generate positive returns.
• Investment Adviser: A person who carries on a business which provides investment advice with respect to securities and is registered with the relevant regulator as an investment adviser.
• IPO price: The price of share set before being traded on the stock exchange. Once the company has gone Initial Public Offering, the stock price is determined by supply and demand.
• Junk Bond: High-risk securities that have received low ratings (i.e. Standard & Poor’s BBB rating or below; or Moody’s BBB rating or below) and as such, produce high yields, so long as they do not go into default.
• Leverage Ratio: Financial ratios that measure the amount of debt being used to support operations and the ability of the firm to service its debt.
• Libor: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). The LIBOR rate is published daily by the British Banker’s Association and will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.
• Limit Order: An order to buy (sell) securities which specifies the highest (lowest) price at which the order is to be transacted.
• Limited Company: The passive investors in a partnership, who supply most of the capital and have liability limited to the amount of their capital contributions.
• Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value.
• Listing: Quotation of the Initial Public Offering company’s shares on the stock exchange for public trading.
• Listing Date: The date on which Initial Public Offering stocks are first traded on the stock exchange by the public
• Margin Call: A notice to a client that it must provide money to satisfy a minimum margin requirement set by an Exchange or by a bank / broking firm.
• Market Capitalization: The product of the number of the company’s outstanding ordinary shares and the market price of each share.
• Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to make continuous two-sided quotes.
• Market Order: An order to buy or an order to sell securities which is to be executed at the prevailing market price.
• Money Market: Market in which short-term securities are bought and sold.
• Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities and sells shares of the portfolio to investors.
• Net Asset Value: The underlying value of a share of stock in a particular mutual fund; also used with preferred stock.
• Offer for Sale: An offer to the public by, or on behalf of, the holders of securities already in issue.
• Offer for Subscription: The offer of new securities to the public by the issuer or by someone on behalf of the issuer.
• Open-end (Mutual) Fund: There is no limit to the number of shares the fund can issue. The fund issues new shares of stock and fills the purchase order with those new shares. Investors buy their shares from, and sell them back to, the mutual fund itself. The share prices are determined by their net asset value.
• Open Offer: An offer to current holders of securities to subscribe for securities whether or not in proportion to their existing holdings.
• Option: A security that gives the holder the right to buy or sell a certain amount of an underlying financial asset at a specified price for a specified period of time.
• Oversubscribed: When an Initial Public Offering has more applications than actual shares available. Investors will often apply for more shares than required in anticipation of only receiving a fraction of the requested number. Investors and underwriters will often look to see if an IPO is oversubscribed as an indication of the public’s perception of the business potential of the IPO company.
• Par Bond: A bond selling at par (i.e. at its face value).
• Par Value: The face value of a security.
• Perpetual Bonds: Bonds which have no maturity date.
• Placing: Obtaining subscriptions for, or the sale of, primary market, where the new securities of issuing companies are initially sold.
• Portfolio: A collection of investment vehicles assembled to meet one or more investment goals.
• Preference Shares: A corporate security that pays a fixed dividend each period. It is senior to ordinary shares but junior to bonds in its claims on corporate income and assets in case of bankruptcy.
• Premium (Warrants): The difference of the market price of a warrant over its intrinsic value.
• Premium Bond: Bond selling above par.
• Present Value: The amount to which a future deposit will discount back to present when it is depreciated in an account paying compound interest.
• Present Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will discount back to present when it is depreciated in an account paying compound interest.
• Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the company’s common stock. The price/earnings (P/E) ratio relates the company’s earnings per share (EPS) to the market price of its stock.
• Privatization: The sale of government-owned equity in nationalized industry or other commercial enterprises to private investors.
• Prospectus: A detailed report published by the Initial Public Offering company, which includes all terms and conditions, application procedures, IPO prices etc, for the IPO
• Put Option: The right to sell the underlying securities at a specified exercise price on of before a specified expiration date.
• Rate of Return: A percentage showing the amount of investment gain or loss against the initial investment.
• Real Interest Rate: The net interest rate over the inflation rate. The growth rate of purchasing power derived from an investment.
• Redemption Value: The value of a bond when redeemed.
• Reinvestment Value: The rate at which an investor assumes interest payments made on a bond which can be reinvested over the life of that security.
• Relative Strength Index (RSI): A stock’s price that changes over a period of time relative to that of a market index such as the Standard & Poor’s 500, usually measured on a scale from 1 to 100, 1 being the worst and 100 being the best.
• Repurchase Agreement: An arrangement in which a security is sold and later bought back at an agreed price and time.
• Resistance Level: A price at which sellers consistently outnumber buyers, preventing further price rises.
• Return: Amount of investment gain or loss.
• Rights Issue: An offer by way of rights to current holders of securities that allows them to subscribe for securities in proportion to their existing holdings.
• Risk-Averse, Risk-Neutral, Risk-Taking:
  Risk-averse describes an investor who requires greater return in exchange for greater risk.
  Risk-neutral describes an investor who does not require greater return in exchange for greater risk.
  Risk-taking describes an investor who will accept a lower return in exchange for greater risk.
• Senior Bond: A bond that has priority over other bonds in claiming assets and dividends.
• Short Hedge: A transaction that protects the value of an asset held by taking a short position in a futures contract.
• Settlement: Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivered, securities sold, and receives from the broker the proceeds of a sale.
• Short Position: Investors sell securities in the hope that they will decrease in value and can be bought at a later date for profit.
• Short Selling: The sale of borrowed securities, their eventual repurchase by the short seller at a lower price and their return to the lender.
• Speculation: The process of buying investment vehicles in which the future value and level of expected earnings are highly uncertain.
• Stock Splits: Wholesale changes in the number of shares. For example, a two for one split doubles the number of shares but does not change the share capital.
• Subordinated Bond: An issue that ranks after secured debt, debenture, and other bonds, and after some general creditors in its claim on assets and earnings. Owners of this kind of bond stand last in line among creditors, but before equity holders, when an issuer fails financially.
• Substantial Shareholder: A person acquires an interest in relevant share capital equal to, or exceeding, 10% of the share capital.
• Support Level: A price at which buyers consistently outnumber sellers, preventing further price falls.
• Technical Analysis: A method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future (usually short-term) market trends. Contrasted with fundamental analysis which involves the study of financial accounts and other information about the company. (It is an attempt to predict movements in security prices from their trading volume history.)
• Time Horizon: The duration of time an investment is intended for.
• Trading Rules: Stipulation of parameters for opening and intra-day quotations, permissible spreads according to the prices of securities available for trading and board lot sizes for each security.
• Trust Deed: A formal document that creates a trust. It states the purpose and terms of the name of the trustees and beneficiaries.
• Underlying Security: The security subject to being purchased or sold upon exercise of the option contract.
• Valuation: Process by which an investor determines the worth of a security using risk and return concept.
• Warrant: An option for a longer period of time giving the buyer the right to buy a number of shares of common stock in company at a specified price for a specified period of time.
• Window Dressing: Financial adjustments made solely for the purpose of accounting presentation, normally at the time of auditing of company accounts.
• Yield (Internal rate of Return): The compound annual rate of return earned by an investment
• Yield to Maturity: The rate of return yield by a bond held to maturity when both compound interest payments and the investor’s capital gain or loss on the security are taken into account.
• Zero Coupon Bond: A bond with no coupon that is sold at a deep discount from par value.

BANKING AND FINANCIAL TERMS

Ad valorem tax:(in Latin: to the value added) - a tax based on the value (or assessed value) of property. Ad valorem tax can also be levied on imported items.

Aggregate demand is the sum of all demand in an economy. This can be computed by adding the expenditure on consumer goods and services, investment, and not exports (total exports minus total imports).


Aggregate supply is the total value of the goods and services produced in a country, plus the value of imported goods less the value of exports.

Alternative minimum tax: An IRS mechanism created to ensure that high-income individuals, corporations, trusts, and estates pay at least some minimum amount of tax, regardless of deductions, credits or exemptions. Alternative minimum tax operates by adding certain tax-preference items back into adjusted gross income. While it was once only important for a small number of high-income individuals who made extensive use of tax shelters and deductions, more and more people are being affected by it. The AMT is triggered when there are large numbers of personal exemptions on state and local taxes paid, large numbers of miscellaneous itemized deductions or medical expenses, or by Incentive Stock Option (ISO) plans.

Asset: Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). 

 

Average propensity to consume is the proportion of income the average family spends on goods and services.

Average propensity to save is the proportion of income the average family saves (does not spend on consumption).

Average total cost is the sum of all the production costs divided by the number of units produced. See also average cost. Asymmetric Information is where one party in a transaction has less information than the other.
Balance of Payment is the summation of imports and exports made between one countries and the other countries that it trades with.

Balance of trade: The difference in value over a period of time between a country's imports and exports.

Barter system: System where there is an exchange of goods without involving money.

Base year: In the construction of an index, the year from which the weights assigned to the different components of the index is drawn. It is conventional to set the value of an index in its base year equal to 100.

Bear: An investor with a pessimistic market outlook; an investor who expects prices to fall and so sells now in order to buy later at a lower price. A Bear Market is one which is trending downwards or losing value.

Bid price: The highest price an investor is willing to pay for a stock.

Bill of exchange: A written, dated, and signed three-party instrument containing an unconditional order by a drawer that directs a drawee to pay a definite sum of money to a payee on demand or at a specified future date. Also known as a draft. It is the most commonly used financial instrument in international trade.

Birth rate: The number of births in a year per 1,000 population.

Bond: A certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money; the bond issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal. Bonds guide.


Boom: A state of economic prosperity, as in boom times.

Break even: This is a term used to describe a point at which revenues equal costs (fixed and variable).

Bretton Woods: An international monetary system operating from 1946-1973. The value of the dollar was fixed in terms of gold, and every other country held its currency at a fixed exchange rate against the dollar; when trade deficits occurred, the central bank of the deficit country financed the deficit with its reserves of international currencies. The Bretton Woods system collapsed in 1971 when the US abandoned the gold standard.

Budget: A summary of intended expenditures along with proposals for how to meet them. A budget can provide guidelines for managing future investments and expenses. The budget deficit is the amount by which government spending exceeds government revenues during a specified period of time usually a year.


Bull: An investor with an optimistic market outlook; an investor who expects prices to rise and so buys now for resale later. A Bull Market is one in which prices are rising. c.i.f., abbrev: Cost, Insurance and Freight: Export term in which the price quoted by the exporter includes the costs of ocean transportation to the port of destination and insurance coverage.

Call money: Price paid by an investor for a call option. There is no fixed rate for call money. It depends on the type of stock, its performance prior to the purchase of the call option, and the period of the contract. It is an interest bearing band deposits that can be withdrawn on 24 hours notice.

Capital: Wealth in the form of money or property owned by a person or business and human resources of economic value. Capital is the contribution to productive activity made by investment is physical capital (machinery, factories, tools and equipments) and human capital (eg general education, health). Capital is one of the three main factors of production other two are labour and natural resources.

Capital account; Part of a nation's balance of payments that includes purchases and sales of assets, such as stocks, bonds, and land. A nation has a capital account surplus when receipts from asset sales exceed payments for the country's purchases of foreign assets. The sum of the capital and current accounts is the overall balance of payments.

Capital budget: A plan of proposed capital outlays and the means of financing them for the current fiscal period. It is usually a part of the current budget. If a Capital Program is in operation, it will be the first year thereof. A Capital Program is sometimes referred to as a Capital Budget. Capital Asset Pricing Model: A way to show the prices of securities and other risk-free assets.


Capital gains tax: Tax paid on the gain realized upon the sale of an asset. See capital gains tax for examples of tax regimes in various countries. It is a tax on profits from the sale of capital assets, such as shares. A capital loss can be used to offset a capital gain, reducing any tax you would otherwise have to pay.

Cartel: An organization of producers seeking to limit or eliminate competition among its members, most often by agreeing to restrict output to keep prices higher than would occur under competitive conditions. Cartels are inherently unstable because of the potential for producers to defect from the agreement and capture larger markets by selling at lower prices.

Census: Official gathering of information about the population in a particular area. Government departments use the data collected in planning for the future in such areas as health, education, transport, and housing.


Central bank: Major financial institution responsible for issuing currency, managing foreign reserves, implementing monetary policy, and providing banking services to the government and commercial banks.


Centrally planned economy: A planned economic system in which the production, pricing, and distribution of goods and services are determined by the government rather than market forces. Also referred to as a "non market economy." Former Soviet Union, China, and most other communist nations are examples of centrally planed economy Classical economics: The economics of Adam Smith, David Ricardo, Thomas Malthus, and later followers such as John Stuart Mill. The theory concentrated on the functioning of a market economy, spelling out a rudimentary explanation of consumer and producer behaviour in particular markets and postulating that in the long term the economy would tend to operate at full employment because increases in supply would create corresponding increases in demand.

Closed economy: A closed economy is one in which there are no foreign trade transactions or any other form of economic contacts with the rest of the world.

Collateral security: Additional security a borrower supplies to obtain a loan.

Commercial Policy: encompassing instruments of trade protection employed by countries to foster industrial promotion, export diversification, employment creation, and other desired development-oriented strategies. They include tariffs, quotas, and subsidies.

Comparative advantage: The ability to produce a good at a lower cost, relative to other goods, compared to another country. With perfect competition and undistorted markets, countries tend to export goods in which they have a Comparative Advantage and hence make gains from trading

Compound interest: Interest paid on the original principal and on interest accrued from time it became due.
Consumer Surplus is the difference between the price a consumer pays and what they were prepared to pay.

Conditionality: The requirement imposed by the International Monetary Fund that a borrowing country undertake fiscal, monetary, and international commercial reforms as a condition to receiving a loan for balance of payments difficulties.

Copyright: A legal right (usually of the author or composer or publisher of a work) to exclusive publication production, sale, distribution of some work. What is protected by the copyright is the "expression," not the idea. Notice that taking another's idea is plagiarism, so copyrights are not the equivalent of legal prohibition of plagiarism.

Correlation coefficient: Denoted as "r", a measure of the linear relationship between two variables. The absolute value of "r" provides an indication of the strength of the relationship. The value of "r" varies between positive 1 and negative 1, with -1 or 1 indicating a perfect linear relationship, and r = 0 indicating no relationship. The sign of the correlation coefficient indicates whether the slope of the line is positive or negative when the two variables are plotted in a scatter plot.


Cost benefit analysis: A technique that assesses projects through a comparison between their costs and benefits, including social costs and benefits for an entire region or country. Depending on the project objectives and its the expected outputs, three types of CBA are generally recognised: financial; economic; and social. Generally cost-benefit analyses are comparative, i.e. they are used to compare alternative proposals. Cost-benefit analysis compares the costs and benefits of the situation with and without the project; the costs and benefits are considered over the life of the project.

Countervailing duties: duties (tariffs) that are imposed by a country to counteract subsidies provided to a foreign producer
Current account: Part of a nation's balance of payments which includes the value of all goods and services imported and exported, as well as the payment and receipt of dividends and interest. A nation has a current account surplus if exports exceed imports plus net transfers to foreigners. The sum of the current and capital accounts is the overall balance of payments.

Cross elasticity of demand: The change in the quantity demanded of one product or service impacting the change in demand for another product or service. E.g. percentage change in the quantity demanded of a good divided by the percentage change in the price of another good (a substitute or complement)

Crowding out: The possible tendency for government spending on goods and services to put upward pressure on interest rates, thereby discouraging private investment spending.

Currency appreciation: An increase in the value of one currency relative to another currency. Appreciation occurs when, because of a change in exchange rates; a unit of one currency buys more units of another currency. Opposite is the case with currency depreciation.

Currency board: Form of central bank that issues domestic currency for foreign exchange at fixed rates.

Currency substitution: The use of foreign currency (e.g., U.S. dollars) as a medium of exchange in place of or along with the local currency (e.g., Rupees).

Customs duty: Duty levied on the imports of certain goods. Includes excise equivalents Unlike tariffs customs duties are used mainly as a means to raise revenue for the government rather than protecting domestic producers from foreign competition.

Death rate: numbers of people dying per thousand population.

Deflation: Deflation is a reduction in the level of national income and output, usually accompanied by a fall in the general price level.
What is depreciation/ Developed country is an economically advanced country whose economy is characterized by a large industrial and service sector and high levels of income per head.

Developing country, less developed country, underdeveloped country or third world country: a country characterized by low levels of GDP and per capita income; typically dominated by agriculture and mineral products and majority of the population lives near subsistence levels.
Dumping occurs when goods are exported at a price less than their normal value, generally meaning they are exported for less than they are sold in the domestic market or third country markets, or at less than production cost.

Direct investment: Foreign capital inflow in the form of investment by foreign-based companies into domestic based companies. Portfolio investment is foreign capital inflow by foreign investors into shares and financial securities. It is the ownership and management of production and/or marketing facilities in a foreign country.

Direct tax: A tax that you pay directly, as opposed to indirect taxes, such as tariffs and business taxes. The income tax is a direct tax, as are property taxes. See also Indirect Tax.

Double taxation: Corporate earnings taxed at both the corporate level and again as a stockholder dividend
Economic growth: Quantitative measure of the change in size/volume of economic activity, usually calculated in terms of gross national product (GNP) or gross domestic product(GDP).

Duopoly: A market structure in which two producers of a commodity compete with each other.

Econometrics: The application of statistical and mathematical methods in the field of economics to test and quantify economic theories and the solutions to economic problems.

Economic development: The process of improving the quality of human life through increasing per capita income, reducing poverty, and enhancing individual economic opportunities. It is also sometimes defined to include better education, improved health and nutrition, conservation of natural resources, a cleaner environment, and a richer cultural life.

Economic growth: An increase in the nation's capacity to produce goods and services.

Economic infrastructure: The underlying amount of physical and financial capital embodied in roads, railways, waterways, airways, and other forms of transportation and communication plus water supplies, financial institutions, electricity, and public services such as health and education. The level of infrastructural development in a country is a crucial factor determining the pace and diversity of economic development.

Economic integration: The merging to various degrees of the economies and economic policies of two or more countries in a given region. See also common market, customs union, free-trade area, trade creation, and trade diversion.

Economic policy: A statement of objectives and the methods of achieving these objectives (policy instruments) by government, political party, business concern, etc. Some examples of government economic objectives are maintaining full employment, achieving a high rate of economic growth, reducing income inequalities and regional development inequalities, and maintaining price stability. Policy instruments include fiscal policy, monetary and financial policy, and legislative controls (e.g., price and wage control, rent control).
Economies of Scale.

Elasticity of demand: The degree to which consumer demand for a product or service responds to a change in price, wage or other independent variable. When there is no perceptible response, demand is said to be inelastic.

Excess capacity: Volume or capacity over and above that which is needed to meet peak planned or expected demand.

Excess demand: the situation in which the quantity demanded at a given price exceeds the quantity supplied. Opposite: excess supply

Exchange control: A governmental policy designed to restrict the outflow of domestic currency and prevent a worsened balance of payments position by controlling the amount of foreign exchange that can be obtained or held by domestic citizens. Often results from overvalued exchange rates


Exchange rate: The price of one currency stated in terms of another currency, when exchanged.

Export incentives: Public subsidies, tax rebates, and other kinds of financial and nonfinancial measures designed to promote a greater level of economic activity in export industries.

Exports: The value of all goods and nonfactor services sold to the rest of the world; they include merchandise, freight, insurance, travel, and other nonfactor services. The value of factor services (such as investment receipts and workers' remittances from abroad) is excluded from this measure. See also merchandise exports and imports.

Externalities: A cost or benefit not accounted for in the price of goods or services. Often "externality" refers to the cost of pollution and other environmental impacts.

Fiscal deficit is the gap between the government's total spending and the sum of its revenue receipts and non-debt capital receipts. The fiscal deficit represents the total amount of borrowed funds required by the government to completely meet its expenditure

Fiscal policy is the use of government expenditure and taxation to try to influence the level of economic activity. An expansionary (or reflationary) fiscal policy could mean: cutting levels of direct or indirect tax increasing government expenditure The effect of these policies would be to encourage more spending and boost the economy. A contractionary (or deflationary) fiscal policy could be: increasing taxation - either direct or indirect cutting government expenditure These policies would reduce the level of demand in the economy and help to reduce inflation

Fixed costs: A cost incurred in the general operations of the business that is not directly attributable to the costs of producing goods and services. These "Fixed" or "Indirect" costs of doing business will be incurred whether or not any sales are made during the period, thus the designation "Fixed", as opposed to "Variable".

Fixed exchange rate: The exchange value of a national currency fixed in relation to another (usually the U.S. dollar), not free to fluctuate on the international money market.

Foreign aid The international transfer of public funds in the form of loans or grants either directly from one government to another (bilateral assistance) or indirectly through the vehicle of a multilateral assistance agency like the World Bank. See also tied aid, private foreign investment, and nongovernmental organizations.

Foreign direct investment (FDI): Overseas investments by private multinational corporations.

Foreign exchange reserves: The stock of liquid assets denominated in foreign currencies held by a government's monetary authorities (typically, the finance ministry or central bank). Reserves enable the monetary authorities to intervene in foreign exchange markets to affect the exchange value of their domestic currency in the market. Reserves are invested in low-risk and liquid assets, often in foreign government securities.

Free trade: Free trade in which goods can be imported and exported without any barriers in the forms of tariffs, quotas, or other restrictions. Free trade has often been described as an engine of growth because it encourages countries to specialize in activities in which they have comparative advantages, thereby increasing their respective production efficiencies and hence their total output of goods and services.

Free-trade area A form of economic integration in which there exists free internal trade among member countries but each member is free to levy different external tariffs against non-member nations.

Free-market exchange rate Rate determined solely by international supply and demand for domestic currency expressed in terms of, say, U.S. dollars.

Fringe benefit: A benefit in addition to salary offered to employees such as use of company's car, house, lunch coupons, health care subscriptions etc.

Gains from trade The addition to output and consumption resulting from specialization in production and free trade with other economic units including persons, regions, or countries.

General Agreement on Tariffs and Trade (GATT) An international body set up in 1947 to probe into the ways and means of reducing tariffs on internationally traded goods and services. Between 1947 and 1962, GATT held seven conferences but met with only moderate success. Its major success was achieved in 1967 during the so-called Kennedy Round of talks when tariffs on primary commodities were drastically slashed and then in 1994 with the signing of the Uruguay Round agreement. Replaced in 1995 by World Trade Organization (WTO).

Global warming Theory that world climate is slowly warming as a result of both MDC and LDC industrial and agricultural activities.

Gross domestic product (GDP): Gross Domestic Product: The total of goods and services produced by a nation over a given period, usually 1 year. Gross Domestic Product measures the total output from all the resources located in a country, wherever the owners of the resources live.

Gross national product (GNP) is the value of all final goods and services produced within a nation in a given year, plus income earned by its citizens abroad, minus income earned by foreigners from domestic production. The Fact book, following current practice, uses GDP rather than GNP to measure national production. However, the user must realize that in certain countries net remittances from citizens working abroad may be important to national well being. GNP equals GDP plus net property income from abroad.
Globalisation or Globalization: The process whereby trade is now being conducted on ever widening geographical boundaries. Countries now trade across continents and companies also trade all over the world.


Human capital Productive investments embodied in human persons. These include skills, abilities, ideals, and health resulting from expenditures on education, on-the-job training programs, and medical care.

Imperfect competition: A market situation or structure in which producers have some degree of control over the price of their product. Examples include monopoly and oligopoly. See also perfect competition.

Imperfect market A market where the theoretical assumptions of perfect competition are violated by the existence of, for example, a small number of buyers and sellers, barriers to entry, nonhomogeneity of products, and incomplete information. The three imperfect markets commonly analyzed in economic theory are monopoly, oligopoly, and monopolistic competition.

Import substitution A deliberate effort to replace major consumer imports by promoting the emergence and expansion of domestic industries such as textiles, shoes, and household appliances. Import substitution requires the imposition of protective tariffs and quotas to get the new industry started.

Income inequality The existence of disproportionate distribution of total national income among households whereby the share going to rich persons in a country is far greater than that going to poorer persons (a situation common to most LDCs). This is largely due to differences in the amount of income derived from ownership of property and to a lesser extent the result of differences in earned income. Inequality of personal incomes can be reduced by progressive income taxes and wealth taxes. This is measured by the Gini coefficient.

Index of industrial production: A quantity index that is designed to measure changes in the physical volume or production levels of industrial goods over time.

Inflation is the percentage increase in the prices of goods and services.

Indirect tax: A tax you do not pay directly, but which is passed on to you by an increase in your expenses. For instance, a company might have to pay a fuel tax. The company pays the tax but can increase the cost of its products so consumers are actually paying the tax indirectly by paying more for the merchandise.

Interdependence Interrelationship between economic and noneconomic variables. Also, in international affairs, the situation in which one nation's welfare depends to varying degrees on the decisions and policies of another nation, and vice versa. See also dependence.

International commodity agreement Formal agreement by sellers of a common internationally traded commodity (coffee, sugar) to coordinate supply to maintain price stability.

International Labor Organization (ILO) One of the functional organizations of the United Nations, based in Geneva, Switzerland, whose central task is to look into problems of world labor supply, its training, utilization, domestic and international distribution, etc. Its aim in this endeavor is to increase world output through maximum utilization of available human resources and thus improve levels of living.

International Monetary Fund (IMF) An autonomous international financial institution that originated in the Bretton Woods Conference of 1944. Its main purpose is to regulate the international monetary exchange system, which also stems from that conference but has since been modified. In particular, one of the central tasks of the IMF is to control fluctuations in exchange rates of world currencies in a bid to alleviate severe balance of payments problems.

International poverty line An arbitrary international real income measure, usually expressed in constant dollars (e.g., $270), used as a basis for estimating the proportion of the world's population that exists at bare levels of subsistence.

Land reform A deliberate attempt to reorganize and transform existing agrarian systems with the intention of improving the distribution of agricultural incomes and thus fostering rural development. Among its many forms, land reform may entail provision of secured tenure rights to the individual farmer, transfer of land ownership away from small classes of powerful landowners to tenants who actually till the land, appropriation of land estates for establishing small new settlement farms, or instituting land improvements and irrigation schemes.

Macroeconomic stabilization Policies designed to eliminate macroeconomic instability.

Macroeconomics: The branch of economics that considers the relationships among broad economic aggregates such as national income, total volumes of saving, investment, consumption expenditure, employment, and money supply. It is also concerned with determinants of the magnitudes of these aggregates and their rates of change over time.

Market economy: A free private-enterprise economy governed by consumer sovereignty, a price system, and the forces of supply and demand.

Market failure: A phenomenon that results from the existence of market imperfections (e.g., monopoly power, lack of factor mobility, significant externalities, lack of knowledge) that weaken the functioning of a free-market economy--it fails to realize its theoretical beneficial results. Market failure often provides the justification for government interference with the working of the free market.

Market-friendly approach: World Bank notion that successful development policy requires governments to create an environment in which markets can operate efficiently and to intervene selectively in the economy in areas where the market is inefficient (e.g., social and economic infrastructure, investment coordination, economic "safety net").

Market mechanism: The system whereby prices of stocks & shares, commodities or services freely rise or fall when the buyer's demand for them rises or falls or the seller's supply of them decreases or increases.

Market prices: Prices established by demand and supply in a free-market economy.

Merchandise exports and imports: All international changes in ownership of merchandise passing across the customs borders of the trading countries. Exports are valued f.o.b. (free on board). Imports are valued c.i.f. (cost, insurance, and freight).

Merchandise trade balance: Balance on commodity exports and imports.

Microeconomics: The branch of economics concerned with individual decision units--firms and households--and the way in which their decisions interact to determine relative prices of goods and factors of production and how much of these will be bought and sold. The market is the central concept in microeconomics.

Middle-income countries (MICs): LDCs with per capita income above $785 and below $9,655 in 1997 according to World Bank measures.

Mixed economic systems: Economic systems that are a mixture of both capitalist and socialist economies. Most developing countries have mixed systems. Their essential feature is the coexistence of substantial private and public activity within a single economy.

Monetary policy: The regulation of the money supply and interest rates by a central bank in order to control inflation and stabilize currency. If the economy is heating up, the central bank (such as RBI in India) can withdraw money from the banking system, raise the reserve requirement or raise the discount rate to make it cool down. If growth is slowing, it can reverse the process - increase the money supply, lower the reserve requirement and decrease the discount rate. The monetary policy influences interest rates and money supply.

Money supply: the total stock of money in the economy; currency held by the public plus money in accounts in banks. It consists primarily currency in circulation and deposits in savings and checking accounts. Too much money in relation to the output of goods tends to push interest rates down and push inflation up; too little money tends to push rates up and prices down, causing unemployment and idle plant capacity. The central bank manages the money supply by raising and lowering the reserves banks are required to hold and the discount rate at which they can borrow money from the central bank. The central bank also trades government securities (called repurchase agreements) to take money out of the system or put it in. There are various measures of money supply, including M1, M2, M3 and L; these are referred to as monetary aggregates.

Monopoly: A market situation in which a product that does not have close substitutes is being produced and sold by a single seller. See also monopsony.

Multi-Fiber Arrangement (MFA) A set of nontariff bilateral quotas established by developed countries on imports of cotton, wool, and synthetic textiles and clothing from individual LDCs

Multinational corporation (MNC) An international or transnational corporation with headquarters in one country but branch offices in a wide range of both developed and developing countries. Examples include General Motors, Coca-Cola, Firestone, Philips, Volkswagen, British Petroleum, Exxon, and ITT. Firms become multinational corporations when they perceive advantages to establishing production and other activities in foreign locations. Firms globalize their activities both to supply their home-country market more cheaply and to serve foreign markets more directly. Keeping foreign activities within the corporate structure lets firms avoid the costs inherent in arm's-length dealings with separate entities while utilizing their own firm-specific knowledge such as advanced production techniques.

National debt: Treasury bills, notes, bonds, and other debt obligations that constitute the debt owed by the federal government. It represents the accumulation of each year's budget deficit
Public debt: Borrowing by the Government of India internally as well as externally. The total of the nation's debts: debts of local and state and national governments is an indicator of how much public spending is financed by borrowing instead of taxation

Newly industrializing countries (NICs) A small group of countries at a relatively advanced level of economic development with a substantial and dynamic industrial sector and with close links to the international trade, finance, and investment system (Argentina, Brazil, Greece, Mexico, Portugal, Singapore, South Korea, Spain, and Taiwan).

Nongovernmental organizations (NGOs) Privately owned and operated organizations involved in providing financial and technical assistance to LDCs. See foreign aid.

Nontariff trade barrier: A barrier to free trade that takes a form other than a tariff, such as quotas or sanitary requirements for imported meats and dairy products.


Official development assistance (ODA) Net disbursements of loans or grants made on concessional terms by official agencies of member countries of the Organization for Economic Cooperation and Development (OECD).

Official exchange rate: Rate at which the central bank will buy and sell the domestic currency in terms of a foreign currency such as the U.S. dollar.

An Open economy is an economy that encourages foreign trade and has extensive financial and nonfinancial contacts with the rest of the world in areas such as education, culture, and technology. See also closed economy.
The opportunity cost is the implied cost of not doing something that could have led to higher returns.

Organization for Economic Cooperation and Development (OECD):An organization of 20 countries from the Western world including all of those in Europe and North America. Its major objective is to assist the economic growth of its member nations by promoting cooperation and technical analysis of national and international economic trends.

Overvalued exchange rate An official exchange rate set at a level higher than its real or shadow value--for example, 7 Kenyan shillings per dollar instead of, say, 10 shillings per dollar. Overvalued rates cheapen the real cost of imports while raising the real cost of exports. They often lead to a need for exchange control.

Perfect competition: A market situation characterized by the existence of very many buyers and sellers of homogeneous goods or services with perfect knowledge and free entry so that no single buyer or seller can influence the price of the good or service. 

Performance budget is a budget format that relates the input of resources and the output of services for each organizational unit individually. Sometimes used synonymously with program budget. It is a budget wherein expenditures are based primarily upon measurable performance of activities.

Political economy The attempt to merge economic analysis with practical politics--to view economic activity in its political context. Much of classical economics was political economy, and today political economy is increasingly being recognized as necessary for any realistic examination of development problems.

Portfolio investment Financial investments by private individuals, corporations, pension funds, and mutual funds in stocks, bonds, certificates of deposit, and notes issued by private companies and the public agencies of LDCs. See also private foreign investment.

Poverty gap: The sum of the difference between the poverty line and actual income levels of all people living below that line.

Poverty line: A level of income below, which people are deemed poor. A global poverty line of $1 per person per day was suggested in 1990 (World Bank 1990). This line facilitates comparison of how many poor people there are in different countries. But, it is only a crude estimate because the line does not recognize differences in the buying power of money in different countries, and, more significantly, because it does not recognize other aspects of poverty than the material, or income poverty.

Price: The monetary or real value of a resource, commodity, or service. The role of prices in a market economy is to ration or allocate resources in accordance with supply and demand; relative prices should reflect the relative scarcity of different resources, goods, or services.

Price elasticity of demand: The responsiveness of the quantity of a commodity demanded to a change in its price, expressed as the percentage change in quantity demanded divided by the percentage change in price.


Price elasticity of supply: The responsiveness of the quantity of a commodity supplied to a change in its price, expressed as the percentage change in quantity supplied divided by the percentage change in price.

Quota: A quota is a physical limitation on the quantity of any item that can be imported into a country, such as so many automobiles per year. Also a method for allocating limited school places by noncompetitive means--for example, by income or ethnicity.

Repo rate: This is one of the credit management tools used by the Reserve Bank to regulate liquidity in South Africa (customer spending). The bank borrows money from the Reserve Bank to cover its shortfall. The Reserve Bank only makes a certain amount of money available and this determines the repo rate. If the bank requires more money than what is available, this will increase the repo rate - and vice versa.

Revenue expenditure: This is expenditure on recurring items, including the running of services and financing capital spending that is paid for by borrowing. This is meant for normal running of governments' maintenance expenditures, interest payments, subsidies and transfers etc. It is current expenditure which does not result in the creation of assets. Grants given to State governments or other parties are also treated as revenue expenditure even if some of the grants may be meant for creating assets. Subsidy : Financial assistance (often from the government) to a specific group of producers or consumers.

Revenue receipts: Additions to assets that do not incur an obligation that must be met at some future date and do not represent exchanges of property for money. Assets must be available for expenditures. These include proceeds of taxes and duties levied by the government, interest and dividend on investments made by the government, fees and other receipts for services rendered by the government.

Stabilization policies: A coordinated set of mostly restrictive fiscal and monetary policies aimed at reducing inflation, cutting budget deficits, and improving the balance of payments. See conditionality and International Monetary Fund (IMF).

Subsidy: A payment by the government to producers or distributors in an industry to prevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labor (as in the case of a wage subsidy). Examples are export subsidies to encourage the sale of exports; subsidies on some foodstuffs to keep down the cost of living, especially in urban areas; and farm subsidies to encourage expansion of farm production and achieve self-reliance in food production.

Tax avoidance: A legal action designed to reduce or eliminate the taxes that one owes.

Tax base: the total property and resources subject to taxation. See also tariffs.

Tax evasion: An illegal strategy to decrease tax burden by underreporting income, overstating deductions, or using illegal tax shelters.

Terms of trade The ratio of a country's average export price to its average import price; also known as the commodity terms of trade. A country's terms of trade are said to improve when this ratio increases and to worsen when it decreases, that is, when import prices rise at a relatively faster rate than export prices (the experience of most LDCs in recent decades).

Treasury bill: A short-term debt issued by a national government with a maximum maturity of one year. Treasury bills are sold at discount, such that the difference between purchase price and the value at maturity is the amount of interest.

VAT: A form of indirect sales tax paid on products and services at each stage of production or distribution, based on the value added at that stage and included in the cost to the ultimate customer.

World Bank: An international financial institution owned by its 181 member countries and based in Washington, D.C. Its main objective is to provide development funds to the Third World nations in the form of interest-bearing loans and technical assistance. The World Bank operates with borrowed funds.

WTO: The World Trade Organization is a global international organization dealing with the rules of trade between nations. It was set up in 1995 at the conclusion of GATT negotiations for administering multilateral trade negotiations.